Hidden Profit: Expenses are profits for someone

We usually bucket profit as what’s left over after paying all expenses. We neglect that those expenses are also profits for somebody.

Huh?

Consider an organization that doesn’t operate for profit, like REI Outdoor. It’s organized as a co-op, which is owned by customers who have signed up to be members (which is a lot like a rewards program at other businesses).

Since REI doesn’t earn a profit, you’d think it’d charge less.

It doesn’t.

Why? Because it has the same costs as any sporting goods retailer like costs of goods sold, real estate, labor, marketing, shipping, distribution, executive compensation and utilities.

Not being for-profit doesn’t change any of that.

While we don’t usually think of salary as a profit for the employee, it is. It may not be exorbitant profit, but it’s enough to keep them showing up.

What about the CEO? Google says he make $3 million a year. Pretty good for a guy who runs a co-op. Would you consider that he profits from REI?

In my view, profit is something that you would be reluctant to give up. Most of us would be reluctant to give up our pay, even if we don’t make $3 million, so we are profiting from what ever pays us.

The point of the post isn’t that REI may not be all it’s cracked up to be.

The point is to consider that more than just owners of for-profit companies earn profit. We all do.

With that lens, the world looks different as you will see profits in more places than you did before and places that we don’t typically associate with profit-seeking. For example, you will see it in charities, government, churches, schools, trade organizations, sports leagues, awards shows and all sorts of governing organizations like US Soccer or USA Gymnastics and even in mountain bike trail building.

Certainly, there could be more than monetary reasons for being involved such things. You might be an outdoor enthusiast and you really dig working at REI because of that. That’s cool. But, my guess is a lot fewer folks would show up to work for REI if they paid half or a third of competing retailers.

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