Good and bad profit, & how they define your future

Categorized | Featured, Finance

Good and bad profit, & how they define your future

Written by: Charles Blakeman | Posted on 03 November 2009. Tags: cashflow, money management, profit

After Kinko’s was bought from Paul Orfalea in 2000 by FedEx, Kinko’s went from a paragon of “good profit” to an unfortunately great example of “bad profit”. In recent comments, Orfalea said that Kinko’s used to be about “shared power, shared profits, and shared knowledge,” but that 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. 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, you took that up with you and they subtracted it 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 www.yelp.com:

“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 banking on you not using all the credits at once and making huge interest off the money you have lent them. They are also banking on 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). And if you make 10 copies and one is bad, they’re banking on you not wanting to stand in line to get a few pennies put back on your payment or credit card. More bad profit.

The Kinko’s payment card system probably brought millions in short-term profits to FedEx. 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 isn’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.

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This post was written by:

Charles Blakeman - who has written 54 posts on Business Blogs.

Mr. Blakeman advises companies from $100,000 to $100 million. He has extensive experience leading and growing companies. Mr. Blakeman is a lifetime business practitioner who now uses his experience to help other companies create success. He is a regular convention speaker, trade journal contributor, and non-profit board member.

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14753 Responses2009-11-03+02%3A57%3A31Charles+Blakeman to “Good and bad profit, & how they define your future”

george says:

November 10, 2009 at 1:31 pm

Mr. Blakeman,

There are several incorrect statements in your article:

- The move from key counters to the electronic payment system of today was actually to reduce the huge amount of theft (thereby to increase profits) of the easily manipulated system.

- The key card system we use today is very strictly regulated, much more than the gift cards at major retailers. Funds on those cards are essentially held in escrow. They cannot be put on balance sheets as profit until they are actually used. Cards that are lost, recycled with money on them, etc have to go through a fairly long and involved accounting process before it can hit a balance sheet. You can’t just pencil in X number of dollars as “lost and found cash” and expect the IRS to give it a rubber stamp approval.

- Customers always have the option to use a courtesy card, which works the same way as a counter, and then bring it up to a cashier and pay.

- Any team member with register access can always back out or refund bad copies.

- The electronic system was actually at the request of customers who hated waiting for key counters, couldn’t track their self serve spending habits and wanted to just be able to go into any store, make a copy and leave. The system actually put more team members out in the self serve area to assist customers.

I will agree that the Fedex/Kinko’s marriage has been rocky to say the least. It almost reminds me of one of those elder-arranged marriages where the couple takes years if ever to figure out the strengths, weaknesses, likes and dislikes of their partner. Hopefully the customer service aspect is one thing that has not suffered, unlike a myriad of other things.

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Chuck Blakeman says:

November 10, 2009 at 4:19 pm

George,

I notice you didn’t mention Orfalea’s statement: “Orfalea said that Kinko’s used to be about “shared power, shared profits, and shared knowledge,” but that the Kinko’s he created “has been gone for a very long time.” Probably because it’s the opinion of the expert.

I also noticed your defensiveness in saying “There are several incorrect statements in your article”

Let’s go through them and see if any of them are incorrect, or just a different view of the same facts.

“- The move from key counters to the electronic payment system of today was actually to reduce the huge amount of theft (thereby to increase profits) of the easily manipulated system.”

Later you say it was created because consumers asked for it. Which is it? And that all sounds good, but makes no sense – either you count the clicks on a simple counter like you used to, or you count them on a pre-funded key card or credit card. Either way you’re counting aren’t you? The difference is with the new system you put the inconvenience of getting a refund on the consumer instead of on FedEx. There is nothing incorrect about my statement; I just see the same facts differently than you.

“- The key card system we use today is very strictly regulated, much more than the gift cards at major retailers…You can’t just pencil in X number of dollars as “lost and found cash” and expect the IRS to give it a rubber stamp approval.”

OK, seriously – whether you take the profit 10 seconds after I lose my pre-funded card, or 18 months later, you still take that profit. Who said you take it quickly or easily? You still take it. Again, nothing incorrect in my statements – just a different view of the world than yours.

“- Customers always have the option to use a courtesy card, which works the same way as a counter…”

I was in a Kinkos (Highlands Ranch, CO) last week for the first time in years (nothing else was close and it was an emergency), and I asked for a courtesy card and was told to use my credit card. Hmmm…

“- Any team member with register access can always back out or refund bad copies.”

Did I say anywhere that this couldn’t happen? What I believe I said was “they’re banking on you not wanting to stand in line to get a few pennies put back on your payment or credit card.” Nothing incorrect here, just a different view of the world than yours again. And a much inflated profit outcome for FedEx than the previous system.

“- The electronic system was actually at the request of customers who hated waiting for key counters, couldn’t track their self serve spending habits and wanted to just be able to go into any store, make a copy and leave.”

This one is a laugher. First of all, it contradicts what you said to begin with, that this system was put in place because of theft. Secondly, I work with hundreds of small business people a year to help them grow their business and the biggest problem they all have in common is they don’t watch their numbers at any level. Most of them don’t even have idea what their net profit is month to month or even for the whole year. The idea that FedEx received so much pressure from their clients to help them track a few dollars a month in copies that they had to change their whole system is stretching your credibility. I can’t get them to read a balance sheet and you guys changed your whole system so they could track copies down to the penny? Very altruistic of you.

By the way – that original system worked really well for years and years and provided incredible profit margins for Orfalea, so much so that you guys gave him an offer he later openly and often wished he would have refused. The new system is simply bad profit that has driven away a lot of formerly loyal Kinkos users like myself.

Unless you can share some facts that say otherwise, we’ll have to agree that we see the same facts a very different way.

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Sid says:

March 4, 2010 at 11:26 am

It’s similar to those modern parking meter where you buy ticket from the meter and put it in your car.

The old way was convenient, I park, lock my car, and put some coins, then that’s it, I walk away do my thing.

With ‘modern’ parking meter: I park, walk to the meter, put some coins, wait till the ticket is printed (and gotta be careful lest the ticket is blown by wind!), walk back to my car, put the ticket where it’s visible from outside, then lock my car. Who says that we are more and more efficient?

Then the next person has to buy their own ticket instead of using the parking even though I have paid for it. It might still have an hour paid, but that’s gone to bad profit.

Bad profit, bad profit, bad profit all over it.

They only got away because they’re the city council and there’s no other option. If this is a business and there’s a competitor, I can guarantee they’ll go bankrupt (providing the government doesn’t bail them).

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