Who can solve this?

Discussion in 'Chit Chat' started by Rami, Jun 14, 2006.

  1. Rami


    My dad asked me this business-related question earlier and I'm stumped.

    Would you be better off losing half of your sales volume or half of your net profit?

    I have a few ideas and I know a lot of it depends of a few or maybe several factors (such as variable or operating costs, etc.)

    Any ideas?

  2. TGregg


    In general, half net is better. Since all businesses have fixed costs, losing half your sales volume results in a greater than half your net profits loss.

    For example, Joe the travelling widget salesman has fixed costs like his car and cell phone. He also has incremental costs like the cost of the widget, business cards, billing expenses, etc. If you cut his sales volume in half, his incremental costs are cut in half (more or less) but his fixed costs stay the same (more or less). So his revenue is cut in half, but his expenses are not, which means his net profit is cut by more than 50%.
  3. Ricter


    You're better off losing half your sales volume, and cutting expenses to match. More time off is better:

    "An American tourist was at the pier of a small coastal Mexican village when a small boat with just one fisherman docked.

    Inside the small boat were several large yellowfin tuna. The tourist complimented the Mexican on the quality of his fish and asked how long it took to catch them.

    The Mexican replied, "Only a little while."

    The tourist then asked, "Why didn't you stay out longer and catch more fish?"

    The Mexican said, "With this I have more than enough to support my family's needs."

    The tourist then asked, "But what do you do with the rest of your time?"

    The Mexican fisherman said, "I sleep late, fish a little, play with my children, take siesta with my wife, Maria, stroll into the village each evening where I sip wine and play guitar with my amigos, I have a full and busy life."

    The tourist scoffed, " I can help you. You should spend more time fishing; and with the proceeds, buy a bigger boat: With the proceeds from the bigger boat you could buy several boats. Eventually you would have a fleet of fishing boats. Instead of selling your catch to a middleman you would sell directly to the processor; eventually opening your own cannery. You would control the product, processing and distribution. You could leave this small coastal fishing village and move to Mexico City, then Los Angeles and eventually New York where you could run your ever-expanding enterprise."

    The Mexican fisherman asked, "But, how long will this all take?"

    The tourist replied, "15 to 20 years."

    "But what then?" asked the Mexican.

    The tourist laughed and said, "That's the best part. When the time is right you would sell your company stock to the public and become very rich, you would make millions."

    "Millions?...Then what?"

    The American said, "Then you would retire. Move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take siesta with your wife, stroll to the village in the evenings where you could sip wine and play your guitar with your amigos."'
  4. jem


    No way to answer the question. There is always the chance that you start to lose money on your last units or lets say you were supposed to supply a gasoline retailer gas at a buck a gallon for 2004 2005 and 2006.
  5. pattersb

    pattersb Guest

    As I interrept the question:

    Option 1. Lose half your revenues, maintain profits.
    Option 2. Lose half your profits, maintain revenues.

    If so, I think the answer is obvious. Seems silly to earn half for the same amount work. Much better to earn the same for half the work!