Using percentages incorrectly

[xRIEx]

TwigtheWonderkid said:

I'm not an accountant, but I have an understanding of turnover, gross and net profit.

In general terms, profit margin is expressed as a percentage of the sales price, after deduction of cost price and any other costs (labour/rent/etc.)

Buying for a pound and selling for £1.16 is indeed 13.79% profit, assuming you had no other expenses to factor in.

My emphasis for accuracy.

[TwigtheWonderkid]

xRIEx said:

FredClogs said:

TwigtheWonderkid said:

FredClogs said:

cobra kid said:

"I bought it for £1, sold it for £2. I made 100% profit"....gggggrrrrrrrrrr

£1 = 100 pennies = 100%

What's wrong with that?

Because if you buy for £1 and sell for £2, then you have not made 100% profit. You charged 100% mark up, and 50% of your sales price was profit. If you got it for nothing and sold for any sum of money at all, then you've made 100% profit.

You're an accountant aren't you?

Most people would say I've double my money, that's 100% profit, most people may be wrong, but in this case I'm with the populace.

Like wise if I bought something for £1 and sold it for £1.16 most people would say that's 16% profit, not 13.79% profit. I don't care what the accountants may say, they may be right but I'm sure I'm not wrong.

But this isn't a question of incorrect use of % it's a question of how you describe a profit.

Profit percentage is 16%.

Profit margin is 13.79%.

Mark up is 16%
Profit is 13.79%

In my world I would never use the term profit percentage. I would use the term profit to describe profit margin.

[xRIEx]

TwigtheWonderkid said:

xRIEx said:

FredClogs said:

TwigtheWonderkid said:

FredClogs said:

cobra kid said:

"I bought it for £1, sold it for £2. I made 100% profit"....gggggrrrrrrrrrr

£1 = 100 pennies = 100%

What's wrong with that?

Because if you buy for £1 and sell for £2, then you have not made 100% profit. You charged 100% mark up, and 50% of your sales price was profit. If you got it for nothing and sold for any sum of money at all, then you've made 100% profit.

You're an accountant aren't you?

Most people would say I've double my money, that's 100% profit, most people may be wrong, but in this case I'm with the populace.

Like wise if I bought something for £1 and sold it for £1.16 most people would say that's 16% profit, not 13.79% profit. I don't care what the accountants may say, they may be right but I'm sure I'm not wrong.

But this isn't a question of incorrect use of % it's a question of how you describe a profit.

Profit percentage is 16%.

Profit margin is 13.79%.

Mark up is 16%
Profit is 13.79%

In my world I would never use the term profit percentage. I would use the term profit to describe profit margin.

Mark up is pretty much limited to the retail sector; most of e.g. the service sector has no unit product cost.

I've never used profit percentage, but that isn't to say it doesn't have a formal definition. "Profit" is ambiguous, because it could be expressed in monetary or percentage terms (and probably several other ways). My own interpretation, I would expect a currency value if I heard the term 'profit' (e.g. £1m profit).

[TwigtheWonderkid]

xRIEx said:

Mark up is pretty much limited to the retail sector; most of e.g. the service sector has no unit product cost.

I've never used profit percentage, but that isn't to say it doesn't have a formal definition. "Profit" is ambiguous, because it could be expressed in monetary or percentage terms (and probably several other ways). My own interpretation, I would expect a currency value if I heard the term 'profit' (e.g. £1m profit).

I agree mark up is favoured when you are actually making or buying something tangible to sell. You have a unit cost price to work on. Far harder when you're selling knowledge, like a dentist or a lawyer.

But ultimately, if a lawyer calculated that running his office in its entirety had cost £100K for the year, and his fee income was £200K, that's 50% profit. (gross profit, then he has taxes etc.)

[FredClogs]

TwigtheWonderkid said:

But ultimately, if a lawyer calculated that running his office in its entirety had cost £100K for the year...

He'd be lying, 99.99% of the time...

[TwigtheWonderkid]

FredClogs said:

TwigtheWonderkid said:

But ultimately, if a lawyer calculated that running his office in its entirety had cost £100K for the year...

He'd be lying, 99.99% of the time...

He would only be lying when his lips were moving.

[Some Gump]

Daft question:

Several posters have basically said "I'm doing it wrong. I know I am doing it wrong, but I'll keep doing it wrong because I want to."

Why? I don't get it.

I find out I'm doing it wrong every week. I always try to learn from that and not be wrong next week - because next week I'll be busy doing something else wrong. Why would anyone want to be consciously wrong on an ongoing basis? It makes less sense than this recent trend of grown men wearing bangles made of elastic bands at work...

[TwigtheWonderkid]

Wrong is the new right!

[FredClogs]

TwigtheWonderkid said:

Wrong is the new right!

50% of facts will be wrong in a few years, that's true, Stephen Fry said it on QI, there's very little in the realms of human knowledge that is fixed, obviously that may not be 100% true.

[Tony2or4]

My question has got a bit swamped by the discussion, so I'll just repost it...

Tony2or4 said:

SidJames said:

I train managers how to interpret performance data, and one example I start off with is :

"If you were on £75 a day, what % pay rise would you want to be on £100 a day"

I've lost count of those that only want to be on £93.75 a day.

In the discussion about percentage profit only half a dozen or so postings back, it appeared that the business world calculates profit as a percentage of selling price instead of cost price.

Just to check that I'm following this, are you saying that your trainee managers, having got the hang of that idea, are then applying the same principal - but inappropriately - to the case of pay increases, thereby giving 25% as their answer instead of 331/3%?


As I mentioned before:

Tony2or4 said:

Just shows that I know sod all about business.

[RizzoTheRat]

TheInternet said:

FredClogs said:

The real engineering answer is that it's not possible without error.

Would a proper engineer not be more familiar with mathematical notation?

That's how you separate Americans from real engineers

[SidJames]

Tony2or4 said:

SidJames said:

I train managers how to interpret performance data, and one example I start off with is :

"If you were on £75 a day, what % pay rise would you want to be on £100 a day"

I've lost count of those that only want to be on £93.75 a day.

In the discussion about percentage profit only half a dozen or so postings back, it appeared that the business world calculates profit as a percentage of selling price instead of cost price.

Just to check that I'm following this, are you saying that your trainee managers, having got the hang of that idea, are then applying the same principal - but inappropriately - to the case of pay increases, thereby giving 25% as their answer instead of 331/3%?

I don't think the two are related. The managers I teach are on the first rungs of operational management, mostly older, mostly without formal school qualifications having risen through the ranks. We expect them to manage the performance of staff we set targets for, so it's really basic stuff, and it's almost back to school for them. (It isn't basic numeracy they get that as part of the rise through the ranks!, but these guys don't get to play with profit and loss.)

Those that do (in our business) are pretty astute, and will measure profit as a proportion of cost, not as a proportion of profit over revenue. That in our world of small single digit returns would be a disaster

[pingu393]

Some Gump said:

Daft question:

Several posters have basically said "I'm doing it wrong. I know I am doing it wrong, but I'll keep doing it wrong because I want to."

Why? I don't get it.

Do you ever use the term "centrifugal force"?

Assuming you do, after you've googled it, will you continue to use it?

[Speedy11]

pingu393 said:

Some Gump said:

Daft question:

Several posters have basically said "I'm doing it wrong. I know I am doing it wrong, but I'll keep doing it wrong because I want to."

Why? I don't get it.

Do you ever use the term "centrifugal force"?

Assuming you do, after you've googled it, will you continue to use it?

Or using kilograms when talking about weights.

[Some Gump]

I don't need to google centrepetal force, or mass vs weight - but there is a difference between pedantry and stubborness.
To refer to a markup of 100% isn't a common nomenclature thing, it's just wrong - plain wrong.

In your examples, when people use weight and use kilos, we can all undertand what they're talking about because to all extent that it matters, gravity is relatively constant around the globe. IF you were sitting a physics / chemistry / etc degree, then to highlight the error would be correct, otherwise it's just being a picky git. Again, for the centrifugal force point, of course in an exam you are right. However, using the term in conversation is normal.

Now i expect you both to be saying "ha! Look, he's arguing our point for us!". I'm not - calling mark up profit or margin is more similar to mistaking averages, and not calling the median the mode. If someone in the street says average, they are mostly referring to mean inless stated otherwise; if someone says profit, then it shoukd be margin unless stated otherwise.

[Speedy11]

Some Gump said:

I don't need to google centrepetal force, or mass vs weight - but there is a difference between pedantry and stubborness.
To refer to a markup of 100% isn't a common nomenclature thing, it's just wrong - plain wrong.

In your examples, when people use weight and use kilos, we can all undertand what they're talking about because to all extent that it matters, gravity is relatively constant around the globe. IF you were sitting a physics / chemistry / etc degree, then to highlight the error would be correct, otherwise it's just being a picky git. Again, for the centrifugal force point, of course in an exam you are right. However, using the term in conversation is normal.

Now i expect you both to be saying "ha! Look, he's arguing our point for us!". I'm not - calling mark up profit or margin is more similar to mistaking averages, and not calling the median the mode. If someone in the street says average, they are mostly referring to mean inless stated otherwise; if someone says profit, then it shoukd be margin unless stated otherwise.

You said

Some Gump said:

Daft question:

Several posters have basically said "I'm doing it wrong. I know I am doing it wrong, but I'll keep doing it wrong because I want to."

Why? I don't get it.

I find out I'm doing it wrong every week. I always try to learn from that and not be wrong next week ... Why would anyone want to be consciously wrong on an ongoing basis?

You use kilos incorrectly, you know your using it is wrong but you will still use it wrong on an ongoing basis. Other people use the term profit incorrectly even though some of them know its wrong for the same reason as you will still use kilos incorrectly. Nobody out side of physics cares about the difference between mass and weights, nobody out side of accounting cares about the difference between profit/markup etc

[TwigtheWonderkid]

Some Gump said:

To refer to a markup of 100% isn't a common nomenclature thing, it's just wrong - plain wrong.

No it isn't. A mark up of 100%, or more, is absolutely fine. It's when people talk about a profit of 100% on something they paid for in the first place that they have, in my view, got it wrong.

[TwigtheWonderkid]

Speedy11 said:

nobody out side of accounting cares about the difference between profit/markup etc

I don't think that's right. My youngest got into bother at school for buying sweets at Poundland, taking them to school and selling them to kids. When I got a call from the school about what was going on, she explained that my son had confessed that he was buying packets 7 packets of chewy sweets for £1, selling at 30p a pack, so was marking up by 110% and making a 52% profit. As she was his maths teacher, she said she was appalled by his irresponsible behavior, but impressed by his clear grasp of the economics. He was 13 at the time.

[BrassMan]

TwigtheWonderkid said:

As she was his maths teacher, she said she was appalled by his irresponsible behaviour, but impressed by his clear grasp of the economics.

He'll go far, but I'm not sure where to.

[andy_s]

mph1977 said:

Tony2or4 said:

amancalledrob said:

Thanks chaps for an excellent demonstration of the problem I face on a daily basis

Yes, but you still haven't shown us the calculation which ends with "Therefore the percentage increase is 15%".

the undiscounted premium is 200

100/200 = .5

130/200 = .65

100 to 130 of 200 is 15 % (.5 to .65)

I'm more concerned that for years, on a daily basis, you've been frustrated at why people generally don't understand something and haven't thought to present/explain it better.

Repeating the same thing whilst hoping for a different outcome is worse than not understanding percentages I think...