Good and bad profit, & how they define your future

After Kinko’s was bought from Paul Orfalea in 2000 by FedEx, Kinko’s went from a paragon of “good profit” to a great example of “bad profit”. Orfalea said “the Kinko’s he created “has been gone for a very long time.”

One small but significant change FedEx made was to change the payment process for copies from good profit to bad profit. GoDddy has the same “bad profit” disease.

In Orfalea’s Kinko’s, you grabbed a copy key, plugged it into a copier, made 10 copies and went to the counter to pay. If a copy or two was bad, they subtracted it at check-out from the total before charging you. The copies were high-priced, but the service was good, flexible, and customer-focused. I came back regularly to let Kinko’s make more “good profit” from me.

FedEx had a better idea that made me stop coming back. The FedEx Card. Here’s a review from a Kinko’s consumer written on

“All I had to do was make two copies and fax it…
but noooooooooooooooooooooo, it can’t be THAT easy. what happened to the old way at kinko’s when you used to walk in and grab the copy key counter and walk to your copy machine make copies…”

Now you have to buy credits on one of their payment cards, or use your credit card – they prefer and push the payment card option, because they are literally banking on:
– you not using all the credits, and making huge interest off the money you have given them.
– a significant minority of people losing or tossing the card before spending it to zero (like a gift card, the amounts that go unspent are staggering – pure profit).
– not wanting to stand in line to get a few pennies put back on your payment or credit card for a bad copy.

It’s all bad profit.

GoDaddy gives you “free privacy” when you buy five or more domains. No where on their website does it say “free privacy until you renew, then we’ll charge you.” No modifier anywhere – just “free privacy”: “Register or Transfer five domain names or more and get FREE PRIVACY – . No fine print anywhere on their website. If you don’t catch it when checking out, you’re paying for “free privacy” until you catch it on your credit card a couple years later. How many millions of dollars in bad profit have they made on this? I talked to customer “service and they actually said, “You know it will be charged on renewal because the statement doesn’t say it won’t.” How many lawyers did that take to come up with?

The Kinko’s payment card system and “free privacy” GoDaddy charges for probably bring millions in short-term profits to them. But it’s “Bad Profit”. Good profit makes me glad to come back and spend more money. Bad profit makes me know that I’ve been had up front and makes me want to find another solution as quickly as I can. I never want to go back if I can help it.

Nordstrom’s is famous for good profit. They charge more than others, but focus on making sure the customer is completely satisfied. And people happily go back and spend more money there then they would somewhere else, because they know Nordstrom’s really means it – the customer comes first.

Kinko’s and GoDaddy aren’t alone in bad profit. Lots of companies do everything they can to extract as much money from you as soon as they can, without regard for any future relationship. Blockbuster made a lot of bad profit on late fees until Netflix came along and didn’t charge late fees. Blockbuster took it on the chin.

And then there’s the airlines.

Not only are they charging for you to check a bag, without telling you, they are charging you both ways. There is nothing on the websites or in their marketing info that makes it clear that you are going to pay $100 for your golf clubs leaving home, and another $100 coming home. They are in survival mode, so trying to create long term relationships where people are glad to spend money with them doesn’t enter into their equation right now. But it’s a big contributor to the downward spiral of the industry. Hats off to Southwest for being the exception so far.

The bigger questions, though:

  1. Is there any bad profit in the way you work with your customers? Are you getting every penny you can from them up front without regard for building a long term relationship that could bring you profits for years to come?
  2. Is your offering built on good profit? Are you making people want to come back by treating them well up front and NOT taking every penny available?

Don’t be GoDaddy or FedEx. Create a business around good profit and customers will bring their friends the next time. Create one around bad profit and they will ask their friends for an alternative solution.

The Seven Stages of a Business & getting off the treadmill.

We identify Seven Stages that seem to apply all businesses. See what you think. Which stage is your business? What’s the ONE THING you need to do NOW to get to the next stage? Sure, there’s probably a number of things you could do, but what is the one thing you will do to move ahead?

1 Concept & Start-Up
Business Owners pour time & ideas into creating a new business & getting it off the ground via outside funds. “THIS IS FUN!”

2 Survival
Survival is everything; funds from “outside the business” drying up. Need to generate funds by urgently driving sales. “We burn a lot of fuel on take-off.” “I DIDN’T THINK IT WOULD BE THIS HARD!”

3 Subsistence
Business regularly breaking even. Business totally dependent on Business Owners for all functions. “I’M BREAKING EVENWONDERFUL!”

4 Stability (& Growth) by Hands-On
Business thriving; sales expanding. Business Owners – “hands-on” managers. Quiet desperation sets in. “MY BUSINESS OWNS ME!” CRAFTPERSON DOMINATES

5 Stability (& Growth) by Walking Around
Sales continue to expand rapidly and organization expands dramatically.
Owners operate on a basis of “management by walking around.” “I CAN TAKE VACATION, BUT STILL TIED TO MY BUSINESS.”

6 False Maturity – Mgt. In Place
Full-time management in place.
Business is thriving and only needs for the owners to give it vision and guidance. “I GOT PEOPLE IN PLACE – I’M GOING FISHING!”

7 Maturity – Mgt. in Charge
Business is thriving and only needs for the owners to give it vision. To complete “succession”, owners need to pass vision torch to a successor. “MY PEOPLE KNOW EXACTLY WHAT TO DO AND HOW TO DO IT. I’M FREE TO ENJOY THE LIFESTYLE I’VE CREATED FOR MYSELF AND MY FAMILY!”

KEY – The business will have high sale value because it doesn’t depend on you to run it. Succession is a reality.

Stage four is the most dangerous stage. It’s the first stage where you can have some minimum life. The urge to escape any future risk to get to the next stage keeps us on the treadmill for years if not decades. But stopping at this stage ensures you bought a job, not a company

Moving from one stage to the next is like climbing a cliff. You have to take some measured risk, get back on the cliff face, and climb to the next stage. The only reason it takes decades to get to Stage Seven is because we spend years at each stage before we get fed up enough to take a small risk, put out some extra effort, and get to the next level.

Stage Six is the second most dangerous stage. You’re so close to having a business that will run itself that you convince yourself you’ve already got one. If you go off and “play” at this stage, you will come back to a business that will have slipped back a few stages. Focus for just a little bit longer, and make sure someone else is giving day-to-day GUIDANCE to the business, and all you have to do is give it VISION.

If you have that person or persons in place, you’re at Stage Seven.

Congratulations – take the next month off with pay. They won’t miss you!