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If the profit margin is 2% but it increases to 3%, that’s a 50% increase in profit.
by mdavidn 5y ago
If the profit margin is 2% but it increases to 3%, that’s a 50% increase in profit.
- seanmcdirmid 5y agoYes, the same trick can be used when writing a scientific paper: "we improve process X's accuracy by 150%!" (when the base is 1% accurate, it is now 2.5% accurate).
- ajit_singh 5y agoThis trick is used all the time. In my previous SaaS company we used to write case studies to show the impact caused by our product on the business' bottomline. A typical impact used to be like conversion increased from 10% to 12%. However, this impact used to seem very tiny and absolutely not case study worthy. Hence, we would deliberately calculate impact by taking not the previous sales but the previous conversion rate as the denominator. Thus, would 10 to 12% growth would go like "we increased Y's conversion rate by 20%." Can't be mathematically disputed and totally clickbaity at the same time.
- sokoloff 5y agoIn that case, it’s not particularly misleading. All else equal, I’d expect an increase of 20% of sales, not an increase of 2%. Sure, a clarifying footnote/endnote would be nice.
- jtbayly 5y agoYep. And if wages cost 33% of the income, to increase the worker pay by three percent will take 100% of the additional profit. That is why a 50% increase in profit tells you nothing about how much wages can increase.