Is Making a Profit Good for Your Business
If I were to ask you to identify the main purpose for your organisation’s existence, I’m sure I would receive a plethora of answers.
You might say it is to provide a solution or service that solves a problem.
Or to give great customer service. Or to help people to save money.
These are all worthy outcomes of having a business, but I would suggest that the number one purpose of a business is to make a profit (or at least to cover its costs if it is a non-for-profit).
There is wisdom to be found in scripture, given, ironically by a doctor and not an entrepreneur. The writer of the gospel of Luke, in Chapter 14, verse 28 says, “But don’t begin until you count the cost. For who would begin construction of a building without first calculating the cost to see if there is enough money to finish it?”
How does this relate to modern business?
When I was the general manager for a car leasing company back in the late 1990s, I came across an interesting phenomenon. The reality of the situation surprised me to be honest.
Our service offering was simplistic. The client chose a vehicle that she wanted to drive, determined how long she wanted the car and estimated the annual mileage that she would drive.
We offered her a monthly lease rate that would allow our company to receive an income, own the car at the end of the lease period, and (hopefully) make a profit in the process.
So let me put a small twist in this tale….
When we purchased in bulk, we received a side benefit – in the form of a volume related discount from our supplier! This meant that we could either reduce our leasing cost or make more profit on each vehicle.
One day when I was told that we had just placed an order for eleven vehicles (one more than I was expecting). It turned out that we had received an enquiry from a solo-preneur—let’s call her Josephine Accountant—for exactly the same model vehicle as our largest client who needed ten.
The good news was that we would now receive an even bigger discount from our supplier.
So when it came to calculating the lease price per vehicle, whom do you think received the cheaper monthly lease price?
If you said emphatically, “Your largest client!” you’d think that the answer was simple. Right?
Wrong! The answer was that Josephine Accountant received the ‘cheaper’ deal.
“How could that be?” your curious mind enquires.
The answer is a lot simpler than you would imagine….
The value of service….
When our largest client ordered its vehicles, it was looking for a high level of service. Vehicles would be regularly serviced. We took the time to organise that for the client. Accidents outside of business hours would be handled by a dedicated team of customer service reps available 24 x 7, answering calls within three rings to handle any enquiry or issue that occurred.
Josephine Accountant, on the other hand, had to get that organised for herself.
Why does this happen?
When you lead with price, the likelihood is that your clients will shop around, so the concept of loyalty becomes a thing of the past, and profits are paper thin. The business model is subject to volume. And fluctuations make it challenging to innovate and maintain pace with the competition.
In the case of car leasing, Josephine Accountant was a typical buyer who was motivated by price. Her decision-making process was heavily skewed towards fitting it into her (modest) budgets. She would shop around until she found the ‘best price’. For our company to sell to her, we had to meet the market rates.
But to meet the rates, something had to give—in this case, it was service.
The other extreme on the scale is the trusted advisor.
In this role, the focus is on serving the client and adding value to the transaction. A trusted advisor will be focused on understanding his or her client’s long-term business goals, and providing the services worth paying a premium for.
This focus translates to client loyalty, healthy profits, and raving fans.
As a leader, I want you to understand and embrace this Key: “Making A Profit Is Good”. If you can articulate this philosophy within your organisation, you will stay in business.
And, as Harper Lee said, “Many receive advice, only the wise profit from it.”