In the study, consumers sampling the product were grouped into three categories: Acquisitions (those new to the sampled product); Conversions (those who had heard of the product but had never bought it); and Retentions (those who had previously purchased the product). The results revealed that 85% of Retentions and 60% of Conversations said they would purchase the sampled product in the future. Importantly, 47% of Acquisitions said they would purchase the product in the future.

Other findings:

- 35% claimed they purchased the sampled product on the same day: 26% of Acquisitions bought the product right away, as did 19% of Conversions and 31% of Retentions.
- 24% of those surveyed claimed that a sampled product had specifically replaced an item that they had planned to buy: 20% of Acquisitions were planning to make the switch, as were 33% of Conversions and 18% of Retentions.

This translates into an immediate and long-reaching impact on consumers with a high return-on-investment for the marketing and sales budget. The study shows that a sampling approach is both effective in making new customers aware of products, while establishing a better position with those consumers who have considered the product before.

MetroActive, a business organization based out of Toronto, Canada with over 13,500 members is fully aware of the power of sampling. The organization allows companies to sample their products and services to its members, mostly corporate executives, business owners, entrepreneurs and other business professionals through its “Member Offer Program”. These highly sought after consumers have the highest disposable incomes and an appetite to spend their money. For only $25 a month companies can offer samples and discounts on their products and services to the MetroActive members as part of the membership package. For details visit http://metroactive.org/wordpress/member-offer-program/

About the study: Arbitron and Edison Media Research conducted a national telephone survey from January 18 to February 15, 2008. 1,857 respondents, ages 12 and older, were selected at random from Arbitron’s 2007 fall diarykeepers. In geographic areas where Arbitron diarykeepers were not available (representing 8% of the population), a supplemental sample was interviewed through random selection.

Most people understand that a house is worth what someone is willing to pay for it. Realtors will tell you that location determines the price. But, what if the buyer’s not willing to pay what the realtor says the location is worth? Who’s opinion will win out? Well, if you were one of the buyers of the homes across from the South side of Casa Loma in 1989, the home you purchased for $1,000,000 (along with the dozen or so other similar homes on the strip) would have sold for $400,000 just a short year later.

According to statistics released by real estate board’s (mandated to serve realtors) and the Canada Mortgage and Housing Corporation (CMHC, mandated to promote home ownership) you would think that value of one’s home in Toronto has been increasing. So, why has more than one person not been able to sell their home for more than what it was worth just a few years ago?

In examining the value of a home, it is important to separate the value of the access to land from the actual structure for accommodation. In the case of a bungalow priced at $400,000 for example, the land could be worth $300,000 and the bungalow itself $100,000. In the case of our member above, her bungalow was valued at $430,000 a few years ago and now is valued at $380,000 at a time that the statistics show the average price of Toronto homes going up.

Most homes are depreciated at a rate based on a 60 year life span. That means that at 60 years that home should be torn down and replaced and they usually are. In the neighbourhood for the house above bungalows like her rental property of about 1,200 square feet have been replaced with two story homes of about 3,000 square feet. These more expensive homes start weighing the price statistics upward as they increase in numbers, increasing the “average price” of homes on that specific street. That is why realtors attempt to compare bungalows to other bungalows that have sold recently nearby, but what if there aren’t any bungalows like that which have sold in a similar street nearby? Well, they just keep looking until they find the closest comparable, which may not be comparable at all.

In looking at what’s happened in specific neighbourhoods, it was revealed that in situations where homes were not knocked down and replaced in the last few years and the price went up for those homes, they had been renovated. Over the last ten years there have been a number of organizations that have been showing, persuading and guiding people in how to buy, renovate and “flip” homes for resale at higher prices. These individuals have bought older homes and invested in some cases up to $150,000 to increase their value and resell them. The idea being that if they buy a $300,000 and spend $75,000 in renovations, then they could sell the home for $425,000 or more, and pocket the profit.

House flipping works well when real estate prices are rising and about five to ten years ago investors were making very attractive profits. Some of the more expert flippers started to realize that it was getting tougher to maintain their profit levels, so they decided to start teaching others to do it and charging them for it. As they recruited more and more real estate investors there were more and more flippers looking for homes that could give them a margin. With the economic downturn and sheer numbers of investors the profit margins decreased until the point where it is now rare to be able to flip homes in Toronto in that way and make money. Many of these investors have even found themselves losing money on deals.

This is the driver behind two important dynamics. First, if you’re comparing a renovated bungalow on the same street as a non-renovated bungalow, then it is going to be worth more if for no other reason the structure itself has been increased in value through the money you invested in it. Second, if you want to know whether true real estate values are going up or down you have to discount the first dynamic to get to the “land value”. That means that you take the value of the listed home, subtract the renovation and other expenses and that is the “land value”. It is only when you compare the land value that you can truly tell what is happening to real estate prices.

When these calculations were used in trying to understand what happened in the home value above, it all made sense. From examining other neighbourhoods around Toronto, including condominiums it was realized that in fact Toronto housing prices have been going down for a while. In the case of condominium prices, builders have been throwing in more and more upgrades, some even giving away trips and cars in order not to drop the price of new condominium units. But, if you take these incentives into account the true price of the units is much lower than the statistics show.

Did you notice the term used earlier, “average price”? Another dynamic of these statistics is that they don’t take into account specific types of homes, locations or other considerations. The averages are skewed by considerations such as the fact that only higher value homes are being built or put on the market for sale and that the lower valued homes may not even have many listings do to people not wanting to trade up.

Try these calculations for your own home and neighbourhood. If you can, follow the history of the homes similar to your own in your neighbourhood, their renovations, sales activity, etc. It is best if you can have a couple of examples to homes that were very similar to your own on your street. That’ll tell you whether your home value has been increasing or decreasing. Regardless, in the end it is the buyer that will determine your price. The end test of the value of what you have is what the buyers will pay for your home.

The cost of renting your home usually includes:

- Monthly rent

- Utilities used

- Tenant insurance

The cost of owning our home usually includes:

- Mortgage payments (principal and interest)

- Maintenance fees (if a condo unit) or maintenance costs

- Insurance

- Property taxes

When you add up the costs if you were to rent or own a specific home there are years when it is cheaper to rent and years when it is cheaper to own. Theoretically, the cost of renting should be equal to the cost of owning a home (less the principal repayment component of the mortgage payments). Leading up to the devastating collapse of the United States real estate market the comparison clearly showed a significant premium in owning a home. In other words, it was about 25% cheaper to rent than to own. So, home prices were overinflated and out of equilibrium. It was only a matter of time before the market adjusted itself.

In Canada we’re experiencing the same situation with housing, especially with condominium units, such as in downtown Toronto. For example, it costs about $3,000 a month to own a two bedroom condominium unit at 12 Yonge Street (at the harbourfront) in downtown Toronto, assuming a 10% down payment. Yet, to rent that same unit only costs $1,800 (utilities and parking included). Even if you subtract the $150 that goes to the principal of the mortgage, by renting rather than owning one will be saving $1,050 per month. After a year that equates into a savings of $12,600 which can be used for a down payment for when the real estate market adjusts itself.

Very simply the market is not in equilibrium and just like the American real estate market the Toronto condominium market is poised for a major correction. Going by the example above, the market could correct by as much as 40 percent downward. This means that someone that rents a unit a two bedroom unit at 12 Yonge Street today and waits a year or two while the condo prices continue to drop by about 40 percent would be able to buy the same unit (now priced at $409,000) for about $245,000 for a savings of about $164,000 (in that they won’t have to carry that extra mortgage) plus the $12,600 from monthly savings for a total of about $176,600.

Now these numbers may be off, but even if you adjust for only a 20 percent market correction it is still quite a figure.

The market indicators in Toronto are that now is the time to rent as the market is going through an adjustment downward.

Profitability is the difference between revenues and expenses; what the business receives from its customers and what it pays in order to deliver the product or service. “Cash flow”, “operating cash flow”, “cash from operations” and related terms refer to the difference in the actual cash held by the business for the year (or whatever period being looked at). Profitability is the true measure of profitability because it accounts for the portion of the business’ assets used in producing the sales for a given period.

Commercial realtors often use cash flow, or related terms for marketing a particular small business because it is a larger figure than that of profitability and makes it seem like the business is much more viable than it may actually be. In many cases, a business showing a positive cash flow may be losing money and be a poor investment.

When calculating profitability of a small business, include the following considerations:

Revenue – Examine revenue, its source and nature. Revenue only counts if it is from the regular or ordinary operations of the business. If there are items of a non-operating or extra-ordinary nature (revenues from a special one-time opportunity, such as rental of premises by film production company, and gifts or incentives from suppliers), then remove them out of revenues because they are one-time items and you can’t count on them repeating in the future.

Expenses – Income statement should include all items used in the manufacturing, marketing, distribution and sales of the product or service. Draw a business process map and list all the steps and items required to supply the product or service and then make sure there is a cost line for each item. One of the biggest mistakes made is not including all the labour costs under expenses, especially when it is an owner operated business. If the owner manages the business regardless f whether he is drawing a salary the cost of paying someone a competitive wage to do his job should be included in expenses. This also applies to any family members that are working the business – their wages (at market rates) should be deducted as an expense.

Non-Business Expenses – Sometimes an owner may include items under expenses that may not be necessary or appropriate to include. For example, automobile expenses for a business that doesn’t require an automobile. For the purposes of calculating profitability for the sale of the business, these items should not be removed as an expense.

Depreciation and Amortization – In many cases, a business uses equipment (such as in manufacturing), leasehold improvements (such as restaurant and retail), and other assets (such as trees in a tree lot). Once these resources are used they have to be replaced. For that reason it is important to know how much of the resources value you consume for the production of what you’ve sold for the period and to include it as expense lines.

If you incorporate these considerations when calculating cash flow you’ll soon realize that most small businesses for sale are actually losing money. This is often the reason, or at least contributing factor in their decision to sell.

These considerations will help you determine the true profitability of the business according to the financial statements of the company. However, be aware that you are basing your calculations on figures provided by management or the owners. It is quite likely that these figures aren’t totally accurate. If you decide to purchase the business, then it would be wise to conduct or have conducted detailed due diligence by someone who knows what to look for.

Be detailed in your understanding of the business and examination of all aspects of operations and you should end up with an accurate profitability figure. Only then can you decide what the business is worth to you.

By Baldo Minaudo, M.B.A. (www.baldominaudo.com), author of “The Banker Who Saved His Soul” (www.baldominaudo.com).

from: Baldo Minaudo

In this study we compared two brands of popping corn; a popular brand and a local grocery chain store brand. The popular brand is “Orville Redenbacher” and the chain store brand is “Selection”. Orville Redenbacher’s Original Gourmet Popping Corn ($4.79 for 850 gram jar) is compared to Selection Popping Corn ($2.99 for 2000 gram bag). Both brands were bought at the Metro Grocery Store on Front Street in downtown Toronto.

The comparison was carefully designed, executed and video-recorded with the assistance of one of the MetroActive Lifestyle Network members who’s a medical researcher with multiple publications and experience at Johns Hopkins Hospital in Baltimore and Hospital for Sick Children in Toronto.

The results from the comparison speak for themselves. The “Orville Redenbacher” brand is four times more expensive per gram than the “Selection” brand. The analysis is based on the price of each brand per gram, as well as the number of grams that actually popped. An equal number of kernels were counted from each brand. The exact calculations are discussed and noted in the video.

Four adults tasted both brands and three of the four chose “Selection” over “Orville”, the fourth had no preference.

The significance of this is that for every dollar spent, the Orville Redenbacher brand only supplies one-quarter of the raw material. Therefore, the brand’s profit margin is much greater than the competition’s profit margin. Assuming the company is well managed and has comparable overhead to the competitor brands then this should translate into profits of at least four times greater than the competition. In turn this would mean that the valuation of the company should be at least four times that of the competition. As a shareholder this would be a very good thing.

However, the reality is that Orville has a much more significant advertising budget than the grocery store chain brand. In addition, using the plastic bottles versus the plastic bags means its packaging is much more expensive.  Then there is the whole corporate overhead to take into account. In the end how much of the benefit from the brand’s equity transfers to the investors depends on these stated factors, as well as the production efficiencies.

As far as the Orville Redenbacher customers are concerned, they’re paying four times as much as if they were buying the grocery chain store brand.

In these economic times it is important for a business to leverage every dollar, especially small businesses and home businesses.  The first thing that happens in an economic downturn is that purchases get put off. However, this can only go so far before it begins to affect the business.

For example if you’re a taxi driver, putting off repairs may result in a vehicle that potential passengers may avoid. If you’re in a bakery business putting off repairs to the oven, or even purchase of a new oven may result in poor quality, spoiled batches and lost clients.

Here are four ways for a small business owner to cut expenses without having to sacrifice their business:

1.     1. Bartering. Offer your product or services in exchange for what you need. If you can’t barter the whole amount, barter as much as you can. If you’re uncomfortable doing it directly, then try joining a barter club. There are several established ones available.

2.     2. Group buying. Join with other businesses that want to make the same purchase and negotiate a bulk purchase price.  Some retailers will give as much as a 60 per cent discount on some products.

3.     3. Buy used. Visit auctions for bankrupt businesses or simply call up other small businesses that you think may have some spares. You can even see who’s buying what you need at the nearby office depot and ask if they have an old product and what they plan to do with it.

4.     4. Sharing. This is something that farmers continue to do today. If you need a piece of equipment that is expensive, but only need it for part of the time then find another business who is in the same situation and split the cost. In Europe these types of informal co-operative arrangements can include as many as a dozen businesses. It is ideal for say, small wineries or olive growers who need to process their harvest and it only takes a day or two.

These four methods are the quickest way to save the most money. The lower your expenses the more money you’ll make and the more price competitive you can afford to be. These are the times to think smarter and to fully leverage all of your assets, including your money.

By focusing on the bottom line through expense reduction you will be in a better position to increase your revenue line. This is especially the case if you can reduce your price to that of the competition as a result of having lower operating expenses. That is how businesses attract more sales in tough times.

Once you start to think along the lines of maximizing the use of what you have your business will be much stronger for it. Your business will be able to better to survive and perhaps even grow while others are closing down.

By Baldo Minaudo, M.B.A. (www.baldominaudo.com), author of The Banker Who Saved His Soul –www.TheBankerWhoSavedHisSoul.com a book that every business owner should read.

At the time that I first went through these calculations, Canada’s tax rate was at an all time high and the country was having difficulty issuing bonds on the international markets. The market had lost confidence in Canada’s ability to manage its economy and its debt. Federal government debt as a percentage of GDP in 1995 was 68%, climbing even higher in 1996 to 69%. In comparison, in 2009 Canada’s debt to GDP was less than 29%.

In the midst of this I wondered what Canada’s capacity was to continue raising taxes.  The result of my investigation was a real eye-opener for me as I hope it will be for you. It also drove home the importance of having an effective tax strategy. It seems that the Canadian federal government at the time, and with the help of international investors giving the thumbs down, came to the same realization.

Go through this exercise and see what you discover:

1.       Family Annual Income

2.       Less: Government Remittances (Employment Insurance, mandatory Health Insurance, Canada Pension Plan Deductions

3.       Less: Union dues

4.       Less: Expenses necessary for work (work clothing, transportation to and from work, etc.)

5.       Less: Mandated insurance coverage (such as automobile insurance)

6.       Less: Accommodation (we all need a place to live – I used the average figure for Toronto)

7.       Less: Food and groceries (I used the average figure for a family of 3 in Toronto)

8.       Less: Other necessities that you do not have a choice to buy or you will die or not be able to live in the community.

9.       Equals: Gross disposable income.

10.   Discount for additional taxes. If you buy a good or service in Toronto you pay an extra 13% (it was 15% before the federal conservative government was elected).

11.   True Disposable Income.

At the time I had done this calculation, the true disposable income for a family earning $80,000 was about 8% or $6,400. That amount would be used to buy toys for the children, gifts for Christmas, vacations, courses, books, and so forth.

I tried the calculation for different income levels and realized that it didn’t get much better the more money you made, unless you made $200,000 or more. Since, the tax rate itself (the percentage of income taxes you pay to the federal and provincial governments) increases the higher your income level you weren’t necessarily any better off if you got a higher paying job or were promoted.

As I was l looking at these calculations it reminded me of feudalism during medieval times in Europe.  Only back then the farmers were only paying one-quarter of their crop to the king and what remained they could consume or trade without having to pay additional taxes.

Without getting off topic, I was inspired to revisit these calculations because now the United States and other countries are suffering from a debt burden that’s caused the rest of the world to believe in their ability to manage their economy and finances.  So, I’m wondering how the United States can get its budget in order without raising taxes to the point where more jobs are lost to other countries.

Many science fiction writers have explored what our society would be like if events happened differently in the past. But, what if inventions and innovations happened differently? Some of the innovations and inventions that have defined much of today’s society and our lifestyles date back to a long, long time ago.  It is these most ancient of innovations that to a large degree made possible and even determined the scope of future inventions and innovation.

These are ten ancient innovations that shaped the direction of our society in chronological order:

2,500,000 BC – Tools

The earliest tool fragments are dated to more than two million years ago. But, it is believed early man used tools before then, likely fashioning them from materials such as wood or bone perished over the years. The axe emerged as early as 10,000 BC.

600,000 BC – Fire

Though fire is naturally occurring, often caused by lightening, the ability to control it is learned. It is believed that early man used naturally occurring fire more than a million years ago. Evidence suggests that it wasn’t until about 600,000 years ago that we learned to command fire. The ability to start fire in a flash came much later with the invention of the match in 1827.

30,000 BC – Fish hook

This simple curve shaped innovation allowed humankind to catch a meal without much less danger and possibility of personal harm. The earliest hooks are believed to date back to around 30,000BC and were fashioned out of curved wood and even carved bone. Horns, shells, and thorns were also used for making hooks. Hooks allowed fishing without having to go into the water and allowed fishing to take place in deeper waters than was possible before, thereby increasing the food supply.

30,000 BC – Bow and arrow

This was the first innovation that allowed us to leverage physical strength to kill prey at a farther distance. Before this innovation hunting was done with stones, sticks, and bones using whatever direct force the human body could generate. With the bow came the ability to collect force into the tension of the bow to instantly release it once the proper strength was reached, thereby increasing the impact from the arrow.

12,000BC – Drum

No one can be for sure when humankind first banged with a bone, gourd, stick or other means for purposes other than applying force to kill prey or to crack nuts. Somehow, out of swinging and banging, we began to use the natural props around us for entertainment and then even communication. The drum is both one of the first forms of musical instrument, as well as a primitive form of communication.  The earliest known tuneable instrument, a stringed harp, was first played in what we know as Iraq around 4,500BC.

5,000 BC – Weighing scales

Original forms of scales were balanced levers with a standard weight on one side. They were used by merchants to measure goods in a transaction. The Egyptians used crude form of scales in around 5,000BC and by 3,000BC used them to weigh gold in units called ‘kites’.

3,500 BC – Wheel

The wheel is the basis of all of modern day transportation and even mass production. The earliest evidence of a wheel is a pictograph from Sumeria, now known as Iraq dating back to 3,500 BC. 2400 BC.

2,400 BC – Umbrella

Umbrella is derived from umbra, which is the Latin word for shade. The umbrella can be traced back to Mesopotamia where they were used as sunshade. Rain-resistant versions of the umbrella later popped up in China about 300AD and were made of treated paper. In 1852, a Sheffield manufacturer, Samuel Fox invented the modern steel-ribbed umbrella.

2,000 BC – Locks

Although clever knots were among the earliest solution for protecting property and treasures, It is believed that the Egyptians were the first to use the lock and key about 4,000 years ago. The Egyptian wooden contraption used a key to lift pins, allowing a latch bar to slide free. The Egyptian device was similar in concept to the pin-tumbler lock invented in 1848 by Linus Yale, whose name continues to appear on billions of locks and keys around the world.

700 BC – Archimedes Screw

The screw leverages extended surface tension to maintain traction. The Archimedes Screw is basically a giant screw that funnels water or other material against gravity.  Believed to be devised by the ancient Greek physicist Archimedes of Syracuse in the 3rd century BC to expel bilge water from creaking ships, the screw that bears his name actually predates Archimedes by about 400 years. Other earlier screws have been discovered, which are capable of shifting water “uphill” and were used in the Hanging Gardens of Babylon in the 7th century BC. The innovation continues to be used today in some sewage plants and irrigation ditches. This innovation is also used in different boring and transportation vehicles. In the “Hunt for Red October” movie, the rogue Russian submarine being hunted was propelled by a virtually silent screw like mechanism.

Image via Wikipedia
It is not difficult to see how these 10 innovations set the direction of our society. Now imagine what the world, what life would be like if we had used different solutions.

What if we didn’t develop the wheel but an alternative solution? The Incas and the Aztecs did very well without wheels. One alternative could have been the sled system (reduced friction for gliding). Today research is being done to mimic animal characteristics for a replacement to the wheel. Prototypes have already been developed for devices that allow for transportation over all terrain, even where various forms of wheel-based devices would not work well.

By Baldo Minaudo, M.B.A. (www.BaldoMinaudo.com), author of “The Banker Who Saved His Soul” (www.TheBankerWhoSavedHisSoul.com).

According to this clause, I’m assuring them that no product involved in the project is manufactured in or supplied from China. Then it goes on to say that if such product is used that I would be responsible for all expenses associated with replacing the product. As well, if any liability or damage arises from use of such products I’m solely responsible. I had never seen this type of clause before. The closest I’ve come are clauses restricting which companies or countries you can sell products to that may be restricted for reasons of national security.

In a way I guess that’s what an embargo is on a national or international level. But, I’ve never seen it quite this way.  Wanting to understand the motivation behind the clause I called up the Company and had a very candid conversation with the President.

As I understand it, the company has had problems with Chinese manufactured products. The products weren’t exactly to specifications and even when they were they would not perform in the way they needed and/or would break down very quickly. Aside from the obvious damage to the company’s reputation and extra costs associated with repairing the situation, the company was even exposed to law suits.

I wonder if the ‘Not Made In China’ clause will be adopted by other companies in other countries. I’m also curious to see how quickly it spreads and the impact it will have on the Chinese factories, if any.

In the study, consumers sampling the product were grouped into three categories: Acquisitions (those new to the sampled product); Conversions (those who had heard of the product but had never bought it); and Retentions (those who had previously purchased the product). The results revealed that 85% of Retentions and 60% of Conversations said they would purchase the sampled product in the future. Importantly, 47% of Acquisitions said they would purchase the product in the future.

Other findings:
• 35% claimed they purchased the sampled product on the same day: 26% of Acquisitions bought the product right away, as did 19% of Conversions and 31% of Retentions.
• 24% of those surveyed claimed that a sampled product had specifically replaced an item that they had planned to buy: 20% of Acquisitions were planning to make the switch, as were 33% of Conversions and 18% of Retentions.

This translates into an immediate and long-reaching impact on consumers with a high return-on-investment for the marketing and sales budget. The study shows that a sampling approach is both effective in making new customers aware of products, while establishing a better position with those consumers who have considered the product before.

MetroActive, a business organization based out of Toronto, Canada with over 13,500 members is fully aware of the power of sampling. The organization allows companies to sample their products and services to its members, mostly corporate executives, business owners, entrepreneurs and other business professionals through its “Member Offer Program”. These highly sought after consumers have the highest disposable incomes and an appetite to spend their money. For only $20 a month companies can offer samples and discounts on their products and services to the MetroActive members as part of the membership package.

About the study: Arbitron and Edison Media Research conducted a national telephone survey from January 18 to February 15, 2008. 1,857 respondents, ages 12 and older, were selected at random from Arbitron’s 2007 fall diarykeepers. In geographic areas where Arbitron diarykeepers were not available (representing 8% of the population), a supplemental sample was interviewed through random selection.