We need to talk about profit. Profit is a good thing for business, for non-profits, for government. Without profit no one has a job. Without profit we are in deficit, with no positive cash flow, and everything then just gets worse.
Profit is a good thing, it drives our economy and keeps people employed, it allows organisations to invest in their people, their systems and process and the experience their customers receive.
So why don’t we talk about profit? Why has profit got such a stigma?
First let’s define what profit is. It is a financial gain.
If I buy a car for $5,000 and sell it for $7,000, I tell myself I made a $2,000 profit. A financial gain, but even that gain has costs that I don’t often associate with the profit. Transaction costs, the cost of my time.
It’s the same in business. Profit is the financial benefit gained from the activity of the business.
The difference between the revenue, income less all the costs associated with the business activity – wages, operations, marketing, taxes etc. All businesses need profit or you go out of business. Businesses have to make a profit or they cannot continue to do what they do for their customers.
But we don’t talk about profit, we treat it as a dirty word.
In the media
Typically, when profit is used in the media is used in a negative context.
Take for example the Choice, the consumer advocacy group in Australia. Each year Choice put out a List of “Shonkys”, warning consumers that these products, services or organisations are shonky, and you should avoid them.
Financial services group AMP was awarded a Shonky this year for their superannuation product.
The headline, “For putting profit before the customer”.
The word Profit used in a negative context. It’s like profit is shameful, don’t talk about. Now, AMP have allegedly done a whole bunch of shonky things, such as advising customers to cancel their insurances, then sell them new products (so some individuals pick up commissions). With the lowest customer satisfaction ratings for superannuation and more that million inactive accounts that are still attracting fees. Shonky stuff indeed. The issue here is short term rewards for individuals at the company, and the failure to deliver any value for the customer.
The negative use of the term Profit in other news is often a little more subtle.
For example, Myer made a profit even though sales were down due to (mainly) implementing a new staffing model. BHP doubles its profit mainly because the 2015 Samarco dam collapse in Brazil, didn’t cost them as much as they forecast.
Organisations need to profit (or surplus) to exist. To continue making a different in the world, each organisation needs to make a profit.
I have collaborated with lots of small businesses, that are owned by people in the business working alongside employees. One thing I have always found curious is that these businesses do not openly talk about profit. They will talk about sales and revenue, but profit appears to be a taboo subject. It’s as if, “we know the owner is making lots of money out of us, but we don’t talk about”.
If the owner is not making a decent profit from all their effort, risk and sleepless nights, then no one has a job. These businesses would benefit from openly talking about how to improve profit, through enhancing the mutual exchange of value with their customers.
When the whole team understands the causal set of results that drives increased value for the business, then it’s a win all round.
When the whole team works towards a common goal, their collective minds and efforts achieve more.
Non-profits still have to make a surplus, if not, they cannot deliver the important services they provide.
PCYC Queensland for example, has an incredible role in the community to prevent crime through the development of youth. They ‘encourage social cohesion’ with 95% of their clubs in low-socio-economic areas and 60% in the top 50 high-need areas in Queensland.
They fund this important community role through donations and a range of fee-for-services. If their fee-for-service teams were not delivering value for customers, and not running at a profit, then the PCYC could not deliver the services that the community needs.
We talked about AMP Superannuation above, but many Industry Superannuation brands are non-profits. Sunsuper is one of them.
Sunsuper has switched from being a non-profit business to a profit-for-members business. On their website they say, our customers sit at the heart of everything we do. We have no shareholders to pay and profits are returned to members through low administration fees, product innovation and enhanced services. Profit in a good light. Profit for you. Profit shared with customers and members.
Profit is not a dirty word.
Profit is good. All organisations need to produce a profit, or surplus so they can continue to serve the customers that value what they do.
All organisations need to be designed for profit.
Not with the intent of getting ‘filthy rich’, but from the perspective of continuing to deliver value for their customers.
No matter if you are in business or a non-profit organisation or a government agency, you still need to fund what you do. The more profit or surplus you can create, the better the value you can deliver.
We all want to be in a business where we are doing something meaningful. Where we can follow passions and get new products or service ideas out to customer who value them. But we need to make some money out of this so we can fund it. The business needs to fund what we want to do. Even if our idea is charitable, we still need to fund the business, and earn a salary.
Learn more about the Profit by Design book here.
Profit by Design – the Key Principles.
Profit by Design – build your business for the experience economy.