My post 4 Ways to Flog the Inner Impulse Shopper is up in Free Money Finance’s March Money Madness tournament. Please take a moment to vote for me(Flog).
Thank you. That is all.
Breaking Bad: The Economics of Meth
In AMC’s “Breaking Bad,” Walter White plays the role of chemistry teacher turned meth producer and drug kingpin. While it certainly makes for good television to think about the profits available to someone willing to trade in illegal drugs, the mountain of money that Walter makes by the end of the series is actually not that unrealistic. Meth has a street value that approaches $30,000 dollars per pound. Not only that, but Walter displays a deceptively keen business acumen, especially for a chemistry teacher. A number of keen decisions allowed Walter White to become as successful as he has.
Production Costs
As any business owner knows, merchandise costs are a major portion of any operating budget. Mr. White keeps his profit margins robust in a number of ways. The first of these is by managing his production costs. When he started out in the business, Walter simply stole the majority of the required chemicals from the high school where he worked. This allowed for the product to be sold at a substantial profit when compared to producers who are required to invest more upfront.
Location, Location, Location
On top of his discounted production, Walter was able to stay ahead of the competition both literally and figuratively by utilizing his RV for production. Typically, meth is produced in a laboratory environment, which requires a building. This adds an additional cost of rent to the typical business profile. Walter, on the other hand, produced out of his RV in the early stages of his business’ growth, further increasing his profit margin.
Distribution
On the production side of the economy, a major consideration is distribution costs. While most of Walter’s competition used pricey, established lines of distribution for their products, he cut out the middle man by distributing his product with his team. This caused major disruptions to his business when his competitors tried to kill him. However, while he was able to accomplish this model, Walter was the beneficiary of increased profits. Then, when he killed his competition, he was able to return to the healthy margin he enjoyed previously.
Advertising
Many new products are launched with a full blown media campaign. This is a costly proposition. Walter, instead, relied on the quality of his product to speak for itself. This competitive advantage reduced the need for an extensive advertising budget. Furthermore, after a period of time, his product became a preferred choice by consumers everywhere. While he was required to distribute a few loss leaders at times, Walter kept the advertising costs down and profited greatly.
So, while it may seem like Walter White was simply a chemistry teacher who got lucky, it’s clear that he actually had a specific plan for his upstart business. By following a few standard economic principles, he was able to increase his margins at the crucial beginning phase of his business, and had established himself as a leader in the market when he chose to expand
Related articles
How Much Should You Tip?
- Image by cemre via Flickr
This post from CNN Money has been making the rounds. I’m getting into the game today.
With the holiday season upon us, tipping the people you work with is a tradition in some cases and actually expected in others. Here’s what CNN came up with and my take:
- Housekeeper. We don’t have one. I’d think $75-100 would make a nice tip/Christmas bonus. I seem to be more generous than average with my imaginary maid. Maybe that’s because of the outfits she wears.
- Gardener. Once again, we don’t have one. Even if we did, I live in Minnesota and have close to a foot of snow over the patch of weeds I call my garden. If I did have a gardener, I wouldn’t have seen him for a few months by now, anyway. $0!
- Mail carrier. I’ve only met my mail man a dozen times and I’ve never considered giving him a Christmas present. Do people really do that?
- Barber. I don’t have one any more. My wife has started doing my hair for me. When I did, I tipped about 25%, but again, I wouldn’t think about a Christmas present. I only saw him quarterly. I don’t think my wife has a regular stylist either. She’s just got a shop she goes to and gets whoever is available. Is there holiday tipping protocol for that?
- Garbage collector. No way. Really? I don’t know that I’ve seen the same guy twice. Am I supposed to give a present to the anonymous, interchangeable union guy that drives past my house every Friday?
- Newspaper carrier. One night, twelve years ago, while my wife was still working graveyard shifts, she had a hard time sleeping on her nights off. That’s natural for 3rd shift workers. At about 4AM, she was watching TV and saw someone run past the window. Scared, she came to wake me up. I handed her the phone to call the police, while I grabbed the only thing I had for self-defense and went to investigate. I ran out on the front step–in my boxers, carrying a sword–and saw someone lurking in the neighbor’s yard across the street. I yelled, “Y0u don’t belong here!” only to hear “I’m delivering the paper!” That’s when I start tipping the newspaper carrier. I stopped when we canceled our subscription a few years later. Who needs a dead tree in the morning, when there are a million news sites on the internet?
If the majority of people are giving Christmas bonuses to that many people, and are as generous as the article suggests, then I fall far to the loutish end of the bell curve. I am planning to give my virtual assistant 1/12 of the pay he’s earned this year, so that should make up for some of it, but that is an ongoing business relationship.
How do you compare when it comes to holiday tipping?
Insane Incentives
Spring is in the air.
At my son’s school, that means it’s time for the Minnesota Comprehensive Assessment tests. These are the standardized tests created by the No Child Left Behind Act that determine if a school is doing its job in educating children. If too many kids have lousy scores, the school gets put on the “Adequate Yearly Progress” list and will eventually get penalized financially.
That creates a perverted incentive in the school system. The main metric for a publicly-funded school’s success in Minnesota is the MCA. If a school can churn out illiterate trench-diggers, they will get increased funding as long as the test scores are good.
For a full two weeks before this test, the school effectively shut down the education program to prepare for the MCA test. That’s two weeks of studying for a set of standardized tests that focus on reading, writing, and arithmetic. I’m a fan of schools prioritizing the three Rs over other subjects, but that’s not what they did.
They spent two weeks studying testing strategies, not the material contained in the test.
In science class, they covered essential scientific elements like “Answer all of the easy questions first, so you can go back and spend time on the hard ones later.”
Spanish class covered verb usage similar to “When the time is almost out on the test, answer ‘C’ for all of the hard questions you have left, que?”
They weren’t being educated, they were learning the most effective way to solve a test to gain funding for next year.
For 2 weeks.
That’s not reading practice, or reviewing the parts of speech, or covering the necessary math skills. It’s “This is a #2 pencil. This is a circle. Practice until lunch.”
Is this really what NCLB was trying to accomplish? Standardized tests to measure school proficiency should be a surprise. Let’s randomly send in test proctors to take over a school for a day and see what the kids have actually learned.
Negotiating 101
In the US, haggling is something that makes a lot of people twitch and wet their pants. It’s too hard/scary/intimidating, so most of us just take whatever price is offered, with a smile.
The truth is, you can negotiate in almost any situation. Sure, big-box retailers with low-price goods–like Walmart or a grocery store–aren’t going to go for it, but a lot of other businesses will. Did you know you can haggle at Best Buy? It’s true, but only on the bigger ticket items.
You can also easily negotiate at place like these:
- Credit card interest rates and annual fees
- Luxury utilities like cable
- Rent
- Hotel rates
- Airline tickets
- Gym memberships
“Great”, you say. “Anyone can do it?”, you say. “But how, jerk?”
No need to call names, I’m getting to that part.
I am about to share the First Secret Lesson of Negotiating. This secret has been passed down from father to son among the celibate Shaolin monks for generations. Breaking the code of secrecy may be putting my life in danger, but I’m willing to do that for you, no matter the risk.
I rock like that.
Are you ready to be initiated into the secrets of the Ancient Masters? When our first abbot, Buddhabhadra, first wandered into the Northern Wei Dynasty branch of Best Buy in 477 A.D., he discovered the phrase most likely to break price barriers.
Are you ready, Grasshopper? This is the “Wax on, wax off” of effective negotiation.
When you are given a price, no matter what it is, say “Is that the best you can do?”
“This T.V. costs $7495.” “Is that the best you can do?”
“That comes to $56.95.” “Is that the best you can do?”
“$149,499 for the Ferrari.” “Is that the best you can do?”
“$12,000 for the kidney.” “Is that the best you can do?”
“Only $8.50 for this set of 10 tupperware lids that have been warped in the dishwasher.” “Is that the best you can do?”
“$50 an hour, honey.” “Is that the best you can do?”
“The salary for this position is $50,000 per year.” “Is that the best you can do?”
It is magical, it’s easy to remember, and it’s low stress. This is a non-combative question. The worst possible scenario involves the other side saying, “Yes, that is the best I can do.” No sweat.
Negotiating Lesson 101.2:
After saying “Is that the best you can do?”, shut up. The other party gets to be the next person to say something.
Go out and practice this over the weekend. Master the First Secret Lesson of Negotiating. I’ll be fighting off Shaolin ninjas for sharing the ancient secrets.
Selling Your Home: For Sale by Owner
- Image by Casey Serin via Flickr
When you’re preparing to sell your home, your first instinct is often to rush straight to a realtor. There are benefits to using a trained real estate agent, but it isn’t always necessary.
The biggest motivation to skip the realtor is avoiding the fees, which can run as high as 7% or more in some places. What does that 7% get you?
First, it gets you experience. Realtors know which hoops you have to jump through, from both a legal and a marketing perspective. Do you need an inspection? How much of your stuff should you move to storage? Are you comfortable with high-dollar negotiations?
Time is another critical item in the fee. Do you have a minimum of an hour to dedicate to advertising and screening potential buyers? Every day? Do you have a flexible schedule to show your house at times convenient for the buyers?
The third element is access to the Multiple Listing Service(MLS), which lets other realtors see your home listing. There are alternative listing services you can use, but none are as widely know as MLS.
There are some good reasons to use a realtor, but none of that means you can’t sell your home yourself. FSBOs are done every day.
If you are nervous, your local community education program may have a course on selling your home yourself. These courses are usually very affordable.
Some tips:
- Be objective about pricing. Look at the selling price of similar homes in the area, NOT what your dream price is or how much you have spent on improvements.
- Always keep your home ready to show. Keep the dishes done, everything put away, and the floors mopped. The “lived-in” look will not help your house sell.
- Keep track of the potential buyers. Put the name, address, phone number, and any identifying notes in a spreadsheet so you can follow up later if your house doesn’t sell.
- A bid is not binding. Don’t stop advertising until you close on the sale.
- Make a fact sheet and blank purchase agreement that potential buyers can take home.
- Hire professionals where necessary: lawyers, inspectors, and closing agents.
Selling your home yourself can be intimidating, but it is a job you can tackle yourself for a significant savings. Would you try it?
