Is your company addicted to bad profits?

Fred Reichheld argues in his new book titled, The Ultimate Question, Driving Good Profits and True Growth (HBS Press, 2006), that most companies are “addicted to bad profits” and that makes it hard for them to achieve real and sustained growth:

“A recent study by Bain & Company found that only 22 percent of the world’s major firms achieved real, sustainable growth of even 5 percent a year over the ten-year period from 1994 to 2004.”

Bad profits are defined as any profit earned at the expense of the customer relationship.  The logic is that if you don’t treat customers well, they will not only leave you at the first opportunity, they will also tell everyone they know, to do the same.  These “detractors” extract a huge financial toll on your company.

The other side of the coin is that if you do take good care of your customers and turn them into “promoters” then they will sing your praises to everyone they know and new customers will flock to you as a result.  Further, these new customers will be very profitable and loyal.

So far, this is not new information to most of us.  Here’s what’s new.  Mr. Reichheld and his colleagues at Bain & Company have figured out how to measure the quality of the relationships a company has with its customers. 

This is huge.  Pause, take a deep breath and ponder the ramifications…

No, we are not talking about that old satisfaction survey voodoo that everyone knows doesn’t help.  We are not talking about transaction surveys like you may get after buying something or calling technical support.  We are talking a predictive snapshot that very reliably predicts future customer behavior.

If you are willing to give up bad profits and pursue only good profits, you can then and only then, deliver real and sustainable growth. 

It will take a decade or more for this approach to work its way through the economy.  It will happen because it’s more profitable and we love profits.  You will know it has happened when you find investors and customers demanding to see audited Net Promoter Score (NPS) data.

This is also the beginning of the end of “sales” as we know it today.  The profession will vanish and be replaced by customer service…but that’s another story.

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