How to Earn ‘Good’ Profits and Avoid ‘Bad’ Ones

Most business owners consider a profit a profit. Those profits might be higher than expected or lower than expected, but all profits are generally believed to be “good” ones.

Jeff Sauro – an expert in statistics and pioneer in assigning numbers to “customer experience” – begs to differ. He argues that profits made on customers who are having a poor experience with your product or service can come back to haunt you later on.

“Nobody likes to pay for a subpar or overpriced product, or for underwhelming service,” says Sauro. “When one of your customers is forced to do so anyway, you’re making bad profits.”

As just one example, we’ve all had that experience when paying the check at a restaurant after receiving terrible service and mediocre-at-best food. While we handed over the money owed, we certainly weren’t happy about it, and definitely not eager to repeat the experience. Any profit the restaurant made on that transaction was a “bad” profit.

The same applies to virtually all types of businesses. Customers have choices and next time they may choose your competition. Plus, it only takes a few seconds for an unhappy customers to log into a social media account and share with the world just why others shouldn’t do business with you.

The key to avoiding this is measuring and understanding customer behavior, and making business decisions based on what you’ve learned. Here’s a five-step process suggested by Sauro, author of Customer Analytics for Dummies (Wiley, 2015):

Good & Bad Profit1. Determine what portion of your profits is “bad.” One quick way to do this is to survey customers with a single question: How likely are they to recommend you (or your product or service) to a friend, colleague or family member? By matching up responses with revenue derived from those customers, you can get a rough idea of the revenue (and profit) you are getting from customers who are not particularly satisfied.

2. Uncover why those profits are bad. Chances are, you already have an idea of why customers might be dissatisfied. But it’s always a good idea to go directly to the source before making changes. Ask customers what they think could be improved. Make the questions open-ended (not multiple choice) so customers are free to say what they feel. And pay special attention to the answers that are the most uncomfortable.

3. Make the easiest corrections first. By attacking the most obvious solutions first, you start the ball rolling toward positive change. If you tackle too many changes at once you’ll get overwhelmed. According to Sauro, these are the four most common sources of bad profits:

  • Quality: Your product or service isn’t reliable or doesn’t work as expected.
  • Value: The price relative to what customers receive generates a lot of dissatisfaction.
  • Utility: Your product or service doesn’t offer all of the features that customers need.
  • Ease of use: If what you sell is hard to use or frustrating, customers won’t be happy.

4. Begin making bigger strategic adjustments: After you’ve made some quick fixes, start looking for long term solutions. This will be harder because it often involves adjusting price, quality and features to meet customer expectations. But then again, that’s what usually separates best-in-class companies from the rest – the ability to make changes based on results that have been measured (data) and analyzed.

5. Stop selling to perpetually dissatisfied customers. So what happens after you’ve addressed as many causes of bad profits as you reasonably can? How do you handle those remaining detractors you just can’t seem to satisfy? “While it might seem crazy,” says Sauro, “in some cases, getting rid of mismatched customers may help improve your reputation and increase profits in the long run.” Some customers are determined to be unhappy. And you simply may not be equipped to give others the product or service they need. In such cases, you can apologize for not meeting their expectations and refer them elsewhere.

In any case, you should also take a fresh look at your marketing and branding and make sure that how you are positioning yourself is geared toward attracting customer segments that are a good fit, for generating good profits.

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About the Author

Daniel Kehrer, headshotDaniel Kehrer, Founder & Managing Director of BizBest Media Corp., is a nationally-known, award-winning expert on small and local business, start-ups, content marketing, entrepreneurship and social media, with an MBA from UCLA/Anderson. Read more of Daniel's tips at, follow him at and connect on LinkedIn at
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