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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Talk. Listen

Archu's Scribbles

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It takes courage to say something to someone. Be it anything. From simplest things to difficult life changing decisions. People try to convey what they want to say. At times it maybe a success or a fail. Communication is the key. Above all that we need courage to communicate what we want to say all the way from the heart.

It also takes a person courage to listen. Listen to the other person what he wants to say from bottom of his/her heart. To listen and understand what the person is trying to communicating so courageously. It takes a heart to listen to a person and its a big deal. It wouldn’t be necessary for us to take action but just listening is so important and effective.

People today don’t have the time to listen. So many things come in between. Maybe lack of prioritizing. Maybe lack of interest. But…

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Steps to Take When You’re Starting to Feel Burned Out – HBR

It’s the opposite end of the spectrum from engagement. The engaged employee is energized, involved, and high-performing; the burned-out employee is exhausted, cynical, and overwhelmed.

Research shows that burnout has three dimensions: emotional exhaustion, depersonalization, and reduced personal accomplishment. When you’re emotionally exhausted, you feel used up—not just emotionally, but often physically and cognitively as well. You can’t concentrate. You’re easily upset or angered, you get sick more often, and you have difficulty sleeping. Depersonalization shows up in feelings of alienation from and cynicism towards the people your job requires you to interact with. One of my coaching clients summed it up like this: “I feel like I’m watching myself in a play. I know my role, I can recite my lines, but I just don’t care.” What’s worse, although you can’t imagine going on like this much longer, you don’t see a feasible way out of your predicament.

It’s this third dimension of burnout — reduced personal accomplishment — that traps many employees in situations where they suffer. When you’re burned out, your capacity to perform is compromised, and so is your belief in yourself. In an insidious twist, employers may misinterpret an employee suffering from burnout as an uncooperative low performer rather than as a person in crisis. When that’s the case, you’re unlikely to get the support you desperately need.

Research shows that burnout occurs when the demands people face on the job outstrip the resources they have to meet them. Certain types of demands are much more likely to tax people to the point of burnout, especially a heavy workload, intense pressure, and unclear or conflicting expectations. A toxic interpersonal environment—whether it shows up as undermining, back-stabbing, incivility, or low trust—is a breeding ground for burnout because it requires so much emotional effort just to cope with the situation. Role conflict, which occurs when the expectations of one role that’s important to you conflict with those of another, also increases risk of burnout. This might happen, for example, when the demands of your job make it impossible to spend adequate time with your loved ones, or when the way you’re expected to act at work clashes with your sense of self.

If you think you might be experiencing burnout, don’t ignore it; it won’t go away by itself. The consequences of burnout for individuals are grave, including coronary disease, hypertension, gastrointestinal problems, depression, anxiety, increased alcohol and drug use, marital and family conflict, alienation, sense of futility, and diminished career prospects. The costs to employers include decreased performance, absenteeism, turnover, increased accident risk, lowered morale and commitment, cynicism, and reduced willingness to help others.

To get back to thriving, it’s essential to understand that burnout is fundamentally a state of resource depletion. In the same way that you can’t continue to drive a car that’s out of fuel just because you’d like to get home, you can’t overcome burnout simply by deciding to “pull yourself together.” Rebounding from burnout and preventing its recurrence requires three things: replenishing lost resources, avoiding further resource depletion, and finding or creating resource-rich conditions going forward. Many resources are vital for our performance and well-being, from personal qualities like skills, emotional stability, and good health, to supportive relationships with colleagues, autonomy and control at work, constructive feedback, having a say in matters that affect us, and feeling that our work makes a difference. Try these steps to combat burnout:

Prioritize taking care of yourself to replenish personal resources. Start by making an appointment with your doctor and getting an objective medical assessment. I encourage clients to take a lesson from the safety briefing provided at the beginning of every commercial flight, which instructs passengers to “secure your own oxygen mask before helping others.” In other words, if you want to be able to perform, you need to shore up your capacity to do so. Prioritize good sleep habits, nutrition, exercise, connection with people you enjoy, and practices that promote calmness and well-being, like meditation, journaling, talk therapy, or simply quiet time alone doing an activity you enjoy.

Analyze your current situation. Perhaps you already understand what’s burning you out. If not, try this: track how you spend your time for a week (you can either do this on paper, in a spreadsheet, or in one of the many apps now available for time tracking). For each block of time, record what you’re doing, whom you’re with, how you feel (e.g., on a scale of 1-10 where 0=angry or depressed and 10=joyful or energized), and how valuable the activity is. This gives you a basis for deciding where to make changes that will have the greatest impact. Imagine that you have a fuel gauge you can check to see what level your personal resources (physical, mental, and emotional) are at any moment. The basic principle is to limit your exposure to the tasks, people, and situations that drain you and increase your exposure to those that replenish you.

Reduce exposure to job stressors. Your condition may warrant a reduction in your workload or working hours, or taking some time away from work. Using your analysis of time spent and associated mood/energy level and value of activity as a guide, jettison low value/high frustration activities to the extent possible. If you find that there are certain relationships that are especially draining, limit your exposure to those people. Reflect on whether you have perfectionist tendencies; if so, consciously releasing them will lower your stress level. Delegate the things that aren’t necessary for you to do personally. Commit to disconnecting from work at night and on the weekends.

Increase job resources. Prioritize spending time on the activities that are highest in value and most energizing. Reach out to people you trust and enjoy at work. Look for ways to interact more with people you find stimulating. Talk to your boss about what resources you need to perform at your peak. For instance, if you lack certain skills, request training and support for increased performance, such as regular feedback and mentoring by someone who’s skilled. Brainstorm with colleagues about ways to modify work processes to make everyone more resourceful. For instance, you might institute an “early warning system” whereby people reach out for help as soon as they realize they’ll miss a deadline. You might also agree to regularly check in on where the team’s overall level of resources is and to take action to replenish it when it’s low.

Take the opportunity to reassess. Some things about your job are in your capacity to change; others are not. If, for example, the culture of your organization is characterized by pervasive incivility, it’s unlikely that you will ever thrive there. Or if the content of the work has no overlap with what you care about most, finding work that’s more meaningful may be an essential step to thriving. There is no job that’s worth your health, your sanity, or your soul. For many people, burnout is the lever that motivates them to pause, take stock, and create a career that’s more satisfying than what they’d previously imagined.

Empathy vs. Perspective

Empathy helps you understand what a prospective donor is feeling. 

Perspective helps you understand why they are feeling it.

Empathy keeps relationships on track.

Empathy helps you remember that your supporter lives on the west coast while you are on Eastern time. Thanks to your empathy you’ll avoid calling her when you first get to the office at 8 am (5 am for her). In that case empathy is a very good thing to have.

Perspective is more intellectual.

Perspective-taking is exclusively the process of taking an alternate point-of-view. With perspective you can understand your supporters’ viewpoints, needs, desires, goals and aspirations. If the need is urgent and you know that the supporter has been waiting for an opportunity to fund (for example) an airlift to rescue dozens of refugees in a far off land, then you will call and awaken her at 5 am. Your perspective assures you that the donor will be happy you did.

However, the perspective-taking process does not necessarily lead to feelings of empathy.

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

Amazon’s Business Growth Flywheel

This is a re-blogged post that is written by Corey Eastman and the original link to the article is here.

What’s the DNA of a growth strategy?

When Jeff Bezos first started Amazon he drew what’s now known as Amazon’s Growth Flywheel on a napkin.

Amazon Growth Flywheel

Similar to how nature has patterns that repeat or reproduce, businesses do as well. Whether firms realize it or not, these underlying forces have the ability to create momentum that can either drive success or failure.

CUSTOMER EXPERIENCE

Customer Experience (CX) is at the core of Amazon’s flywheel. They believe that if they provide remarkable CX, the result will be an increase in traffic to their website. Creating CX should be the main driver of growth for any business, regardless of whether you operate on or offline. The question then becomes, what IS customer experience? Forrester’s definition is probably one of the best:

“How customers perceive their interactions with your company.”

At the heart of this definition is providing something useful and interactive for your customers or potential customers. Where this leaves many firms is creating content (text, image, video etc), with an emphasis placed on digital content. The oversight is thinking that if you create it they will come. That is, the content companies create will be discovered and consumed by their target audience. In this, lies the great challenge.

Customer Experience drives more customer traffic, which in turn drives more sellers to come on-board and then in turn these sellers bring in more selection that again adds to the customer experience. This cycle drives growth and as the business grows costs too start coming down because of economies of scale and hence this can be transferred as low prices to the customer, enhancing the customer experience again.

TRANSPORTATION BUSINESS

Every business is in the transportation business. If you’re creating content you need to distribute that content.

As with traditional transportation, which consists of moving goods from one location to another and is essential for the development of civilization; the content you create is essential for the development of new business. Everybody knows, content creation has crushed cold calling.

Most companies understand and are creating digital content for a target audience, however at the same time, seem to struggle with the appropriate channels necessary to get it in front of their audience.

Before you go out and start leveraging different channels to generate traffic, you need to take into consideration 2 fundamentally important sales metrics.

1. CAC: Customer Acquisition Cost, in it’s simplest terms, is all the money you spend on marketing and sales to acquire a customer.

2. LTV: Life Time Value, is both the tangible and intangible value you receive from your customer.

Which then leads us to the equation that will ultimately determine your success for sustainable biz dev growth:

CAC < LTV

Explained in words: The value you receive from the customer should be greater than what you paid to acquire them. One way to improve this equation is by lowering your CAC. There are many different ways to accomplish this task such as focusing on inbound marketing, strategic partnerships, customer satisfaction, etc. The one aspect I would like to focus on here, to help reduce your CAC, is a leveraging earned online channels.

SOCIAL MEDIA CEILING

Your social channels can only do so much.

Syndicating your content across Twitter, Facebook, LinkedIn, G+, etc are effective, however, that’s not enough. What you need to start considering is both your pull and push strategies to set you up for distribution and traffic success.

Pull strategies will seduce your customer to come to you while push strategiesforce them to come to you. Both are important in channel distribution. However, since pushing is often associated with interrupting your consumer and cost money (raising your CAC), I prefer focusing on pull strategies.

Your Homework: I’ve done the dirty work for you here, by providing a VERY HIGH LEVEL checklist of pull strategy examples and resources that you MUST start using today to help you generate new business activity. I’m sure there’s many good ones that are not included so please add any I’ve omitted in the comments below.

START NOW

STEP 1: Print this post out

STEP 2: Sit down with your team responsible for customer acquisition (Sales, Marketing, PR, etc)

STEP 3: Check off which activities you’re actively participating in

STEP 4: Gather any data or metrics you have around these activities

STEP 5: Highlight which activities you should start focusing on

STEP 6: Make a list of companies you respect and look at the activities they focus on

STEP 7: Report back on your results in either the comments below or send me a tweet

Best of luck!

NEW BUSINESS CHANNEL CHECKLIST

Discovery Sites
[ ] HackerNews            [ ] Inbound.org     [ ] GrowthHackers     [ ] Medium
[ ] #USVconversation  [ ] Quibb                [ ] Svbtle                     [ ] ShareBloc

Blogging
[ ] Guest Blogging     [ ] Interviews
[ ] Q&A (Quora)        [ ] SEO (MOZ)

Podcasting
[ ] Guest Podcasting     [ ] Sponsorship Outreach     [ ] SoundCloud

E-Books, Guides, Whitepapers
[ ] Gated Downloads     [ ] Build Email List
[ ] Guest Features          [ ] Interviews

Webinars
[ ] Guest Presenter/Interview     [ ] YouTube Channel     [ ] SlideShare

Offline Events/Presentations
[ ] Audio/Visual Assets     [ ] SlideShare     [ ] Instagram
[ ] Vine                               [ ] Twitter           [ ] Facebook

Contests
[ ] Give-a-ways     [ ] Social Media Awareness

Complementary Audiences
[ ] Meetup     [ ] Eventbrite     [ ] Uniiverse

Email Newsletter
[ ] Monthly Updates     [ ] Other People’s Newsletters (OPN)

PR
[ ] HARO