Get ready to challenge your financial savvy and uncover the true measures of business success as we unravel the complexities of profit margins. This deep dive isn't just about the figures; it's an exploration of efficiency, the lifeblood of investments and entrepreneurship. You'll walk away with a keener sense of how profit margins truly reflect a company's capacity to transform revenue into gains and why they matter more than the bottom line when cruising through the tempest of market fluctuations and economic uncertainty.
We explore the tough choices businesses face when navigating rising costs—decisions that can make or break their profitability. We untangling the web of pricing, wages, layoffs, and how these factors spin together to affect profit margins. We're not just talking numbers here; it's a narrative of risk, strategy, and the relentless pursuit of efficiency. By the end, you'll be equipped to see beyond the profit headlines and appreciate the strategic moves that fortify a company's financial health.
Finally, we strip away the myths surrounding profit margins and personal finance. Ever wondered why your extra cash seems to vanish despite your best intentions, or why a company's stock might dip despite announcing higher profits? We're peeling back the layers of these perplexing phenomena and examining the impact of inflation on our perception of success. So tune in for an honest, enlightening conversation that promises to reshape your view of money, business, and the true meaning of innovation and efficiency.
______________________________________________________________
Looking for additional content that can help you get the most from your life? Check out Unleashing Leadership with Travis Maus, premium bonus content from Ditch the Suits Fans, at https://unleashingleadership.buzzsprout.com/
Thanks to our sponsor, S.E.E.D. Planning Group! S.E.E.D. is a fee-only financial planning firm with a fiduciary obligation to put your best interest first. Schedule your free discovery meeting at www.seedpg.com
Ditch the Suits is produced by NQR Media. NQR also produces the One Big Thing Podcast with Steve Campbell.
You can watch all episodes, as well as other great content produced by NQR Media through their YouTube channel at https://youtube.com/@NQRMedia
📧 For more information or to get in touch with us, visit https://www.ditchthesuits.com/ or email us at info@ditchthesuits.com
👍🏼 You can also follow us on Facebook, Instagram and Twitter at @nqrmedia
⭐⭐⭐⭐⭐ We'd also love for you to subscribe to this podcast and leave a 5-star rating and review
Get ready to challenge your financial savvy and uncover the true measures of business success as we unravel the complexities of profit margins. This deep dive isn't just about the figures; it's an exploration of efficiency, the lifeblood of investments and entrepreneurship. You'll walk away with a keener sense of how profit margins truly reflect a company's capacity to transform revenue into gains and why they matter more than the bottom line when cruising through the tempest of market fluctuations and economic uncertainty.
We explore the tough choices businesses face when navigating rising costs—decisions that can make or break their profitability. We untangling the web of pricing, wages, layoffs, and how these factors spin together to affect profit margins. We're not just talking numbers here; it's a narrative of risk, strategy, and the relentless pursuit of efficiency. By the end, you'll be equipped to see beyond the profit headlines and appreciate the strategic moves that fortify a company's financial health.
Finally, we strip away the myths surrounding profit margins and personal finance. Ever wondered why your extra cash seems to vanish despite your best intentions, or why a company's stock might dip despite announcing higher profits? We're peeling back the layers of these perplexing phenomena and examining the impact of inflation on our perception of success. So tune in for an honest, enlightening conversation that promises to reshape your view of money, business, and the true meaning of innovation and efficiency.
______________________________________________________________
Looking for additional content that can help you get the most from your life? Check out Unleashing Leadership with Travis Maus, premium bonus content from Ditch the Suits Fans, at https://unleashingleadership.buzzsprout.com/
Thanks to our sponsor, S.E.E.D. Planning Group! S.E.E.D. is a fee-only financial planning firm with a fiduciary obligation to put your best interest first. Schedule your free discovery meeting at www.seedpg.com
Ditch the Suits is produced by NQR Media. NQR also produces the One Big Thing Podcast with Steve Campbell.
You can watch all episodes, as well as other great content produced by NQR Media through their YouTube channel at https://youtube.com/@NQRMedia
📧 For more information or to get in touch with us, visit https://www.ditchthesuits.com/ or email us at info@ditchthesuits.com
👍🏼 You can also follow us on Facebook, Instagram and Twitter at @nqrmedia
⭐⭐⭐⭐⭐ We'd also love for you to subscribe to this podcast and leave a 5-star rating and review
Welcome to Ditch the Suits podcast, where we share insights nobody in the financial services industry wants you to know about. We're here to help you get the most remoney in life, so buckle up and welcome to Ditch the Suits. Welcome back to Ditch the Suits, stephen Travis, here with you. We're going to be continuing episode number two talking around this idea of corporate profits. As we had mentioned, it's a political season. There's a lot of finger pointing, there is a lot of issues surrounding inflation and how do you make sense of it.
Speaker 1:First episode, we talked about this idea of, just at its basics. What are profits? What are they? They're the rewards for entrepreneurs and business owners for the risk that they take for starting businesses and having ideas. Well, we had left that episode describing that there's something even more important than profits that helps add context to this, and it's this idea around profit margins. Again, we don't want to leave you if you don't really understand how profit margins work. So, travis, when we say they're more important, I think what's a good starting point as to leading into why profit margins are more important than profits themselves.
Speaker 2:We mentioned it in the last episode. We mentioned corruption, and politicians can be corrupt, corporations can be corrupt, individuals can be corrupt. I think that, in general, there's a corruption of the language, of the terms that we're using, because I think, when we use terms that are confusing to people and we broad brush things, it's easy to categorize things in broad groups and really provoke response, because it's okay. I understand what a corporation is, and I understand profit is about me making money, and therefore corporations make too much money. They must be bad, and we're going to go through kind of how the numbers actually the numbers gained behind this, because you mentioned profit and profit margin. Profit is how much money you have. Profit margin, though, is how much profit from every dollar of revenue you get, which are completely different things, and the reason why is, let's say, it costs you a billion dollars to make a million. That's very different than if it costs you a million dollars to make a billion.
Speaker 1:Right and I think then. So I understand that profit margins are more important, but tell us more like what is actually involved and what can help somebody make context of why profit margins are so important.
Speaker 2:Well, when you invest in a company, you really buy or invest in a company for one reason, and that's to make money.
Speaker 2:I mean some people, when you get to the real small businesses, like maybe you individually want to start a business, you may want to start a business because of a lifestyle decisions or things like that, but when you're talking about investing, when you're talking about companies that make it to large corporate status and those types of things, people put their money in them for one reason, and that's to make money. Money is a measurement of profit. Lots of companies have profit, though. So again, it's like I want to make money. I'm probably going to be able to make at least a little bit of money. But the argument is but what about if we're making too much money? And before we get into kind of breaking that down, I would say it like this for anybody who's saying well, you know, I want businesses that are corporate responsibility and those types of things, that's when all things are equal, right, nobody is going to be very successful if they go out there and they say you know what? I've got two investments, two companies that I could buy. One company makes a lot of money, but I don't like the guy running it. He's a jerk right and he says stuff that he shouldn't say. And the other company they don't make any money. But the guy who runs it's really nice guy, but the business isn't that great. It's not a great product. They're probably, in fact they may even go out of business next year.
Speaker 2:You're going to take a hundred grand out of your savings account and you're going to give it to one of these two people to go make you more money. You're gonna put it behind one of those two people, the guy you can't stand. But they make money hand over fist, and let's say that they're doing it all ethically. You just don't like them for whatever reason. And then you got the other guy who you really like, but they can't seem to make any money out of anything and in fact they may even lose your money. Who are you gonna get the money to? You're not gonna give it to the guy that you really like and they can't make any money. Or if you do, that's probably why you're broke. Those are really bad decisions. So you may say, well, I'm not gonna give it to that guy. I won't give it to the other guy because I don't like him, but you're certainly not gonna say okay between the two. If I had to give my money to one of them, you're gonna give it to the guy who makes money Because you're gonna want your 100 grand back someday.
Speaker 2:You know, this is like one of those things. People get bent on a shape. I'll give a loan to you but I expect you to pay me back, right? Well, investing in a company that doesn't make money is like giving a loan to somebody and knowing that you're never gonna get paid back. Who puts money in their 401k or in their brokerage account or someplace else? So it goes here's my money, it's okay. If I never get it back, I won't hold it against you, I won't be upset. I don't know anybody who does that. But yeah, when we're thinking about you know the reason why we invest, we somehow get a little bit distorted. The reason you invest is to make money. The number one goal is to make money. Lots of businesses make money. So then the next question is I wanna make the most money for every dollar that I invest. That's the goal.
Speaker 1:Let's pause and hear a word from our sponsor. This episode is brought to you by the One Big Thing podcast. If you're in the thick of life as a parent or a spouse and just trying to grow as a person, then you won't wanna miss this show. Hosted by Steve Campbell. The One Big Thing is an interview style podcast where he brings you guests from all walks of life picture professional athletes, influencers, business owners and even some rock and stay at home moms. Each episode will bring you, as a listener, a life hack or a way of looking at life that will help you move from inspiration to transformation. Listen to the One Big Thing podcast on all major podcast platforms today.
Speaker 1:I think, for those that may be new, to Ditch the Suits with us.
Speaker 1:We have a couple of years worth of episodes now, and I think what you just talked about, which is I wanna align my money with my values that's true, but to a certain extent, there's an entire episode that we went through with ESG and socially responsible investing that, if you're new to the show, I'd encourage you to go check out and listen to.
Speaker 1:It was a really interesting dialogue that we went through, which is like how far are we really gonna go with some of this information before we say the reason we invest is to make money, and I think then, if you're talking about that right For those that may not be entrepreneurs, we talked about that profit is really the reward for the risk that you take when you start, when you put your home up as collateral. That is really your return for the risk for sticking it out. But if we say that profit margin then is more important for those that may not be making products every day or understand sales transactions, what are some examples then that can help people start to have that light bulb moment of okay, now I start to understand how profit margins work.
Speaker 2:Yeah.
Speaker 2:So if a company sells a product for $1,000, and let's say every product they sell for $1,000, just pretend these are washing machines.
Speaker 2:For every washing machine for $1,000, they sell, they get a $100 profit. It costs them $900 to build it, market it, sell it, pay commissions, all that kind of stuff. They end up with a hundred bucks left over. Then you got another company and they make washers, but their washers cost $2,000. However, they still only make a hundred bucks for every washer they sell. Both of them make $100 per washer, but one of them it costs a lot more money to make a hundred bucks.
Speaker 2:So if a company makes $100 off of a $2,000 washer, that means it costs $1,900 to produce and sell it. Someone has to front the $1,900 before it can be sold. Somebody is taking the risk. The business owners are taking the risk. Somebody is taking risk of $1,900 that somebody on the end of this is going to buy that washing machine for $2,000. $1,900 risk. If you get a hundred bucks, what's that? Off of a $2,000 price? That's a 5% return, basically right. So we're gonna make 5% off of this product that we sell. That's essentially your margin there. It's 5%.
Speaker 2:If a company makes $100 off the $1,000 washer. That means it's taking risk on $900, and it gets a hundred bucks, which is a 10% return off of the $1,000 sale price. So it's taking less risk, less financial risk, and it's actually making a higher return for that risk. So the company can produce two washers for every one that the other company can and it makes the same amount of profit per unit sold. But if it's selling two units for every one that the other one is doing it for the same amount of risk that it's got to take on, right, it's actually a little bit less because in this case it'd be $1,800 versus the $1,900 risk for the $2,000 washer. They're actually taking less risk and they're making $100 per washer. They're making more return. So the reason why you need to be concerned about how much money per unit that it's making is because there's other risks out there.
Speaker 2:Like you have an input cost. This is what it costs to build that and here's the price. And the price is that's at the store already and that's like what this thing is going to sell for. And if all of a sudden some of the input costs change and because the cycle of these things, maybe those input costs change before the price changes at the store. So if it no longer costs $900 to build this product and it goes up to $950 to build the product and my price is still at $1,000, it just hasn't caught up yet, which is normally what triggers a recession, as the prices haven't caught up yet. With the underlying cost of things going up, that would trigger a recession, or could, because it would make companies look not profitable and it could be a well, it doesn't necessarily trigger a recession, but it certainly triggers economic volatility, Significant market volatility, significant economic volatility, and a lot of times you're going to have a recession in those types of environments.
Speaker 2:But let's say that the input costs, gas prices went through the roof and all that kind of stuff, and now it's $950 to produce the same product. I'm still making a $50 product. I'm still making a 5% return on it. But that $2,000 product, well, if the cost went up $50, let's say per thousand you have no profit left. You now have $0 left over.
Speaker 2:So all your employees want to raise next year. That means you have to make more money on the stuff that you're selling or you have to sell more of it. So you don't sell anymore, you don't make any more money on it. I guess what you can't do, you can't give everybody a raise. Or if you're going to give everybody a raise, you're going to have to decide who you're laying off so that you can afford to give everybody a raise that's left over.
Speaker 2:So you can see how this tips off an economic cycle. Basically, If the margin of the profit gets too tight, there's not enough room to make cuts or have additional expenses pop up. So the other thing is if you gobble up that profit and there's still debt payments, how are you going to make the debt payments? Or shareholders? Shareholders are the people who put up all the money and they're saying, hey, I want to cut, I want to dividend, or I want to see the value of the stock go up. Well, there's no money to support the value of the stock going up and there's no money to give you a dividend. You, as an investor, are going to say now, that's a horrible investment. What are these fools doing with my money? They're not making any profits and the stock market crashes.
Speaker 1:Well and to help, I think that was an awesome analogy and just even using the examples we've used so far, if you remove the word corruption, which is where I think a lot of people kind of mix these ideas together. But we just talk about smart businesses. If you talk about that small business that took a chance of themselves, they wanted to make a difference, so they invested in themselves, and it took them years of making some money, reinvesting, and they're now that first company that you've talked about. They've reinvested so much that they've been able to figure out how to increase their profit margin by making better products in a faster, more efficient way. You would say, hey, that's a pretty smart investment, right? Because what is that doing? That's going to attract more investors, that's going to attract more people to their business, and that's, I think, what you're talking about in all of this is, if you understand profit margin and you're an investor, to be just kind of shaking your fist at corporate profits and not understanding that you invest money in your 401k and your IRA. You're investing in companies like the example that we just take the word dishwasher or washing machine out of it and label it company A and company B If those are your two investments, with your million dollars, your two million dollars of your investment money.
Speaker 1:It would behoove you to understand what are the profit margins so that you can get a potential better alignment with a company that could be that potential better return because of profit margins. This is how it all ties in together and I think it's really important then. So then, okay, we've talked a little bit about margin and why it's important. Why is it more important than profit with that context? Hey guys, steve Campbell with Ditch the Suits Want to take one quick moment to make a big ask. If you haven't already, travis and I would love for you to subscribe to this podcast, but if you haven't, also we would love for you to leave a five-star rating and review. Your rating and review will let other podcasters know if the show is worth their time. So let's get right back to the episode and thanks for listening to Ditch the Suits podcast.
Speaker 2:Well, and to step back a second on something that you said profits today, because I told you, profits are a measurement of the money you made over the most recent time period. When we say that the company's record profit is today is happening. Today these companies are having record profits. We're measuring that against only the last 12 months or whatever, or possibly even against the fact that in order to get the company to make the profits that it's making today, for instance, it is very normal when you start a business to go 10 years without making any money. So when I started to seed, I could have certainly worked and Ryan, our other original partner, we certainly could have worked for other financial companies making a lot more money than we made, and we sacrificed that money. And not only did we sacrifice that money, but we put our own money into it and we sacrificed all the money that that money would have made. And so when you get to the point where you're profitable and you have a good year, it's not like, oh, that year was too good. That's not fair. That year was eight years before that that you sacrificed and you got a long way to catch up to where you would have been had you had gone a different path. But you take the risk because you believe in where you're going and you're believing that you can do it differently and you're believing that you can bring value to people, so you take this risk. So the issue with profits and reading profits today and saying you know what they made a bunch of profits and therefore you know it's no good is the fact that, like you said I think you alluded to this at least like profits today. Do not count all the reinvested profits along the way, all the money that when them, when, when Amazon took 20 years to really get going, all the money that was reinvested in the infrastructure and buying up other businesses and making it the behemoth that it is. There were lots and lots of years where it didn't look like it made any profits. Now it makes lots of profits and people go. I can't believe how many profits it's making. It's all record price, like, yeah, because they sacrificed and they reinvested and they, you know, I mean they built and built and built and built and now they've got these record profits. But it's there's for the people who sacrificed for the first 20 years.
Speaker 2:Most people have a hard time sacrificing for three months or six months or a year. I mean, just look at diets and gym memberships and all that kind of stuff. Like we have a hard time actually getting ourselves committed to something and making through three months, six months, people with investments that investments a loser. It's like it's been down for three months. What do you mean it's a loser? Well, I haven't made money on it. It's like you've owned it for three months, had that in the grand scheme of a corporate lifetime. That's a day that doesn't even. It's not even registering yet. You haven't even had like an entire cycle yet with that business.
Speaker 2:But we're already judging it. We're very, very impatient in the way that, like if you had to commit to waiting 20 years to making some money on something, most people would not do it. Most people say, no, you know what, I can't. If I give you a hundred grand today and I don't see any return on that for 20 years, I don't even believe that I'm going to get it. In fact, if they don't see some money on that within the next two years, they're probably not going to be very happy about it. So, all right, a little bit of a tangent.
Speaker 2:But to get back on why the margin is more important than the profit. And this is again, this is a head game that gets played with us. Excuse me, if you buy a company that makes $10 for every $100 products that it sells, you pay a specific price for that company because it's got a 10% margin. So you go on and you say look for every $100 that that company. Well, for every $90 that that company spends, it's going to make $10. I like that, I want to make that, I want to get a cut of that $10 for every single thing that it does. Imagine if that amount that it makes on every $100 actually increases to $11. So it went from $10 to $11. Now you make $11 for every $90, essentially well, actually every $89. So you're making $11 on $100, that means that your cost actually went down. So now you're making that extra dollar, you're making $11. That's a 1% increase in margins, 1% increase.
Speaker 2:Or I could say that you know what that's a 10% increase in the margin, right, one divided by the 10. Or I could say that's a record profit. You've never made so much money. You sold 100 units last year and you made $1,000. And this year you sold 100 units and you made $1,100.
Speaker 2:Record profit, say 1% difference. How much was inflation last year? Hell of a lot more than 1%. Does that record profit equate to somehow somebody's ripped you off? Like the reason why your food went up 50% is because the company made a 50% greater profit? Nope, those numbers aren't adding up anymore. It's still just $1 for every $100. So what happens, though, if I go, okay, steve, I make $1 for every product, I make $10 for every $100 that thing that we sell, right? Let's say that we're selling car tires and they're each $100, and for every car tire I would get $10. And last year I only sold I'm a new company I only sold 100 tires, so add two zeros to that, that means that's $10,000 in sales. I make $1,000. Then I do some Instagram stuff and I go viral and everybody comes and buys my tires, and I sell $100,000 worth of tires next year, and now my profit is $10,000. Record profit still $10 for every $100 for every tire. Am I doing something unethical by still making my $10 per tire even though I have record profits?
Speaker 1:And I guess I would pose this I think you would kind of elude to it in the first episode which is I think we have sometimes a greater idea of what we think we do when certain things will happen than what we actually end up doing. What I mean by that is when you talk about profits from just our everyday personal lives. If I had more profit, I would be smart and save that money. When push comes to shove and you finally have profits, what do most people do as families? Take a dream vacation, go buy the new car. We don't do the things that. We just say if only I had more money, I would be able to invest more.
Speaker 1:And I feel like it's kind of what we're talking about with this whole idea with companies.
Speaker 1:Is we're getting angry for the fact that we're hearing things like record profits and not understanding that it's almost like we're being sold, that these companies are killing your future in dreams that if you could just lower the price in grocery stores and put more money in your pocket, then you would always do the right thing as an individual and invest that money. So are we getting mad at the wrong things because it's being told that's who's doing this to you, and now we're all of a sudden going to be super benevolent and good stewards of all this extra money. So I think this whole idea around margins is really important to understand that, even if you don't understand companies, you still get the opportunity to invest in these type of companies. So even just understanding from an investment standpoint what you're looking at and the very cool opportunity that we have as people to own bricks of companies and participate in their profits and what their revenues and what they're making, I think even understanding this for most people is probably more eye-opening of like okay, I never really understood that's how margins work.
Speaker 1:Like, tell me more. Like, what are the things that I should be aware of, so that when I hear certain news, I can either back that up or say, hey, whoa, hold on a minute, that's not true. So what else within profit margins is important for people to know?
Speaker 2:Well, people are also confused. All the time. You'll get earnings report season and they come out and they say, oh, record profits for a company, and somehow the company stock still goes down. Like, why, thought, if record profits were so good, why would the stock price go down? And so the only logical conclusion I can come to is, if record profits are a bad thing, that investors are punishing the companies for making too much money, which is a silly thing to actually think about, because most people are saying they make more money, I want to have them. Here's what's actually happening. Imagine if the amount of money that you actually make on your $100 profit or your $100 product, you're selling tires again, and now, instead of making $10, I make $9 per tire. So this is obviously not good, because even if I sell more so let's say that I did my numbers there what did I say? We sold a thousand.
Speaker 1:Is this when we went viral?
Speaker 2:Yeah, well, let's say we sold a hundred hundred dollar tires and that's $10,000, and that means we made 900 bucks for the year. And then we go viral Yep, right Now we sell a thousand tires and that's $100,000 and that's a $9,000 profit. We had to work extra hard, right, we actually worked a lot harder. We had a lot more tires that we had to sell and we actually made less money per tire. We have record profits, but we actually have less money per unit.
Speaker 2:So, as an investor, you're saying listen, man, for every hundred bucks that I have invested with you, you know what I mean. Basically, when I give you my money and you're using my money, I'm expecting to make the business to make a 10% profit on it, and now the company is making 9% profit on all of their products. I'm going to take my money back, right, because I'm looking at this going. You were making 10%, now you're only making 9%. That's not good. I wanted a company that was making 10%, so I'm going to sell my investment and go buy a company that makes 10% with my money. That's the thought process in that.
Speaker 2:So when you see the stock market and the stock market, or the stock or even the stock market crashes, even though there's record profits, the reason is because that margin is constricting or it's not expanding the way that it's thought that it should be expanding. So if you say, okay, there's record inflation, wouldn't you expect margins to get much, much bigger Because you'd say, record profits? The companies are price gouging. That's why we have inflation. That margin should be getting bigger. Well, if the margin isn't getting bigger, if it's possibly even getting smaller, even though we're making more money because we're selling more units, we're having to do more work or we're having to front more capital to get that same, you know, to get that record profit. So the profit per unit that we're making is actually going down.
Speaker 2:That's a concerning issue. You might do it purposefully right. There might be a business that says we're going to disrupt, we're going to go based on volume, and so we're going to undercut prices because we're in a volume and through volume we're going to find some synergies and that's where we're going to make up our profit, or whatever that may be the case, but in most cases, when you're talking broadly across the market, it's not a good thing to see margin erosion, to see margin shrink. That means that the company or the product is not in as good a shape as it was in the prior period, and that's also why you see layoffs and it's why you see plants get closed down and it's why you see prices increase because they go. Oh my gosh, we're not making as much per unit as we were making. We should have record profits, but it's costing us more and more to produce to get to actually make less and less money. So we need to adjust our input costs or the price.
Speaker 1:Well, and you said it in the first episode, that the news does not educate. The news stirs up emotion. We hope that through this podcast, we actually educate you, because now it's been interesting that the same concept has carried over from many different series that we've done, which is what you are being forced with as you are trying to live your life and make good decisions. Now that you understand profit margins, it helps you understand how to make sense of this news. When you hear record profits and you see the stock price go down, what happened? What was missing? Same thing, when you scour the internet and you go to search up certain terms and you get these are the best investments. We did an entire series on that. You see the word best, so you assume that you're getting truthful information and then you start to read the article and it's crap. But if you don't know that, you could be led astray and take an action. What I think you and I are trying to do is help give you enough information to educate you, enough to understand how to move the ball forward in your life. And I think, as I was thinking about what you were talking about, if you see the fact that record profits but the stock price goes down and you panic.
Speaker 1:I think a lot of investors also are very emotional and you have to understand that. We've talked about this in videos over the years. The stock market is just that. It's a marketplace. There's buyers and there's sellers. There's not just things happening by a computer, necessarily, unless an algorithm kicks in, but there's a seller and a buyer on the other side. When people get panicked and they sell things, it can create fear in all of this. But if you understand this information, then you understand. Should I hold something? Was it seasonal? Was there some kind of disruption in the business chain? This is the kind of empowerment Go as deep as you want to go with all of this. But I think that this is the exciting part is the more information that you want to make educated decisions, the more that's available, and so I think that this was a super helpful kind of conversation. Was there anything else that you wanted to leave off with before we close out about profit margins?
Speaker 2:Yeah, and it's going to lead us right into our corporate profits to blame for high inflation. To keep this simple, let's pretend that our expenses double. So let's pretend that our tires now the cost of the tires is going to go up, the cost of the tires that we're actually selling. So we had a $10 profit on each of the $100 tires that we were selling. So the cost was really $90. So what if it costs double that now to make the tire? And it costs that because of taxes and tariffs and manufacturing costs and labor shortages, whatever it is, the cost to make that tire goes from $90 to $180. Well, shouldn't the margin be the same? I was making $10 per every hundred before. Shouldn't I still be making $10 for every hundred? So the price, the cost, went from $90 to $180. The price goes from $100 to $200. It's the same math, same 10% margin, same return on the money invested in the company. I want to make my $10 per every 100 of product that I'm selling. When we're looking at inflation, we're saying okay, what's the impact of inflation?
Speaker 2:Inflation, in a lot of ways, is the reason the product is more expensive in the first place. It costs more to put that product together All the bits and pieces along the way. If it's got raw materials in it, it costs more to get those materials. Get them into the country, get them put together. Get the pieces put together for the next company to procure them. Put those pieces together. Have the patents. Have the workers do it all. Put the pieces together. Get it to the store. The store's got to pay laborers. The store's got to pay somebody to stock the shelves. They got to pay people to help you at the cash register, pack your bags, that kind of stuff. If all those costs go up, that's where the inflation is. That just gets passed along. Inflation is a tax. It is just simply passed along to you. Here you go.
Speaker 2:It was 100. I was making 10 bucks. Now it's 200. I'm going to make 20 bucks. Same 10%. But we do this. We're stuck for some reason in yesterday. We're stuck in $10 yesterday and $10 today. So it was $10 yesterday. It's $20 today. That's not fair. It's $20 today. But the $20 today is equal to the $10 yesterday, basically. But our minds haven't caught up to that. It's like I can't believe they're making $20 today. Well darn it. Don't you want to raise two? I can't believe that. People back in the 80s were making $5,000 a year and they're making $50,000 by the time I graduated college. That was pretty amazing. That's inflation.
Speaker 1:Well, I think that's such a cool story, because if you've been tracking from the first example of an individual profits up to a company, shouldn't we celebrate companies that have figured out how to work smarter, make better products and all those tiny bits and pieces to source them correctly so that they do have a healthy profit margin? Wouldn't that be something? But it's almost like we get angry at success and we make success equal corruption and greed. The only reason you're successful is because you must have done something or screwed somebody along the way. What if it's also just really good companies? And we have to learn how to separate corruption from this idea of profits, profit margin. So I think, as we enter this next conversation really surrounding inflation, I think it's really going to be eye-opening if you've struck with us. So again, thanks for stopping by. I did just reach out to Travis and I, but, as always, we're here to help you get the most from your money in life.