Profit is not a Dirty Word

I had a big presentation to do today for a client in my day job.  We’ve been downselected to the final bidder on a fairly significant contract worth about $30m over five years, so we’re just in final negotiations and sorting out the finer details of what the service is going to look like.

It’s kind of funny, you’d think after two or three months of meetings, bids, proposals and workshops that it would be easy to wrap up this kind of contract, but it surprisingly takes a long time as neither side really wants to give up any more inches than they already have throughout the process.

Today’s session was the first run through after the down selection and it was my task to walk the client and their consultants through the offer they accepted and give them a chance to call out points for clarification.

My part went well and I handed over to one of my colleagues to talk about an area of contention for clients in all of these kinds of deals – in simplistic terms, it’s the management overhead required run a large services contract and clients always find it “higher” than they’d like but when something goes wrong during the life of the contract, the client always looks to these management resources for “help”.

So needless to say, we see these types of objections a fair bit and are used to dealing with it.

This one was a little different as the client’s consultant who is responsible for finalizing the details and getting the contract signed took a far more adversarial and aggressive position than was probably required.

At one point, this particular individual said, “Look, let’s call it for what it is, these roles are just a big bucket of profit for you.”

I decided to stop the conversation at that point because it was going to quickly devolve into something unproductive.

As I walked back to our office by myself, I laughed at this individual’s comment about “bucket of profit”.  He made it sound like we didn’t deserve to have a profit.

Profit isn’t a bad thing.  That’s why we’re all in business.  We’re not doing this for the love of the game or to do our customers a solid.

When you run an online business, particularly where you provide services directly to customers, this “loathing of profit” crops up a surprising amount.

One that jumps out at me a few years back in our content business.  We had a person send us an email telling us all about this business, how he was doing really well with his online store and that he felt that if he now expanded his use of content he could attract new leads and do even better.

He told us what he was looking for and so we sent him a price for that amount of content on a recurring monthly basis.

About a day or two later I saw an email hit my phone from this person so I opened it up to see what his response was.  Normally for this kind of thing, we get one of three responses:

  1. “The price is great, let’s going, how do I pay?”
  2. “We’re going to shop around a bit and we’ll get back to you.”
  3. “Is there anything you can do about the price if we commit to longer term?”

This person though surprised me.  He said that categorically, our price was too high and that clearly we didn’t understand that the market was competitive and he could always just go elsewhere.  He then informed me that he could get his content done in the Philippines cheaper and that he didn’t think it was “appropriate” (his word) to charge more for native English speakers.

If that was all there was to his email, I would have laughed it off, told him to go use one of those other providers and best of luck.

But his last paragraph stunned me… I will literally copy and paste it for you.

“I think the profit margin on your offer is too high.  Tell me your costs, I’ll give you a 15% markup and the first batch I want at a 50% discount because based on your pricing models, I’m concerned the quality will be poor.  When can you deliver this to me because I need to get moving on this now?”

I won’t copy and paste my response because candidly, I used a fair bit of colourful language that is not family friendly.

This guy not only objected to me turning a profit at a rate that I wanted, he felt that I should be doing open book pricing with him and letting him set our margins at a level that he thought was “fair” based on nothing but his own stupid self-limiting beliefs.

The best part was, he was going to give us a 15% markup on our costs, but wanted the first batch at a 50% discount which meant we would have lost money on the work.

I didn’t even know how to respond to his association of our quality with our price, it was so utterly stupid I couldn’t muster a response.

The underlying problem was that he felt like our profit should be limited to what he thought was fair.  That’s not how things work – in a free market transaction, you can charge whatever you like and it’s up to the consumer to accept it or not, but it’s not ok for them to berate you for your profit expectation in your business!

As I said, if you’re thinking of becoming a freelancer or doing services work for customers in an online business, just remember that there are people who think that nobody else should be entitled to making a profit aside from them.  They have a monopoly on profit.

Don’t let this happen.  When a customer comes back and asks about price or if there’s anything you can do, that’s fair, it’s negotiation, that’s business.

But if you get the ones who start talking about your profit and what you’re entitled to earn, remember what I’m telling you and give them the flick with extreme prejudice.

You’ll thank me for it in the future.

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