# Are You Losing Money By Calculating Margins Wrong?

Are You Leaving Money On The Table?

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

2. The difference between margins and mark ups

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.

Photo by MrVJTod Released under Creative Commons License

# A Bad Microphone Means A Bad Video – Getting Started in Video Part 3

A Good Lavalier Microphone

New videographers often overlook one crucial piece of equipment – the microphone.

And no wonder they do. It’s almost impossible to find a decent camcorder for sale for less than \$1,000.00 with an external mic jack. Newer camcorders have built-in stereo microphones instead, which promise great sound. But the microphone on your camcorder is probably omni-directional, which means it will pick up room noises to the side and back of what you are filming. It is subject to vibration and humming from other components and cables on your camcorder. And it can pick up the noise of the camcorder motor as it turns the tape.

For clean, bright sound, you cannot rely on a built-in microphone.

WHICH MIC IS THE RIGHT MIC?

Experienced videographers often have a bag full of microphones. One may be perfectly suited to a particular situation, but a poor choice in any other video.

Consumer camcorders usually have microphone mini-plugs – similar to the plug on your iPod’s headphones, for instance. More expensive camcorders will have XLR plugs. XLR cables can carry sound better, over longer distances, and high end mics will always use XLR jacks. If you want to use an XLR microphone and your camcorder is equipped with a mini-jack, you will need something like the Beachtek XLR Adapters

A lavalier, or clip on, microphone is perfect for how to videos and product demonstrations where there is just one person speaking. A reasonably good lavalier, like the Audio Technica ATR-3350 Lavalier Omnidirectional Condenser Microphone costs about \$30.00.

If you want a wireless microphone, your choices are more limited, unless you have a very large budget. An excellent wireless microphone is a serious investment.

But, if you can control the environment, the AZDEN WMS-PRO Lavaliere System with Hand-Held Microphone for under \$165.00 comes with a transmitter, a handheld microphone, and a lavalier mic. It gives good results up to about 50 feet. This system is a good compromise between quality and cost. (However, note: you can use the lavalier or the handheld mic – you cannot use both at the same time.)

Many videographers looking for a wireless solution try Bluetooth microphones. They are almost always disappointed, despite the hefty price tag. I’d recommend that you steer clear of Bluetooth microphones for camcorders.

The handheld microphone is useful for “man in the street” interviews. Of course, if you truly are filming “in the street,” dangling cords can be hazardous unless you have a crew to keep track of them. The AZDEN WMS-PRO Lavaliere System with Hand-Held Microphone might be a good budget choice. But if you plan on doing a lot of outdoor filming, think about a boom mic instead.

A boom microphone is simply a shotgun microphone mounted on a long pole (known as a boom pole). Someone holds the microphone above the speaker, out of frame. If you are shooting outside, you’ll want to cover the mic with a wind shield. These are those big, fuzzy covers, sometimes called a “dead cat.”

The Rode VideoMic Directional Shotgun Mic w/Mount makes both an excellent boom microphone and a camera mounted shotgun mic. It comes with a shock mount that snaps into your camcorder’s hotshoe. The microphone should run about \$165.00.

A good boom pole needs to be light, well balanced, and expandable. If you want one for the Rode Videomic, take a look at the Rode Microphones Mini Boompole for about \$115.00

If you are planning to use a boom mic, look for package deals. The microphone, dead cat, and pole can often be purchased together at a discounted price.

DO YOU NEED ALL THIS RIGHT AWAY?

As you can see, a collection of microphones for all occasions can become expensive. Luckily, you probably won’t need more than a wired, lavalier microphone to start making your own How To or product demonstration videos.

As usual, the key to finding the right mic is planning. Know your audience and know your project before you shop.

Keep your early videos simple. Shoot inside, where you can control ambient noise. Have only one narrator, whether in front of or behind the camera. The more complicated the shoot gets, the less likely it is to be done. If you can avoid adding an extra person to handle the sound, at least in the beginning, you will finish more projects.

In Part 4, we’ll look at microphones for use in screencasting.

# How To Choose A Camcorder – Getting Started in Video Part 2

If your videos will be mostly software demonstrations and tutorials, you may need nothing more than a copy of Camtasia.

However, if you plan on making live action videos, even if only for You Tube, you will be adding complexity to your project. You will certainly need additional hardware, including camera, lights, and a microphone, and additional software, such as Sony Movie Studio.

The question isn’t so much, “What should you buy?” as “How Much Must You Spend?”

Let’s look at cameras first.

Again, it helps to know your audience. Will they expect online video similar to what you find on You Tube? These days, that means wide screen format (which can be different than high definition) video. Viewers tend to pass by standard 4:3 format videos as out of date. If your information is at all time sensitive, be sure your camera can shot in wide screen!

If you plan to shoot only the occaisional video, you might find that the best way to test the waters is with the equipment you already own.

Webcams, Digital Cameras and Flips

You don’t need an expensive camcorder for You Tube or web site videos. In fact, you’ll find plenty of videos that were shot with webcams and room lighting. Unfortunately, these videos are poorly lit, poorly framed, and sound tinny. If you want your video to represent your business, you’ll want better quality that that.

Most digital cameras have a video mode, and they can take suprisingly good short videos. Check you still camera and see if it fits your needs. One big draw back to be aware of: the microphone pick up on digital cameras is usually not very good. So don’t forget the audio when you are planning your video. If you want good sound, you may need to find another way to record voice-overs or add a musical backing track.

The next choice is a Flip camcorder. These small, inexpensive camcorders take excellent video for the web. Newer models shoot in hi-def or wide screen. Again – audio is a problem. Flips do not have external microphone jacks. The sound on a Flip video isn’t terrible – but it can be echo-y and full of background noises. So be careful where you record, paying special attention to the acoustics. (Drapes, rugs, and soft surfaces absorb and deaden sound. So a video shot in a livingroom will sound much better than the same video shot in a kitchen.)

The final choice is a “real” camcorder. The question of how you plan to use it now comes into serious play. For exclusively online use (and maybe family vacations), a decent, low end camcorder can be bought for less than \$300.00. Look for brand names you recognize, and read reviews carefully. You are unlikely to find a camcorder with a microphone jack in this price range, so that will still be a limitation if you ever want to use your videos in any offline environment.

Tape or Flash memory? Hard Drive or DVD?

Should you choose a camcorder with a hard drive? One that records to memory cards? One that records to DVD? The answer may suprise you.

While digital is always better in 99.9% of electronics, camcorders are still the exception. The very best quality comes from shooting to DV tape. That is because video shot on tape is uncompressed. The only limitaion on quality is in the quality of the camcorder’s lens and sensors.

Video shot to memory cards, discs, and hard drives is compressed in the camera. This means quality is already compromised even before you begin editing. When you edit that compressed video, you’ll compress the already compressed video for a second (or third or fourth) time. Depending on the quality of the compressor and format used, you can begin to see “artifacts” almost immediately. They may appear as square drop outs or jagged edges or other visible imperfections on your video. The more it is enlarged (i.e., on a 42″ high definition TV screen instead of in a small 320×240 window on your PC monitor), the more obvious the problems will be.

So you can see, there is no simple, one size fits all answer to “Which camera is best.” Are you willing to sacrifice some quality for the convenience of recording to flash memory? Will poor quality discourage high end buyers who might otherwise have been interested in your products?

Better Qualty, Bigger Expense

Knowing your audience will help you choose the right camcorder. If a low end camcorder is not for you, you still face all the same questions: tape or flash memory; CCD or CMOS sensors; external mic jack, etc. Fortunately, at this end of the scale, the choice is pretty simple. There aren’t many camcorders that record in hi-def and have external microphone jacks. In fact, you are basically looking at Canon and Sony.

Here are my suggestions:

If you are willing to spend the money, get the Canon VIXIA HV40 HD HDV Camcorder with 10x Optical Zoom. It has everything you need for first class video, including an external microphone jack and stunning hi definition video. If you can’t afford that price tag, take a look at the Canon VIXIA HF200 HD Flash Memory Camcorder with 15x Optical Zoom. Although it records to memory cards instead of tape, it still takes great footage for several hundred dollars less. It also has an external microphone jack and excellent Canon optics.

Next – Microphones

Throughout this article, I’ve emphasized the ability to use an external microphone with your camcorder. Microphones come in a variety of shapes, from tiny clip ons to overhead boom mics with big fuzzy covers. They can be wired or wireless. And they range from \$25.00 to several thousand dollars in price.

We’ll look at mics more closely in the next article – but for the budget minded, rest easy. You can find an excellent microphone for less than \$40.00.

Please look for Part 3 of this series to learn which mics work best with which camcorders and in which situations.

# Last Chance To Enter To Win Free Web Site Set Up

On Monday, we will be drawing the name of the winner of the How to Make Money Online With Free Web Sites Giveaway contest.

The contest is open to any member of the Web Sellers Circle – even the \$1.00 Trial Members.

You can find full details and rules here: Register To Win

In a nutshell, here’s what’s happening:

You supply the domain name and a web host with CPanel. We’ll do everything else

We’ll

• Build a web site using WordPress
• Optimize the web site for best Google rankings for your longtail keywords

In return – you’ll own the web site and keep all the money generated through affiliate links!

What’s the catch?

1. You must be a member of The Web Sellers Circle to be eligible (\$1.00 Trial members are eligible)
2. We cannot guarantee your acceptance in any 3rd party affiliate program (Amazon, EPN, CJ etc)

Nor can we guarantee that you’ll make lots of money. In fact, it is rare to strike it rich with just one web site. But by working with us and observing how to build a site, you’ll have all the tools you need to add another 5, 10, or 100 such sites to your web hosting account. The more you do – the more potential you’ll have to make a tidy affiliate income.

So don’t miss this chance to put the Web Sellers Circle to work for you. There just isn’t a down side.

# Would You Like To Learn Camtasia?

I  have been using Camtasia since version 3 was new. I have made hundreds of hours of screencasts for myself and for others.

I receive many requests for help with Camtasia and have frequently heard, “You should teach a class.”

So I am wondering – should I teach a class?

I’ve created a brief (6 question) survey to help me figure out if there is any interest in an in depth Camtasia class. No risk – no obligation. But if you might take such a class, please take the survey.

# How To Get Started Making Videos

Overly Complex and Expensive?

Making videos of any kind – whether Camtasia training screencasts, video for You Tube, flash videos for your own web site or blog, or How to DVDs for sale on Amazon – can be dauntingly difficult if you don’t know where to begin. But don’t despair.

Although video production is full of unfamiliar jargon and new (to you) software and equipment, learning the fundamentals of video is surprisingly easy once you dive in.

Here’s all you need to get started:

A clear vision of your project.

Notice, you don’t start off buying a camcorder or editing software or a new computer. You start of with a pencil and paper and you write down an outline of your project. This will be no different than planning any other project. You’ll want the answer to these questions:

• How will the product be delivered?
• How can you simplify your project?
• What need are you filling?

When you can answer those questions, you’ll know exactly what sort of hardware and software the project requires. For instance, if you are planning to make a video demonstrating how to use the GoogleBase Connector with Bonanzle, you know a few things about your audience:

• They like to buy and sell products on the internet
• They need precise, easy to follow directions
• They will watch the video online
• They are unlikely to pay for this particular video

Knowing this – especially the last point – leads to the following decisions:

• For online video, you want to keep run time to somewhere around 5 minutes.
• For software demonstrations, you’ll want to use Camtasia or some other screencasting software
• You can edit and produce the clip in Camtasia, so you won’t need other editing software
• You can upload the finished video to You Tube, your own web site or blog
• You can record, edit, produce, and distribute the entire project for free

So, from a huge world of choices, you’ve narrowed down your options to a simple 5 minute demonstration of a single task that you know a lot of people have questions about. You’ve kept the project focused, so that it can be accomplished in a day (which means you are much more likely to finish it, and not just talk about doing it). You’ve removed expensive camera and lighting equipment from the equation, lowering your costs. And you’ve (maybe) added screencasting to your skills.

Notice I said you can complete the project for free, but I also suggested using Camtasia. Since Camtasia is a pretty expensive program, isn’t this a contradiction?

Not exactly.

If you don’t already own Camtasia, you can download a free, fully functional, 30 day trial copy from TechSmith. You’ll be able to produce your first video for free. After the video has been online for a few weeks, you’ll be better able to judge whether this is an area worth pursuing for your business. Will Camtasia screencasts bring in enough new business to justify buying the software? If you are still undecided on the pruchase, will one of the less expensive (or even free) screen recorders do a good enough job for the occaisional, simple screencasts you plan to make?

After completing just one short project, you’ll have new data that will help move your business forward. The trick – the single, most important piece of the whole puzzle – is just to start.

This article is Part 1 of a series on video production that is being published on the Web Sellers’ Circle. In Part 2 of this series, we’ll look at live action video and the equipment it requires.

Photo by MK Media Productions Released under Creative Commons License