Are You Losing Money By Calculating Margins Wrong?

I spent time on Friday helping a client update spreadsheets and Excel reports that used an incorrect formula to calculate the margin on bids for construction jobs. While this particular client was looking for a margin of 25%, he was actually getting one closer to 20%. On a $100,000.00 bid, that can be the difference between profit and disaster.

I see sellers new to retailing make this same mistake over and over again.

The seller wants a “mark up” of 30%

So they take their cost (the wholesale price), multiply that by 30% and add the result to the wholesale cost to find the retail, or selling price.

Wrong!

You can certainly find a retail price that way, but it won’t give you a 30% margin. The confusion stems from

  1. Confusion about calculating percentages
  2. The difference between margins and mark ups

YOUR MARK UP IS NOT YOUR MARGIN

Although it is less important, let’s talk about mark up vs margin first.  Many people use these terms interchangeably to mean the difference between what you pay for goods and what you sell them for – that is, gross profit. However, they are not the same thing. Misunderstanding the nature of mark ups and margins can make it easier to calculate them incorrectly – which cuts deeply into your bottom line.

A margin is, most simply put, the percentage of the selling price that is the profit.

  • If you pay $6.00 for an item and you sell it for $10.00, you made a gross profit of $4.00.
  • $4.00 is 40% of $10.00 – so you have a margin of 40%
  • Notice this important distinction- the 40% margin is 40% of the final selling price, not of the wholesale cost.

A mark up is the percent of the cost you add to the wholesale price to get to the selling price.

  • If you pay the same $6.00 and sell the item with a 40% mark up, you make a gross profit of only $2.40
  • 40% of $6.00 is just $2.40
  • A mark up of x% will yield a smaller profit than a margin of x% because the mark up is a percentage of the lower wholesale cost.

IT DOESN’T MATTER IF YOU MIX UP THE TERMS AS LONG AS YOU DO THE MATH RIGHT

Many people say “mark up” when they mean “margin.” If you are fussy about language, this is annoying but it will not lead to financial disaster. It’s just words.

However, if you’ve confused the two concepts and are calculating your margins by mutliplying the wholesale cost by the margin percentage, you could be headed for trouble.

Just remember – you want to calculate your profit as a percentage of the final value, not as a percentage of the original cost. When a customer hands you $10.00, you need to know how much goes into your pocket and how much goes to your vendor.

Do you need a 40% profit margin to survive? Then you want to keep $4 out of every $10.

Also keep in mind that this is a gross profit margin. It does not take into account overhead, fees, etc. You may put $4 into your pocket, then have to turn around and give $1.00 to the landlord, 75¢ to the tax man, 15¢ to the bank for processing fees, etc.

You might end up keeping only $1.50 (net profit) of the original $4.00 (gross profit). Which is why calculating your margin by incorrectly using the wholesale price can be such a disaster. You can actually lose money with every sale!

WHAT’S THE FORMULA?

Now that you know you want your margin to be a percentage of the final cost, how do you actually figure it out?

Relax – as long as you have a calculator handy, it is easy.

Say you want a 40% margin. We know that 100% less 40% leaves 60%. So your wholesale cost represents 60% of the final value. To find the remaining 40%, divide the wholesale cost by .6

  • If  you want a 90% margin – divide the wholesale cost by .1
  • If  you want a 80% margin – divide the wholesale cost by .2
  • If  you want a 70% margin – divide the wholesale cost by .3
  • If  you want a 60% margin – divide the wholesale cost by .4
  • If  you want a 50% margin – divide the wholesale cost by .5
  • If  you want a 40% margin – divide the wholesale cost by .6
  • If you want a 30% margin – divide the wholesale cost by .7
  • If you want a 20% margin – divide the wholesale cost by .8
  • If  you want a 10% margin – divide the wholesale cost by .9

As long as you follow this formula for calculating retail price, you will get the margin you want.

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About Interstate Shipping in India

Unable to ship your products on time to your customers? Are your shipments returning to you after getting stuck atInter-State Checkpoints? Having difficulty in understanding the rules and finding the interstate shipping forms?

If these are the kind of questions that are troubling you with interstate shipping, then we have something incredibly awesome to share with you!

Logistics is crucial for any online store. Delivering your customers’ purchases on time reflects on your store’sefficiency and reliability. Delay in delivering the products is a risk you cannot afford as an online store entrepreneur.

But, living in a big country like India, rules change from State to State. Understanding these rules and finding the respective forms can be a very cumbersome task. That’s why, we bring you an exclusive table to help you sort out the necessary forms to be filled while scheduling a shipment.

 

   Interstate Shipping Forms and Requirements

Sr. No. List of destination State Business to Consumer (B2C) or Consumer to Consumer (C2C) Business to Business (B2B)
Type of statutory Levy Who is liable/ can pay statutory levy Road permit /paperwork requirement (INR) DOM paperwork exemption limit Status of statutory Levy Paperwork Requirement State VAT website
1 Andhra Pradesh Nil Shipper Invoice Nil
No Statutory levy is paid upfront
CI + VAT Form x/600 www.apct.gov.in
2 Andaman & Nicobar Nil Shipper Invoice Nil Shipper Invoice www.and.nic.in
3 Arunachal Pradesh Entry Tax Consignee CI +DG -01 (TPT doc) <10,000 CI + DG 01 www.arunachalpradesh.nic.in
4 Assam Entry Tax Consignee CI+Form 62 <20,000 CI + VAT Form 61 www.tax.assam.gov.in
5 Bihar VAT Consignee CI+ Form D IX – on line Nil CI + VAT Form D IX www.biharcommercialtax.in
6 Chandigarh Nil Shipper Invoice Nil Shipper Invoice www.chandigarh.gov.in
7 Chattisgarh Nil Shipper Invoice Nil CI & Declaration from Cnee www.comtax.cg.nic.in
8 Dadra & Nager Haveli Nil Shipper Invoice Nil Shipper Invoice www.dnh.nic.in
9 Daman & Diu Nil Shipper Invoice Nil Shipper Invoice www.daman.nic.in
10 Delhi Nil Shipper Invoice Nil CI + T2 www.dvat.gov.in
11 Goa Nil Shipper Invoice Nil Shipper Invoice www.goacomtax.gov.in
12 Gujarat Nil CI + VAT Form 403 Nil CI + VAT Form 403 www.commercialtax.gujarat.gov.in
13 Haryana Nil Shipper Invoice Nil Shipper Invoice www.haryanatax.com
14 Himachal Pradesh Entry Tax Consignee / Carrier Shipper Invoice Nil Shipper Invoice www.hptax.gov.in
15 Jammu & Kashmir Entry Tax Consignee / Carrier Shipper Invoice <5,000 CI + VAT From 65 www.jkcomtax.gov.in
16 Jharkhand Nil CI + VAT Form 502 Nil CI +VAT Form 504 G www.jharkhandcomtax.gov.in
17 Karnataka Nil Invoice & Declaration Nil CI + e-Sugam www.ctax.kar.nic.in
18 Kerala Nil CI + Form 16 <5,000 Shipper Invoice www.keralataxes.gov.in
19 Lakshadweep Nil Shipper Invoice Nil Shipper Invoice www.lakshadweep.nic.in
20 Madhya Pradesh Nil CI+ VAT Form 50 online Nil CI + VAT Form 49 online www.mptax.mp.gov.in
21 Maharashtra Octroi Carrier Shipper Invoice <150 Shipper Invoice + LBT/Octroi www.mahavat.gov.in
22 Manipur Nil CI + VAT Form 37 Nil CI + VAT Form 27 www.manipurvat.gov.in
22 Meghalaya Nil CI+ Special permit Nil CI + VAT Form 40 www.megvat.gov.in
23 Mizoram Nil CI + VAT Form 34 Nil CI+VAT From 33 www.zotax.nic.in
24 Nagaland Nil CI+ VAT Form 23 CI+ VAT Form 23 (online) www.nagalandtax.nic.in
26 Orissa Entry Tax* Consignee Shipper Invoice Nil CI+ VAT Form 402 (online ) www.odishatax.gov.in
27 Pondicherry Nil Shipper Invoice NA Shipper Invoice gst.puducherry.gov.in
28 Punjab Entry Tax Shipper Invoice Nil Shipper Invoice www.pextax.com
29 Rajasthan Entry Tax Consignee CI + Declaration Nil CI + VAT Form 47/47A ( online ) www.rajtax.gov.in
30 Sikkim Nil CI + VAT Form 26 Nil CI+ VAT From 25 www.sikkimtax.gov.in
31 Tamil Nadu Nil Shipper Invoice Nil Shipper Invoice www.tnvat.gov.in
32 Telangana Nil Shipper Invoice Nil CI + VAT Form x/600 www.tgct.gov.in
323 Tripura Nil CI+ VAT Permit CI+ VAT FROM XXIV www.taxes.tripura.gov.in
34 Uttar Pradesh Nil CI + VAT Form 39 Nil CI +VATe-sancharan comtax.up.nic.in
35 Uttrakhand Nil CI + Vat Form 17 <5,000 CI + VAT Form 16 comtax.uk.gov.in
36 West Bengal Entry Tax* Carrier Shipper Invoice + VAT Form 50A Nil CI + VAT Form 50A www.wbcomtax.nic.in

From this table, find the State to which you are shipping your products. Cross check the conditions to know what form is required. Get the forms from the links given in the table. The links to the state government have been provided in the table.

How and when do you use these forms?

You will need to provide the filled forms to the person arriving for the pick up. The logistic company will produce this form for you at the check points. Rest assured, as your products travel safe to reach your customers at far off places.

Thus, you can now send your products to your lovely customers with ease and make sure the shipments don’t return because of a lack of documents. Happy selling! 🙂

Did we miss anything? Do let us know.

How VAT works?

VAT — Value-Added Tax — is the biggest tax reform in the last 50 years of independent India and will change forever the way traders do their business.

But do you understand VAT? Don’t you need advice on the new VAT laws and how they affect your business? No need to worry, help is at hand.

Kul Bhushan, a newspaper editor — with over 30 years of experience — who specialises in presenting complicated economic and business issues in simple, reader-friendly language, has come up with a book — How To Deal With VAT — which addresses all the questions you may have about this tax.  The book has a foreword by Finance Minister P Chidambaram.

Here’s an extract from the book explaining how VAT works.

Some VAT registered traders may overcharge their customers because they do not understand the correct workings of VAT on prices or are deliberately using VAT as an excuse for increasing prices.

A trader registered for VAT effectively pays VAT only at one stage when he sells his goods.

This tax is the only amount, which has an effect on his selling price which includes VAT. The VAT that he has paid as a part of his purchase price is charged on him by his suppliers.

This is not a cost to him because he gets it back by deducting it from tax on his sales (Output Tax). Therefore, VAT should have a minimum impact on his selling prices.

If you supply designed goods and your annual ‘taxable turnover’ is more than Rs 5 lakh, you become a taxable person and must register for VAT.

Your taxable turnover is the total value of all taxable supplies (including ‘zero-rated supplies’) made in India or imported into India while increasing your business. ‘Exempt supplies’ do not count towards your taxable turnover. Both ‘zero-rated supplies’ and ‘Exempt supplies’ are listed in the VAT Schedules.

If you supply Vatable goods, the ‘taxable turnover’ that must be taken into account is the combined turnover of both these activities.

If you are a Vatable person, you must charge VAT whenever you make a taxable supply. The supply is your output and the tax you charge is your Output Tax. Similarly, the purchase is your input and the tax you pay is the Input Tax.

VAT Returns

VAT Returns are filed every month or every quarter depending on the amount of VAT you pay. The normal rule is that if you pay less than Rs 15,000 for VAT every month, a VAT Return is to be filed every quarter.

It is all at the discretion of the VAT officer. At monthly or quarterly intervals on your VAT Return, you should subtract your Input Tax (attributable to taxable supplies only) from your Output Tax and pay the difference to the VAT Commissioner.

If your Input Tax is greater than your Output Tax you can carry over the difference as a credit to your next VAT Return. In certain circumstances, the Commissioner may pay you any excess if he is satisfied that suchan excess is a regular feature of your business.

Issuing Tax Bills and Invoices

According to VAT law, you cannot sell any goods without a sales document. This document can be a small cash memo or a cash sale or a bill for cash transactions issued at, or before, the time when the cash is received.

The prices mentioned on these sale documents should include VAT and the words ‘Price includes VAT’ must be printed on them. These documents are suitable for retailers such as grocers and chemists.

You must give the original to the customer and keep a duplicate. At the end of each business day, you can total the cash sales and enter it in your Sales Ledger.

For selling on credit, you are required to provide the purchaser with a tax invoice at the time of supply in respect of that supply. When you receive a deposit as advance payment for a booking, a tax invoice should be issued at the time such deposit is received.

All tax invoices should be serially numbered and issued in serial number order. They must include the following information:

  • Your name, address, TIN.
  • Serial number of the invoice
  • Date of the invoice
  • Date of the supply, if different from invoice date
  • Name and address of the person to whom the supply was (will be) made
  • Description, quantity and price of the goods and services being supplied or to be supplied (in case of deposit)
  • Rate and amount of VAT charged on each of these goods and services
  • Details of whether the supply is a cash or credit sale
  • Details of cash or other discounts, if any, that apply to the supply
  • The total value of the supply and total amount of VAT charged
  • Number of the vehicle transporting these goods, if applicable
  • The customer’s PAN must be shown if the sale is over Rs 50,000.

However, if you are a retailer or you are primarily supplying taxable goods to unregistered persons, you will be required to issue a simplified tax invoice.

Simplified Tax Invoices

All simplified tax invoices shall be serially numbered and shall be issued in the order of the serial number. They must include the following information:

  • Your name, address and TIN
  • Serial number of the invoice
  • Date of the invoice
  • Brief description of the goods and services supplied.
  • Total amount charged to the customer including VAT and
  • A clear statement that the price includes VAT.

Value for Tax

The value for tax of a supply is the consideration or money paid. Consideration for a supply includes payment in money and / or in kind for the supply. The value for tax will be:

The full money value paid for the supply where consideration is wholly an amount of money, i.e., the value less any discounts allowed. Instalment payment do not affect the tax value or the point. Tax is due in full at the time of supply on the full (net) value of the article in question.

Open market value of the goods in question where consideration is not wholly an amount of money. This is the price, excluding VAT, which customers ordinarily have to pay for a supply if money was the only consideration.

Value for duty plus the duty — for imported goods at the time gods – cleared for use into the country or at the time of removal from warehouse.

Financial charges incurred by a person who purchases taxable goods on hire purchase business are excluded from the taxable value.

Similarly, interest incurred from late payment of the price of a taxable supply of goods is excluded from taxable value.

How VAT is Misused

Let us take two examples to understand the working of VAT.

Example A shows the pricing structure of a trader who uses VAT as an excuse for overcharging his customers.

Example B shows the pricing structure of a trader who does not use VAT as a tool for price escalation. For both examples, the relative data is:

  • Basic purchase of goods: Rs 10,000
  • 12.5 per cent VAT of the basic purchase price: Rs 1,250
  • Overheads related to the goods: Rs 100
  • Profit margin 20 per cent.

 

Example A (Rs)
Basic purchase price 10,000
Add 12.5 per cent VAT 1,250
VAT inclusive purchase price 11,250
Add overheads 100
Total 11,350
Add 20 per cent profit margin 2,270
Basic selling price 13,620
Add 12.5 per cent VAT 1,703
VAT inclusive selling price 15,323

 

Example B (Rs)
Basic purchase price 10,000
Add 12.5 per cent VAT 1,250
VAT inclusive purchase price 11,250
Less VAT input 1,250
VAT free purchase price 10,000
Add overheads 100
Total 10,100
Add 20 per cent profit margin 2,020
Total 12,120
Basic selling price 13,620
Add 12.5 per cent VAT 1,515
VAT inclusive selling price 13,635

The VAT of 12.5% is charged on the ‘Total’. Thus the VAT inclusive selling price will be ‘Total’ + ‘VAT.’

You will note that in Example A, the trader has overcharged his customer to the extent of Rs 1,688. Thus a trader is advised to adopt Example B as a guideline and nt overcharge the consumer. If he does, he will lose his customers before long.

VAT Account

You are required to maintain a VAT account as part of your records. This should have details of your Output Tax, Input Tax and under or over declaration in the previous VAT accounting period(s).

A specimen of such a VAT account is given below.

VAT Accounting for Filing VAT Return for April to June 2005
 

Purchases (in Rs )
Period Purchases Input VAT paid Total Total
April-June 100,000.00 12,500.00 112,500.00

 

Sales (in Rs )
Period Purchases Input VAT paid Total Total
April-June 120,000.00 15,000.00 135,000.00

Hence, VAT to be paid is Output VAT less Input VAT or Rs 15,000 – 12,5000 = 2,500.

VAT Accounting with Opening Stock for April to June 2005
(As per the guidelines of VAT White Paper of 17 January 2005.)

 

Opening Stock on 1 April 2005 Rs 500,000
Less Tax Free Stock Rs 300,000
Balance Rs 200,000
Sales Tax @ 10% paid before VAT Rs 20,000


This credit of Rs 20,000 has to be carried forward in VAT account shown below.
 

Purchases (in Rs )
Period Purchases ST paid Input VAT paid
Opening stock 500,000.00 20,000.00
April-June 100,000.00 12,500.00
Sales (in Rs )
Period Sales Input VAT paid Total
Opening stock 120,000.00 15,000.00 135,000.00

Hence, the credit of Sales Tax paid on opening stock (Rs 20,000) can be claimed in addition to Input Tax payable for VAT of 12,500.

This means the total tax paid (Sales Tax + VAT) will be Rs 20,000 + 12,500 = Rs 32,500.

In filing the VAT Return, the VAT payable is Rs 15,000 as per sales record.

This has to be deducted from the total tax paid of Rs 32,500, leaving a balance of Rs.17,500 to be claimed in the next VAT Return.

VAT Accounting For Inter-State Supplies and Taxes

Raw materials supplier in Mumbai sells to manufacturer in Delhi.
 

Delhi manufacturer Rs
Cost Price 10,000
Central Sales Tax @ 4% 400
Total Cost 10,400


Delhi manufacturer cannot claim central Sales Tax @4% of Rs 400 against Form C. hence his cost price will increase by Rs 400.

 

Rs
Manufacturer’s Cost Price 10,400
Value Added 2,000
Selling Price 12,400
VAT 1,550
Cost 13,950

Manufacturer pays VAT of Rs 1,550.00.

 

Rs
Wholesaler’s Cost Price 12,400
Value Added 2,000
Selling Price 14,400
VAT @ 12.5% 1,800

Wholesaler pays VAT of Rs 250. This is arrived at by deducting Rs 1,550 that he paid to manufacturer from Rs 1,800 that he collected brown i.e., 1,800.00 – 1,550.00 = 250.00.
 

Rs
Retailer’s Cost Price 14,400
Value Added 2,000
Selling Price 16,400
VAT @ 12.5% 2,050

Retailer pays VAT of Rs 250. This is arrived at by deducting Rs 1,800 that he paid to manufacturer from Rs 2,050.00 that he collected, i.e., Rs 2,050-1,800 = 250.

 

Rs
Customer Price 16,400
VAT @ 12.5% 2,050
Price with VAT 18,450

Cross Checking

Total VAT paid will be Rs 1,550 (Manufacturer) + 250 (Wholesaler) + 250 (Retailer) = Rs 2,050.

Usage of debit note and credit note

Debit Note Vs Credit Note

Purchasing and Selling of goods are very common in day to day life, and in the same way, returns of goods are also a very usual thing nowadays. Debit Note and Credit Note are used while the return of goods is made between two businesses.

Debit Note is issued by the purchaser, at the time of returning the goods to the vendor, and the vendor issues a Credit Note to inform that the returned goods have been received by him. People are quite puzzled when they are asked to distinguish the two terms. So, here in this article we are going to explain you the differences between a Debit Note and Credit Note.

DebitCreditNote.png

Debit Note

It is a note issued by the vendor making the supply in the case where the consideration for the supply is increased after an invoice has already been issued. This can be the result of, amongst others; the reduced rate of VAT being used instead of a standard rate of tax (14%), a wrongly reduced quantity of goods is invoiced etc.

The debit note should contain the following information:

  • the words ‘debit note’ in a prominent place;
  • the commercial name, postal address, physical address, Taxpayer Identity Number of the vendor making the supply;
  • the commercial name, postal address, physical address, Taxpayer Identification Number of the vendor receiving the supply;
  • the date of issue of the debit note;
  • a brief explanation of the circumstances which gave rise to the issue of the debit note;
  • sufficient information to identify the taxable supply to which the debit note relates;
  • the taxable value of the supply shown on the VAT invoice, the correct taxable value, the difference between the two amounts and the VAT relating to the difference (that is, the VAT overcharged).

Credit Note

It is a note issued by the vendor making the supply in the case where the consideration for the supply is reduced after an invoice has already been issued. This can be the result of, amongst others, cancellation of the supply, a discount offer etc.

The credit note should contain the following information:

  • the words ‘credit note’ in a prominent place;
  • the commercial name, postal address, physical address, Taxpayer Identity Number of the vendor making the supply;
  • the commercial name, postal address, physical address, Taxpayer Identification Number of the vendor receiving the supply;
  • the date of issue of the credit note;
  • a brief explanation of the circumstances which gave rise to the issue of the credit note;
  • sufficient information to identify the taxable supply to which the credit note relates;
  • the taxable value of the supply shown on the VAT invoice, the correct taxable value, the difference between the two amounts and the VAT relating to the difference (that is, the VAT overcharged)

How to disagree with someone more powerful than you

Power is the ability to influence the behavior of others with or without resistance by using variety of tactics to push or prompt action. There are six sources of power – legitimate power, referent power, expert power, reward power, coercive power, informational power and power tactics (behavioural, rational and structural tactics).

Your boss proposes a new initiative you think won’t work. Your senior colleague outlines a project timeline you think is unrealistic. What do you say when you disagree with someone who has more power than you do? How do you decide whether it’s worth speaking up? And if you do, what exactly should you say?

What the Experts Say?
It’s a natural human reaction to shy away from disagreeing with a superior. “Our bodies specialize in survival, so we have a natural bias to avoid situations that might harm us,” says Joseph Grenny, the coauthor of Crucial Conversations and the cofounder of VitalSmarts, a corporate training company. “The heart of the anxiety is that there will be negative implications,” adds Holly Weeks, the author of Failure to Communicate. We immediately think, “He’s not going to like me,” “She’s going to think I’m a pain,” or maybe even “I’ll get fired.” Although “it’s just plain easier to agree,” Weeks says that’s not always the right thing to do. Here’s how to disagree with someone more powerful than you.

Be realistic about the risks
Most people tend to overplay the risks involved in speaking up. “Our natural bias is to start by imagining all the things that will go horribly wrong,” Grenny says. Yes, your counterpart might be surprised and a little upset at first. But chances are you’re not going to get fired or make a lifelong enemy. He suggests you first consider “the risks of not speaking up” — perhaps the project will be derailed or you’ll lose the team’s trust — then realistically weigh those against the potential consequences of taking action.

Decide whether to wait
After this risk assessment, you may decide it’s best to hold off on voicing your opinion. Maybe “you haven’t finished thinking the problem through, the whole discussion was a surprise to you, or you want to get a clearer sense of what the group thinks,” says Weeks. “If you think other people are going to disagree too, you might want to gather your army first. People can contribute experience or information to your thinking — all the things that would make the disagreement stronger or more valid.” It’s also a good idea to delay the conversation if you’re in a meeting or other public space. Discussing the issue in private will make the powerful person feel less threatened.

Identify a shared goal
Before you share your thoughts, think about what the powerful person cares about — it may be “the credibility of their team or getting a project done on time,” says Grenny. You’re more likely to be heard if you can connect your disagreement to a “higher purpose.” When you do speak up, don’t assume the link will be clear. You’ll want to state it overtly, contextualizing your statements so that you’re seen not as a disagreeable underling but as a colleague who’s trying to advance a shared goal. The discussion will then become “more like a chess game than a boxing match,” says Weeks.

Ask permission to disagree
This step may sound overly deferential, but, according to Grenny, it’s a smart way to give the powerful person “psychological safety” and control. You can say something like, “I know we seem to be moving toward a first-quarter commitment here. I have reasons to think that won’t work. I’d like to lay out my reasoning. Would that be OK?” This gives the person a choice, “allowing them to verbally opt in,” says Grenny. And, assuming they say yes, it will make you feel more confident about voicing your disagreement.

Stay calm
You might feel your heart racing or your face turning red, but do whatever you can to remain neutral in both your words and actions. When your body language communicates reluctance or anxiety, it undercuts the message, Weeks says. It sends “a mixed message, and your counterpart gets to choose what to read,” she explains. Deep breaths can help, as can speaking more slowly and deliberately. “When we feel panicky we tend to talk louder and faster. You don’t want to be mousey or talk in a whisper, but simply slowing the pace and talking in an even tone helps calm the other person down and does the same for you,” says Grenny. It also makes you seem confident, even if you aren’t.

Validate the original point
After you’ve gotten permission, articulate the other person’s point of view. What is the idea, opinion, or proposal that you’re disagreeing with? Stating that clearly, possibly even better than your counterpart did, lays a strong foundation for the discussion. “You want your counterpart to say, ‘She understands.’ You don’t want to get in a fight about whether you get her point,” Weeks explains.

Don’t make judgments
When you move on to expressing your concerns, watch your language carefully. Grenny says to avoid any “judgment words” such as “short-sighted,” “foolish,” or “hasty” that might set off your counterpart; one of his tips is to cut out all adjectives, since “they have the potential to be misinterpreted or taken personally.” Share only facts. For example, instead of saying, “I think that first-quarter deadline is naïve,” you can say, “We’ve tried four projects like this in the past, and we were able to do two in a similar time period, but those were special circumstances.” Weeks also recommends staying neutral and focused: “Lay off the players and be vivid about the problem. Try to make it an honest disagreement, a worthwhile advancement of thought.”

Stay humble
Emphasize that you’re offering your opinion, not “gospel truth,” says Grenny. “It may be a well-informed, well-researched opinion, but it’s still an opinion, [so] talk tentatively and slightly understate your confidence.” Instead of saying something like, “If we set an end-of-quarter deadline, we’ll never make it,” say, “This is just my opinion, but I don’t see how we will make that deadline.” Weeks suggests adding a lot of “guiding phrases” like “I’m thinking aloud here.” This will leave room for dialogue. Having asserted your position (as a position, not as a fact), “demonstrate equal curiosity about other views,” says Grenny. Remind the person that this is your point of view, and then invite critique. Weeks suggests trying something like, “Tell me where I’m wrong with this.” Be genuinely open to hearing other opinions.

Acknowledge their authority
Ultimately, the person in power is probably going to make the final decision, so acknowledge that. You might say, “I know you’ll make the call here. This is up to you.” That will not only show that you know your place but also remind them that they have choices, Grenny says. Don’t backtrack on your opinion or give false praise, though. “You want to show respect to the person while maintaining your own self-respect,” says Weeks.

Principles to Remember

Do:

Explain that you have a different opinion and ask if you can voice it.
Restate the original point of view or decision so it’s clear you understand it.
Speak slowly — talking in an even tone calms you and the other person down.

Don’t:

Assume that disagreeing is going to damage your relationship or career — the consequences are often less dramatic than we think.
State your opinions as facts; simply express your point of view and be open to dialogue.
Use judgment words, such as “hasty,” “foolish,” or “wrong,” that might upset or incite your counterpart.
Case Study #1: Show respect for the idea
Victor Chiu, a business development manager at Centaria Properties, in Vancouver, was concerned that his boss, Patrick, was making a hasty decision. Weak Canadian oil prices had created favorable economic conditions for snatching up real estate, and there was a small plot of land with an operations warehouse in Alberta that Patrick thought the company should buy. At the time, Victor says, “Alberta’s economy was just starting to feel the pinch. Oil was at $45 a barrel and was still on its way down — without any signs of stabilization.” He was worried that the company would be overextended if it made the purchase, so he decided to speak up.

Victor looked his boss in the eye, spoke in a “smooth, casual tone,” and asked Patrick to keep an open mind about the proposal. He said, “I think it’s a great idea, but with oil just starting to slide and with no bottoming out in sight, bigger and better opportunities should present themselves in the near future.” He knew it was important to show respect for Patrick and his idea and to emphasize that he wanted the best for the company. He also made sure to propose a solution: “Let’s wait a bit to see if we can get a better deal, and then pull the trigger.”

“When you disagree with someone more powerful than you, you should always have a constructive reason to oppose. In my case, the reason was timing,” Victor says. Patrick didn’t take offense and was curious to hear more about Victor’s reasoning. Ultimately, they decided to hold off on making the investment.

Case Study #2: Make it about the company, not you
Mike McRitchie, owner of the consultancy Critical Path Action, has had reason to disagree with people more powerful than he on several occasions.

In a previous job, as the director of operations for a small consulting business, he disagreed with how his boss, the owner of the company, wanted to handle a health insurance decision. The boss wanted to survey the staff about two different options, letting them make the final choice on which one to adopt. But “as leaders, this was a decision I felt we should be making rather than delegating it to the whole staff,” Mike explains. “I’m all for getting feedback, but when it comes time to make a tough call, it isn’t fair to put that responsibility on the staff’s shoulders.”

Mike decided to share his opinion, emphasizing his commitment to the firm and making sure that his body language was not “at all unsure or tentative.” His boss was shocked at first; Mike had a reputation for being reserved, so open disagreement was “out of character” for him. But his boss could see that “I cared for the company and our leaders and staff,” Mike says. “I had no personal agenda.”

The boss agreed to abandon the staff poll idea, and “he’s respected me to this day,” Mike adds. “If you make it about the company’s best interests, instead of about you, then you have the best opportunity to win.”
Source: https://hbr.org/2016/03/how-to-disagree-with-someone-more-powerful-than-you

Gross Profit vs. Operating Profit vs. Net Profit

At the core, profit is earnings minus expenses. However, we want to bifurcate and come up with various variations of profit to understand the business better. Therefore, at the first level, we have gross profit.

Gross Profit is nothing but ‘Sales – COGS’

This shows how much profit are we earning without considering our expenses and only considering the cost of the product that we are selling.

Next comes the Net Profit.  Net Profit is ‘Gross Profit – Total Expenses’. The expenses include all the direct and indirect expenses incurred to achieve that sales.

However, some of these expenses might be operational related and some of the expenses may be stuff like taxes. Therefore, we sub-divide it again to understand it better. S, we first subtract all the operating expenses and call it as operating profit. Later, we subtract the rest of the expenses and call it as Net Profit or Bottom Line. This is what is going into the bank.

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Decoding or understanding your restaurant bill

Not everyone is aware about Service Tax and VAT taxation details. So let’s demystify these charges and understand the components that inflate your restaurant bills.

Service charge

Service charge is collected by the restaurant for rendering its service to you. It is not a tax and is not levied by the government but purely charged by the restaurants. They are free to charge any amount as there are no guidelines, but it usually varies from 4 to 10 percent. It is corresponding to the tip which you would typically give waiters for a good service, so there is no need to pay a separate tip. However, one has to pay this amount regardless of not being happy with the service if the menu card mentions the charges clearly. But you can always question the charges if the menu card doesn’t mention it.

Service Tax

Service tax is different from the service charges mentioned above – it is a tax levied by the government. This is 12.36 percent and payable on 40 percent of your total bill, which includes food, drinks, service charge and served in an air-conditioned restaurant only. In simple words, service tax would be 4.94 percent (i.e. 12.36 percent of 40 percent) of your total bill. Make sure that the restaurant does not charge you more than 4.96% (of the total bill) as service tax and that it is an AC restaurant.

VAT (Value Added Tax)

VAT is only applicable on food items that are prepared in the restaurant as they add value before serving it to you. So make sure that you are not charged VAT on packaged food items or water bottles. VAT rates are different for alcoholic beverages and other food items and is applicable only on your final bill. Also, rate of VAT tax differs from 5 percent to 20 percent depending upon the state you are dining in, because it is levied and controlled by each state separately.

Let’s understand this with an example of a restaurant bill for an amount of Rs 1000/-.

Items Amount

Your Total Food Bill 1000

Service charge (assuming 4 percent) 40

Sub Total 1040

Service Tax to be levied on (40% of subtotal i.e. 1040) 416

Service tax @ 12.36% on 416.00 51.41

VAT (assumed) @12.5 of subtotal i.e. 1040 130

Total amount to be paid (1000+40+51.41+130.00) 1221.41

So the next time you visit a restaurant, your bill will surely make more sense to you. Keep dining and bon appetit!