On The Morality of Profit

On The Morality of Profit

Years ago, I worked with a boutique ticket brokerage. They provided a concierge service for high-end clientele, and they marked up the inventory to do so.

Every now and then, one of the customers would ask about their fees. The reps never knew how to handle it, other than to murmur, “Well, it’s how we keep the lights on….”

They clearly lacked the ability to articulate a value prop, but that’s beside the point.

They had a discomfort with making money.

This has come up again in another industry where I serve a client. Their compensation is commission driven, and there’s often discomfort admitting they make a commission. Some in that industry are afraid of their clients knowing how much they make, and even feel they need to contribute to said clients’ foundations.

Perhaps to assuage some guilt?

Maybe because there’s a fear they aren’t worth it?

In any case, the value of profit and profitability has been on my mind for a couple of weeks.

 

 

Let’s think about profit. It’s effectively money left over after paying to deliver a good or service to a customer who wanted or needed said good or service.

We need not complicate it any more than that.

Profit is good, and thus moral.

At its core, profit aligns incentives. If I, as a buyer, know you, as a seller, are making money, and not just covering your costs, when you sell me something. I’m more motivated to inspect your delivery. You are choosing to be held to a higher standard because you aren’t merely doing charitable work. You aren’t just covering your costs. You’re getting paid.

And so I can expect more of you.

And I should. It’s my money I’m paying you, and it’s benefitting you financially. You aren’t breaking even. You should be covering all costs of serving me, as well as your cost of capital, and then pocketing some money.

Because I can expect more of you, you’re incentivized to do a better job. To invest in service, or R&D, or delivery. Because you make money on me, you should want to deliver more. To earn my respect, and ideally, my loyalty.

We both are forced to examine the relationship repeatedly. Call that accountability.

Just because people don’t do it doesn’t mean they shouldn’t do it.

Profit is the reward for buyer and seller playing their roles well. It motivates us to do so.

Profit says, “You don’t have to choose me, but if you do, it’s because I’m worth it.”

Profit again says, “I don’t have to sell to you or service your account, but if I do, it’s because you’re worth it.”

We value each other enough to make that exchange.

We invest in the relationship.

Isn’t that what tipping is in a restaurant?

 

 

Given human nature, profit is needed to align those incentives.

Ultimately, this is probably the rub of the debate.

What are people like? What are we about? What drives us, and how will we behave in a variety of situations?

If you haven’t thought long and hard about this, and considered the course of human history, my argument will fall on deaf ears.

“But people should help each other.”

“People should serve because they can.”

Perhaps to both. But human nature says people will often do what’s in their best interest quite often. How they define that differs from person to person, and many examples in everyone’s life exist where they do things outside of their own personal interest. We have needs. Shelter. Food. Security. Relationships. And we invest in protecting those.

“People shouldn’t want more.” (Maybe the most debatable point.)

“People should ______________.”

Maybe. I don’t know.

But I know what people do. They fight over resources. They fight to provide for their own. They seek to protect themselves.

And commerce brings them together. To move forward together.

Profit drives commerce.

Sounds like a great piece of foreign policy, huh?

 

 

You’re likely thinking of exceptions to this profit discussion. What is the exception?

It’s monopolies.

It’s government coercion.

It’s immoral and unethical business practices denying a competitive field.

You see, competition benefits the customer, and for the more thoughtful business, the seller, as well. Competition is moral. But that’s another article.

It’s an organization with network effect, who has locked you in, doing something without your consent or awareness, their terms of use be damned.

It’s price gouging when they can.

It’s denying you a great product at low prices because they can manipulate regulatory or governmental bodies (or even media marketing) to smear the product. And then sell you something else at much higher prices.

It’s Martin Shkreli and those like him.

Beware allowing the exception to cloud your thinking about the majority of profit-making enterprises.

The kid cutting your grass.

The girl babysitting your kids.

The year-round swim league.

The mechanic changing your oil, rotating your tires, and selling you a new air filter.

Your CPA.

Your attorney.

Your business.

The businesses you buy from.

This is where we mostly live, and this is where we do business.

For all of us, profit is good because it is, in most instances, moral.

 

 

You have permission to make money. You have permission to profit above your costs. You have permission to make a lot of money.

You also have permission to serve customers well. Or not.

And they have permission to buy from you. Or not.

Feel free to email me at adam@thenorthwoodgrp.com.