Columbia House made a lot of money off people who forgot to mail back a card.
If you're old enough, you remember the deal: 12 CDs for a penny.
But then, you forget about it.
And the next month, your first full price (or more than full price) album shows up. And they keep coming.
It worked like crazy. In 1996, Columbia House did about $1.4 billion in sales.
But it's what you call bad profits.
Bad profits are when your income depends on stuff like confusing price schemes, trapping your customers, or pushing overpriced products.
For Columbia House, it worked in the short term. But it also generated a steady pile of complaints.
Then Walmart and Amazon started selling CDs cheap.
By 2001, record clubs' share of CD sales had roughly halved.
Then Napster. Then iTunes.
Every time a customer found an alternative, they jumped ship. Why wouldn't they?
Meanwhile, the company kept changing hands. Sony and Warner sold most of it to Blackstone. Then its rival BMG bought it. Then another investment firm.
Every owner squeezed out profits, but never bothered with finding a long-term solution. When DVDs took over, the DVDs went through the same machine.
By 2014, revenue was $17 million. The company filed for bankruptcy the next year.
To me, this shows something owners have to understand:
Every dollar you make off "bad profit" is borrowed.
Because in the long run, that customer is already gone.
TOGETHER WITH MY COMPANY BEDROCK QUALITY OF EARNINGS
Columbia House's revenue looked fine on the P&L. It just wasn't going to last.
That's the whole point of a Quality of Earnings report — not how much the business earned, but whether those earnings survive the year after you buy it.
Bedrock does them for $1M–$40M deals. Flat fee, 2–3 weeks, CPA-led.
Book a call → bedrockqoe.com/girdley
Put it into practice
The term "bad profit" comes from Fred Reichheld's book The Ultimate Question. He's a consultant at Bain, and came up with the system for Net Promoter Scores.
The point is, bad profits destroy your business in the long run by turning your customers into "detractors" — people who actually warn other people away from you.
If you own a business, it's worth considering:
How easy is it to cancel your product?
How easily can an unhappy customer get a refund?
How many fees and auto-renewals are you charging?
Or, in a single question: If a customer read their bill line by line, would they thank you or be annoyed?
Good luck out there.
Michael
P.S. There's a ton more I didn't tell here, so I did a full deep dive video on the Columbia House story.
It's one of my members-only videos, where I put some of the more niche topics I like to cover — healthcare, supermodels, fentanyl… you know, the fun stuff.
(Plus, a cheap paid tier helps pay for my amazing video team.)
You can join on YouTube here or on Facebook here.
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