Imagine your company makes on average a 5% profit each year. You’re doing well so decide to employ a news sales person. At the interview you ask each candidate how they can improve the company profits. One candidate states,” I can improve your profitability by 20%”, whilst another candidate states,” I can increase your profits from 5% to 6%”.
So here you have two statistics that initially look very different and certainly increasing the profitability by 20% looks the better option for your company. However before recruiting the candidate that stated this, you need to look a little deeper, as these two statistics are actually stating exactly the same thing.
Let me explain.
At the moment for every £100 revenue you receive, £5 is profit i.e. 5%. The second candidate has stated that he can increase your profits to 6% i.e. a 1% increase. However relative to the 5% profit you would make anyway a 1% increase is an increase of 1/5 or in percentage terms 20%. Hence stating that you can increase the profitability by 20% is exactly the same as stating that you can increase your profits from 5% to 6%.
This example demonstrates that the way statistics are stated has a huge influence on the way they can be perceived and therefore why it is so important to understand how the figures have been arrived at. Understanding the background behind the figures is key to fully understanding the statistic you have been given.
So next time you see a statistic, be it on the TV, in a newspaper or in a company report, ask yourself ,” What do you really mean?”
By Janice Jones