Percentages Don’t Matter. Dollars Do.

I was whining to Clay Cary about the interest rate the bank was going to charge me to fund a real estate investment. I felt the percentage was way too high.

Clay asked, “Is the deal you’re about to make a good deal? How much money will you make from it?”

I answered his question conservatively. He said, “Now let’s calculate the total amount of interest that you will pay on the loan that makes this deal possible.”

We calculated the dollar amounts.

I was going to make hundreds of times more money on the real estate than I was going to pay in interest on the loan.

Clay said, “As a rule of thumb, if the interest rate you are paying determines whether or not the deal you are making is good or bad, you are definitely making a bad deal. Don’t judge according to percentages. Judge according to dollars.”

Here’s a thought.

Why do banks never get angry about the huge profits that YOU make on deals using THEIR money?

I have never heard a bank say, “We supplied the money, but you are keeping most of the profits. That’s not fair. You should give us more money than we originally agreed upon.”

Banks never say that because banks always remember that YOU found the deal and decided to let THEM make some money on it with you.

Here’s another example of how percentages can be misleading.

Woody Justice had been in business for 6 years when I met him in 1987. His business was circling the drain. Woody’s biggest year had a top line of $350,000. His goal was to someday sell $1,000,000 worth of jewelry in a single year. That would put Woody in the top 10% of jewelers nationwide.

I began working with Woody and we grew more than 100% a year for two years in a row. We blew past the $1,000,000 mark in the second year. About a dozen years later, Woody was grumpy. He said, “We used to grow by big percentages. But last year we only grew by ten percent. You need to get your shit together.”

“Woody, how many dollars did our top line grow last year?”

“We grew by a million dollars,” he said.

“Woody, when we first began working together, a million-dollar jump from $350,000 to $1,350,000 would have been a 286% increase. We would have nearly quadrupled your best year ever and you would have wet your pants. Evaluate yourself by dollar growth, not percentage growth. Percentages will lead you to believe that you are doing better, or worse, than you really are.”

Woody made a face but didn’t say anything, so I continued. “And by the way, we’re running out of people in this Dairy Queen town. If you want to grow by big percentages again, we’re going to need to open another store somewhere else.”

I could say those things to him because we were close friends.

Woody died unexpectedly 14 years ago but I still have his number on my cell phone. I tell myself that if I press that number, Woody will hear his phone ring.

As long as I don’t delete that number from my phone, Woody Justice will never be gone.

Roy H. Williams

PS – “A Dairy Queen town” is Oklahoma slang for a place that is too small to have a McDonald’s. – Indy Beagle

“Do it before you die.” Those five words sum up Carl Barney’s advice to wealthy individuals who want to experience a deeper level of satisfaction. “He who gives while he lives knows where it goes.” Barney believes in “pre-questing” meaningful gifts to individuals and institutions while you can still witness the impact of your generosity.

Just this month, for example, Warren Buffett announced plans to donate another $6 billion to charity, bringing his total charitable giving to about $60 billion. (And most people would agree that Buffet is happier and more contented than the average billionaire.) Generosity brings happiness to every giver, no matter their financial condition. Get energized as Carl Barney shares his blueprint for happiness with roving reporter Rotbart and his deputy rover, Maxwell, at MondayMorningRadio.com