The Power of “X”
The Single Measurement to Understand Your Businesses Economic Model
What’s the single most important gauge on the dashboard of your economic engine?
If you could identify a single Economic Indicator, what would be your Profit Per “X”?
It may not be as obvious as you think, but the question is designed to look closer under the hood of what’s propelling your business's economic model. The purpose is to gain a deeper understanding of the core to ensure you're going in the direction you're optimizing for.
Why This Matters
“X” is not just a number, it’s a lens through which you define what you're optimizing for and highlights the strategic decisions that clarify your priorities, align your team, and ensure you’re working directly toward what matters in your economic model.
The true value of this approach isn’t just in maximizing profit, it’s in reinforcing what makes your business competitive and irreplaceable. The right "X" often reflects more than financial outcomes; it captures your unique value proposition and creates adaptability in uncertain times, allowing you to pivot when market conditions shift while staying aligned with your core metric. Without asking this question, businesses risk chasing vanity metrics that erode focus and profitability. The “Profit per X” question is more than an exercise, it’s a safeguard for sustainable, purpose-driven growth.
Examples
I like examples, so let's look at a few so it resonates deeper and illustrates the profound impact of simplicity and understanding the inner workings of a business can have for us.
Southwest Airlines
What Competitors Do: Many airlines focus on Profit Per Passenger Mile, which measures revenue generated per mile flown by each passenger.
Southwest Profit per X: Profit per Airplane
Key Insight: Southwest realized that maximizing the utilization of each airplane was a more effective way to drive profitability (keeping planes in the air as much as possible, with quick turnarounds, efficient scheduling, buying all the same planes to have spare parts). By focusing on optimizing plane utilization, Southwest aligned operational decisions—such as simplifying its fleet and minimizing turnaround time—to maintain efficiency and profitability.
Economic Engine: Maximizing plane usage to drive down operational costs and increase revenue generation.
Leverage Points: Aligned decisions around fleet standardization, scheduling, and maintenance to ensure planes spent more time in the air.
"We’ve always been focused on keeping our costs low so we can pass the savings on to our customers. But we also focus on maximizing the use of our airplanes, which gives us a better return on investment.
Herb Kelleher, Co-founder and Former CEO of Southwest Airlines
Takeaway: Identify the "economic machine" in your business, be it equipment, vehicles, or teams, and focus on maximizing its use and efficiency.
Source: Southwest Airlines: 40 Years of Profitability (HBS)
Costco
What Competitors Do: Many retailers focus on Profit per Product or Profit per Transaction.
Costco Profit per X: Profit per Member
Key Insight: Costco chose to prioritize Profit per Member, understanding that loyal, repeat customers (who see value in the membership) drive long-term profitability.
Economic Engine: Membership fees provide predictable income, allowing Costco to maintain low prices on products and operate at thin margins.
Leverage Point: The greater the perceived value of the membership, the more often members return to shop, generating higher overall profit for the business.
"At Costco, we don't just sell products. We sell membership, and it's that membership that drives everything—loyal customers are the core of our business model."
Craig Jelinek, CEO of Costco
Takeaway: With subscription models or repeat customers, consider focusing on customer lifetime value (CLV) over one-time transactional profit. Building strong customer loyalty can be a more sustainable driver of growth than chasing quick sales.
Source: Costco’s Business Model and Strategy (Forbes)
Fannie Mae
What Competitors Do: Many might measure Profit per Mortgage, focusing solely on the volume of mortgages.
Fannie Mae Profit per X: Profit per Mortgage Risk Level
Key Insight: Fannie Mae recognized that understanding and pricing risk was the true profit driver, as it enabled them to balance higher-risk mortgages with safer ones and still be profitable. Mastery of risk assessment and pricing (accurately pricing and bundling mortgages based on risk).
Economic Engine: Selling insurance on mortgage bundles and managing the spread on risk.
Leverage Point: The ability to price risk correctly allowed Fannie Mae to dominate the market while minimizing losses, turning risk management into a competitive advantage.
Takeaway: Identifying your core competency, whether it's pricing, customer segmentation, or operational efficiency, is critical. Instead of chasing generic metrics like profit per sale, focus on what you do best and optimize that area to build a sustainable edge.
Source: Fannie Mae Strategic Plan (Federal Housing Finance Agency - FHFA)
McDonald’s
What Competitors Do: Many fast-food chains focus on Profit per Burger Sold.
McDonald’s Profit per X: Profit per Franchise Location
Key Driver: McDonald’s recognized that Profit per Franchise Location—driven by real estate value and the success of franchise operations—was a better long-term profit driver. Real estate selection and operational scalability (how valuable the real estate is and the profitability of each franchise location).
Economic Engine: McDonald's owns the land on which many of its franchise locations operate and earns rent from franchisees in addition to sales from their own locations.
Leverage Point: By owning prime real estate in high-traffic locations and ensuring the success of their franchisees, McDonald’s established a scalable, high-margin business model.
"Our strategy is to leverage the power of our real estate and franchisees. It’s not just about selling burgers—it’s about making each location as profitable as possible."
Steve Easterbrook, Former CEO of McDonald’s
Takeaway: If you have physical locations or partnerships, consider whether focusing on the profitability of each location or unit could provide more sustainable growth than simply chasing product sales.
Source: Business Insider on McDonald's Strategy
Summary: The Power of “X”
The key takeaway is to think strategically about where your business generates value. Instead of focusing on obvious surface-level metrics, ask deeper questions to identify the key drivers of profitability. By optimizing your Profit per X, you can unlock growth, drive efficiency, and create a sustainable competitive advantage.
