Price Improvement

  

Categories: Econ

Whoa, you just found $20 in your pocket. Score.

That’s the same feeling investors get when they realize they just benefitted from price improvement.

Price improvement is when you place an order to buy or sell a stock, and then you get a better deal at the time your order was executed than when you placed it.

Brokerage Jimmy Shmoo might argue that they’re good at price improvement, using it as a selling point. They say they placed an order for stock FlowerPower at $200 per stock, and it was executed at $190 per stock. That’s a price improvement of $10 per stock. Nice.

It goes the other way, too. Maybe you were okay with selling your TruckMuck stock at $40 per, but then it actually sells for $45. Yeahhhh, man. That good ol’ just-found-money-in-my-pocket feeling. Lucky duck.

Related or Semi-related Video

Cost Accounting: How Do you Find Volume ...7 Views

00:00

And finance Allah Shmoop How do you find volume based

00:05

break even point or margins in C v P Or

00:13

like in plain English Where do you break even Like

00:15

at what volume of your products Can you pay your

00:18

rent insurance overhead salary and have just enough left over

00:21

to pay the interest on the loan that grandmama gave

00:24

you to start this embalming company So yeah that's what

00:27

you dio You're an embalmer And here's your embalmer jacket

00:30

for a thousand bucks you stick bodies on this old

00:33

sewing machine like thing and spin Well it's basically masking

00:37

tape around them and then dip them in this woo

00:40

magic fluid No don't look there It's not the secret

00:43

sauce from Jack in the box and boom They're ready

00:46

to be you know put on display Well why do

00:49

people embalm They like the spirituality of it You know

00:53

you do a little ceremony Kind of like the twelfth

00:55

century Viking meets the eighteenth century into it with a

00:59

dash of for millennia ago Egypt thrown in Your parents

01:03

pushed you to have a steady job maybe go to

01:05

law school Something you could really count on once your

01:07

rock and roll career died So you know death and

01:10

taxes and whatever And you were really never very good

01:13

with numbers not a big fan of paying taxes in

01:16

the first place s So here you are You don't

01:18

make much so you don't pay much in taxes anyway

01:21

A customer buying the basic embalming package pays you a

01:24

grand Sometimes it's walk in business Sometimes it's families with

01:28

the you know wheel in business And other times you're

01:31

just in upgrade to a funeral package Thanks in a

01:33

big shot out there to Bob's Holy Roller House of

01:35

Heaven in furniture shop lifesavers Well you outsource most of

01:39

the work piecemeal to Luke Risha Here she charges you

01:43

two hundred bucks for a full wrap old school The

01:45

masking tape costs another eighty bucks and the secret saw

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the magic after life fluidity elixir of blah blah blah

01:53

or whatever you're calling in this week's special Yeah you've

01:56

got to find the newspaper coupon section for the name

01:59

but anyway a gallon of that It's of costs one

02:01

hundred bucks So that's your marginal world You charge a

02:04

grand for costs of two hundred for labor Eighty for

02:06

the tape one hundred for the goop and that's it

02:08

Three eighty and costs six hundred twenty dollars in contribution

02:12

for unit or unit sale The only problem Phil You

02:15

have to refrigerate the clients sometimes for a long time

02:18

until you can all schedule the afterlife party And there's

02:20

always a relative stuck in some meeting or on a

02:23

trip or something So you spend five grand a month

02:26

on rent and then another two grand on electricity and

02:28

maintenance and all the other storage things And yeah it's

02:31

kind of nice to not have to carry life insurance

02:33

anyway Steady state You basically have seven grand to make

02:36

up in volume every month to just break even from

02:39

your operations So how many customers buying the basic thousand

02:43

dollar package do you need Well each customer contributes six

02:46

hundred twenty bucks So thinking aloud here if you had

02:48

ten of them well that had contribute sixty two hundred

02:51

to go again through seven grand and fixed recurring costs

02:54

Right That would get you close Oh the actual number

02:56

Well you just divide seven thousand by six Twenty there

02:59

The revenues by the unit contribution of profits and you

03:02

get eleven point two So really you need a dozen

03:04

customers a month to break even on this plan Because

03:07

you have other expense like a phone line And you

03:09

of course need a little bit extra for you know

03:11

accidents or whatever Although you're thinking well like what worse

03:15

could happen here But it's amazing what goes on here

03:18

at night You had a family of rats break in

03:20

one time in the after life Elixir of Love was

03:23

well a few days ripe And oh it wasn't pretty

03:26

So the Elixir has a formula and it's not just

03:29

mayo ketchup in a dash of Worcestershire Sure sure Shire

03:32

It's way more than that But this calculation has a

03:35

formula too There are a few of them in fact

03:38

and for context You're thinking about opening a chain of

03:40

these places all around the country and the world You

03:43

get cheaper prices on tape and elixir at volume and

03:47

maybe you'll find someone needing less maintenance than Lou Krysia

03:50

you know for less than two hundred bucks per Anyway

03:53

you confined the break even on volume here right You

03:56

need twelve bodies at a grand each or twelve grand

03:59

total to get there So to calculate you took your

04:02

fixed recurring costs of the five grand in Ran into

04:04

grand Electric and other veils Seven grand total and you

04:07

divided it by the unit contribution of six hundred twenty

04:10

dollars And that's how you got the eleven point to

04:12

when we rounded up a body Because well of course

04:15

you can't have a fraction of a body The formula

04:17

break even volume in units equals fixed recurring costs over

04:21

unit contribution Or if you had the contribution margin i

04:25

e The profit margin of your units sale fell You

04:28

could get the answer Here is well that is the

04:30

contribution margin here is six hundred twenty overthe ao or

04:33

sixty two percent nice high margin business So to get

04:36

the break even volume you need on a sales dollars

04:38

basis while you just divide that seven grand figure you're

04:41

fixed recurring overhead by the contribution margin figure and voila

04:45

you get the same number Yes Third grade arithmetic Magic

04:48

So aboutthe loan to start this thing from Grandmama Well

04:52

she's off to a better place now and yeah that's

04:54

her here You still have to pay off that loan

04:57

and you want to make enough profit so you can

04:59

go build another hundred of these stores and really make

05:01

something of this life of yours or the next either

05:05

is fine but you need to get started before you

05:07

run out of time So you've set a target profit

05:10

number for this store for the months going forward of

05:12

four grand big up profit numbers But you also got

05:16

a lot of free press from the you know rat

05:18

incident What they say There's no such thing as bad

05:21

press So you're expecting a lot of customers coming in

05:23

and you already have a load of reservations And you're

05:26

optimistic about your new partnerships with the US Hang Gliding

05:29

Association and the Grand Canyon Motorcycle Jumping Association and the

05:34

Harness List Climbers Association So your target is four grand

05:38

a month in profit Well how do you get there

05:39

Well you can think of a need for profit almost

05:42

like it's just more overhead So today you have five

05:45

grand in rent in two grand in utilities costs and

05:48

everything else for seven grand So you've been thinking of

05:51

yourself as an absentee owner and haven't been taking a

05:54

really salary and you should someday But for now what

05:57

Grandmama left you is tidying things They're covering thing things

06:01

are paying the basics in your life anyway that seven

06:03

grand and fix recurring overhead Then you want four grand

06:06

a month in profits So you think you're a big

06:08

line here as being eleven grand So what's your target

06:12

volume then you know like at a grand a pop

06:15

or a mom or uncle or aunt How many sales

06:18

do you need in a month to hit your target

06:20

profit of four thousand dollars So that's seven thousand fix

06:23

recurring plus the four thousand of profit target That's eleven

06:26

thousand bucks divided by the six hundred twenty dollars of

06:29

contribution per customer And that gets you seventeen point seven

06:33

It will round up to eighteen bodies a month All

06:35

right not that bad A goal that's almost like one

06:38

a day you know like the vitamin which well this

06:40

really pale guy clearly never took a body A week

06:43

day Yeah totally doable is a goal And your target

06:46

sales volume Well take the eleven grand divided by the

06:49

contribution margin of point six two and you have seventeen

06:52

point seven there OK right so same calculation Mohr less

06:56

just flipping around a few numbers So where do things

06:58

get ugly here or uh well uglier What if you

07:01

could raise prices with no diminishing of volumes like Could

07:05

you charge fifteen hundred or two grand for a eternal

07:08

life likeness and bliss Or what if things went the

07:11

other way How sensitive is your pricing or set in

07:14

a very macro micro we can kind of way How

07:16

steep is your demand Curves like Could you charge eight

07:20

hundred dollars and get way more customers And here's another

07:22

thought What if your costs went down with scale like

07:26

if you had ten shops could you get masking tape

07:28

at half the price you're paying Would labor go up

07:31

or down Is Lacresha a kind of one time gift

07:35

Or is she making way more than what really market

07:38

prices are for what you'd have to pay in the

07:41

future to get Mohr embalmers is therein embalmers union Yeah

07:45

Preserve our jobs or we won't preserve anything Or I'd

07:48

like to lodge a formaldehyde complaint like those signs Do

07:52

it well if you make more money the bigger you

07:54

get that it be called operating leverage That is you'd

07:58

have operating leverage if you made more profits The bigger

08:01

you got so yes Yes There's the thinker so much

08:04

Think about so little Actually maybe you have tons of 00:08:08.212 --> [endTime] time to think about it

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Cost Accounting: What is CVP and Cost-Volume-Profit Analysis?
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What is CVP and Cost-Volume-Profit Analysis? Cost-Volume-Profit analysis is used in accounting to find break-even points (when profit less cost is...

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