This is chapter from the book Become Remarkable now -concepts about life,happiness and wealth
Wealth equation (Wealth concept)
W = P x I
Where W = wealth
P = people (Number of people)
I = Impact (per person)
Lets look at the equation W = P x I
Wealth includes all kinds of wealth or any other tangible or intangible thing can be put into the equation for our purpose we will put financial values in this equation.
Wealth in common financial sense is the money accumulated by a person.
Now we go even further in example of Bill Gates and Steve Jobs, Imagine both had got the products the windows and the iphone ready but not have sold the product to general public
Their companies would not accumulate any wealth.
We know that it is not just the creation of product or service but also the utilization of these by people which creates value.
That it is not just creation of product or service but also the utilization of service is also very important.
How exactly the value is created and the wealth equation works
We will understand this with a very simple example.
We again use our imagination and walk into a sandwich shop and we name the person as Larry. Now Larry owns a sandwich shop and makes sandwiches for the customers who walk up and get their sandwiches ready according to their order.
Every hour Larry is able to attend about 20 customers and get their sandwiches prepared and charges $ 5.00 for a sandwich and we count a profit of $ 1.00 per sandwich (Larry earns 20 % profit on sales) Larry earns at the most $ 1.00 per sandwich.(20% of $ 5.00 is $ 1.00) We know Larry makes 20 sandwiches per hour at the most and shop can earn $ 20/hour
from his efforts and Larry cannot obviously earn more than $ 20/hour so in an eight hour period Larry can earn at the most $ 160/day (8 hours)
Now we can calculate the number for every individual working in business or in a job some might be easy like the above example and some calculations might not be as simple but we will discuss in blogs about any calculation and all can be done with use of some skills and imagination.
But for our understanding of this formula of wealth equation we will take above example for easy clarification.
How can Larry increase his income in the above example?
Let’s try answering using formula.
W = P x I
Where income W will depend on number of people Larry can attend and I would be the per person impact or here the purchase
In the same example of Larry we saw earlier. We assume here that Larry is making same 20% profit
Assume Larry can attend 25 customers per hour instead of 20 per hour and each customer purchase $ 7.00 worth services
(Adding soda or chips or cookies or whatever Larry sells)
Now Larry attends 25 customers his (P) goes up and his impact per customer (I) goes up so his income will go up now Larry can earn $ 1.40 per customer ($ 7.00 in sales and at 20 % margin he earns $ 1.40 per customer) and 25 customers so about $ 35 per hour ($ 1.40 x 25) and ($35 x 8 hours)
$ 280 per day (8 hours)
This is the simplest form of explanation about the use of this equation and you can apply this equation in different ways it can be applied even for Billionaire’s the numbers change the (I) and the (P) changes can change the wealth a person can accumulate.
So for any person who is a Billionaire you can easily say that the person is helping a lot of people and having good impact per person (for example if Billionaire is impact per person is $ 10 then you can say he/she is serving about 100 million people).
Understanding of the wealth equation can be the foundation of any business or any income goals you may undertake if the above example if Larry if planning to be a Millionaire in one year it would be very clear that he would have to attend a lot of customers per hour and would have to increase his impact a whole lot to create that income.
What he does will currently is not producing what he wants so at $ 1.40 per person impact Larry will have to attend approximately 715,000 customers in a year to earn $ 1 million
And Larry will have to plan accordingly to open more shops and hire more people to make the numbers.
We will be discussing a lot about this equation because it applies even to non profit organizations and to governments and different kind of organizations you can think of.
Please do a small exercise and find out what is your impact and how many people you are attending and see how it matches up with your income and Then put the numbers you
would have in mind that you would like to get as income and that will make it clear for you how to take future actions to
achieve it .This exercise is very important please do it to find out where you stand and how to make progress of if you are beyond the target form a new next target and if you don’t have the next target jut put 10 times of your current income as your target because not growing is not an option.
For non profits as I mentioned if you have a particular impact in mind for example distributing mosquito nets in malaria zone in Africa or providing education to children in various parts of the world the same wealth equation is considered for find out about your impact and the resources needed to achieve the goals. So study this equation very well and ask questions in the blog discussions.
The wealth equation will be discussed further in great details in blogs and on the website because it is at the core of understanding of wealth creation and no matter what a person desires in these times, the major part of it will be related to resources and all resources are transacted with ease by the use of money.
We can achieve all success only through the proper understanding of the concept of money and as mentioned earlier even if the whole idea is to help people as a non profit organization it can all be done and be done better by a clear understanding of this one principle.
The importance of this concept is so big that once a person understands this concept it becomes easier to find answers for the achievement of goals or the reason a person is not achieving it and can make changes accordingly.
This would bring us to another important question and that is where should you start?