Profit is Proof of a Successful Past

Profit can be confusing. Your company's profit says more about what you did in the past than what it says about your future. Though looking at your profit regularly is very smart, it doesn't fully tell you what to do in the future. Profit is a lagging indicator of past successful decisions.

Let's use an example. Let's say you decide to implement a new marketing strategy, and you begin spending $5,000/month with a new marketing agency in November. Will you have more profit in November because you made that decisions? Uhm, no. You will actually have $5,000 LESS profit in November than when you made that decision. You are spending money now in hopes of making more money later. Now move forward exactly one year, and you find that your marketing strategy was very successful and that it begins to create brand new profit of $20,000/month by November of next year. That new profit of $20,000/month is a result of a decision you made in the past. Thus, profit is simply proving that past decisions were either good or bad. Of course, showing a Loss (the profit's nemesis), also tells you that you have been making bad decisions in the past.

So what do we do with the future? Profit (or Loss) has only proven our past decisions to be good or bad. But if we are experiencing profit, then we should legitimately keep doing what we have been doing in the past. Just keep in mind that the future is precarious, and what worked last year may not continue to work in the future. Similar to profit being a lagging indicator of what you've done right, Loss is also a lagging warning sign that could come too late. Don't let a lagging Loss come too late before you change courses with your business strategy.