In two more days it will be the end of the financial cycle for most individuals… and many corporations and partnerships, too.  Whatever quantity of  income we’ve earned — whether in the form of salaries, benefits, disbursements, fees, commissions, bonuses, tips, rents, interest, dividends —  that quantity will get recorded somewhere on our tax returns in a few month’s time… that is, for those of us who pay taxes… or for that matter, for those of us who had income (can’t assume anything anymore, these days).

Also, since it is now December 29, many of us (statistically speaking) have recently spent a portion of the above-mentioned quantity of money (and hopefully a relatively small portion thereof) on discretionary purchases for ourselves and the ones we love (assuming we are not alone this holiday season) … possibly in the name of some culturally sensitive, politically correct, socially appropriate seasonal celebration (enough disclaimers yet?).

So, given the reality of our mainstream tax cycle and given the widespread seasonal affective spending that our culture has ordered for us,  it’s no surprise that this is also the time of year where we see many requests from not-for-profit organizations to give tax-deductible charitable contributions.

That guy in the red velvet hat and white pom-pom may not be ringing a handbell outside the supermarket anymore, but there’s still 48 hours left to give in 2011.

So here are some end-of-year questions to consider…

1. How much of your gross/net income goes charitable contributions?

We’ve earned it… we’re spending some of it… but it doesn’t all belong to us.

The concept of tithing – giving back one-tenth of what we make — goes back as far as recorded human history.  If you’re a modern adherent to the 10% rule (or some variant, e.g. 5%… or maybe 20%) you’ve probably thought about where to put government taxes into the equation.

Do you give 10% of your gross income, or your net income after taxes?  What about itemized deductions?  Should you consider a portion of your taxes paid to the government — ie, the percentage of the government budget that goes to provide direct support to the needy — as a form of charity?  The answer to these questions may be influenced by a person’s cultural, religious, national or political background. For example, if a person lives in a European welfare state with a high individual taxation rate, statistically speaking they will give less in direct charitable contributions as compared to a person who lives in a  jurisdiction with lower taxation rate. A similar statistical discrepancy appears between people with liberal versus conservative political leanings within the same tax jurisdiction. Perhaps our view of the government’s role and efficacy in supporting the needy affects our own desire to give back? (Ah, the old individual responsibility vs. collective responsibility debate… a false dichotomy if there ever was one.)

Layer on top of this our individual financial situation — our income, our expenses, our assets, our debts — and it’s quickly apparent how difficult it is to apply a single “standard” of charitable giving for all people.. and we haven’t even touched the subject of what is considered a “worthy cause.”

Yes, giving charity can be complicated.

The best way to deal with this complexity is to establish a household budget for charitable giving… aka, a “Giving-Back Budget.”

Why Establish a Giving-Back Budget?

1. Most importantly, by budgeting for charitable giving, it actually gets done.
2. Also, by establishing a budget, we can prioritize the causes we wish to support.
3. This allows us to more easily say “no” to the things that fall outside our budget.
4. Finally, it also gives us something to measure by, when we decide to say ”yes” and stretch our budget.

Some people go as far as establishing a separate bank account for themselves, designated for charitable giving. They regularly move funds into that account, so that those reserved funds won’t have a chance of getting spent on non-charitable expenses… just like payroll withholding.  Hey, the government figured out a long time ago that it was easier to transfer funds at the source, rather than send out a big guy carrying an axe to do their collections.  (Thankfully, we still have the phrase, “Hey dude, that’s totally in my bailiwick.” )  I haven’t gone that far myself, but for the past few years I’ve been keeping a spreadsheet on my past/current/future charitable gifts and it’s been quite helpful in keeping myself organized, giving-wise.

2. Have you reviewed your Giving-Back Budget lately?

Each one of us, at whatever scale we operate, is a philanthropist.

Each one of us has a responsibility to increase our net social worth by choosing to give back a portion of what we make… and the nice thing is, the more we give, the more we get… or more precisely,  the more we give, the more we become people who have the means to give well.

To be sure, there are also non-monetary ways to increase our net social worth… no, I’m not talking about that “gently used” clothing that we dumped into a steel bin next to a parking lot… I’m talking about doing things, such as volunteering our precious time to help a worthwhile organization. That’s a whole other Giving-Back calculus, which overlaps with the concept of Life Balance… and as the previously cited Charity Navigator link describes it; the giving of time and the giving of money to charitable causes are two highly correlated behaviors.

Giving-Back Budget Review Questions:

How much of what I earn will go towards my Giving-Back Budget this year? 

What is the shape of my Giving-Back Budget for this year?  i.e., What types of charities/causes are I supporting… and in what proportion?

How well am I doing towards this year’s Giving-Back Budget?  Do I need to make any end-of-year contributions, to balance it?

What does my target Giving-Back Budget look like for next year?

The nice thing about these questions is that, even if we can’t answer them satisfactorily in the next 48 hours, these questions can become part of another great seasonal tradition: The New Year’s Resolution.

(all right, Mr. Big Shot here is going back to the spreadsheet now…)

Hat tip to Glenn Warren / Stephen Dill, on this discussion.

Same-store sales is a simple but effective gauge of the financial health of a retailer — it indicates how a company is doing within its base of existing stores (1 year or older, by convention).  Sales results from newly opened locations during the reporting  period will not affect the same-stores sales number, which is good, because growth through new openings tends to cloud the picture for managers and investors who want to know how a retail chain is actually performing, all other factors aside. 

Amazon.com recently made its annual “best year of sales ever” press release and received numerous scathing critques from skeptical analysts (and maybe even some hopeful short sellers).   The problem with Amazon.com and other e-tailers is that they still enjoy the shroud of hype of opacity today as they did in the late 90′s.  There is nothing close to a sames-stores sales metric out there for e-tailers.   Online businesses routinely open “new locations” in the form of alternate websites (whether acquired or internally developed) as well as new sections of their websites that differ dramatically from their core product offering.  E-tailers do not typically break out these numbers for investors, let alone give visibility to key metrics of e-tailing health such as order size (or even revenue-per-customer), conversion rate (the e-tail equivalent to “revenues-per-square-foot”), customer retention rate (“loyalty”) or the like.  As a result, their weak performance (or outright mismanagement) can go undetected beneath a surface of selectively chosen numbers. 

While it would be nice to have something as simple to understand as same-store sales for online retail, the analogy unfortunately doesn’t work. Traditional retailers are “allowed” to offer new products within the walls of their stores and still have those dollars count towards same-store sales.  Without physical walls, it’s hard to decide where to draw the line of “new store” and “new product line” for e-tailers.   Yet, leaving aside semantics, there is a fundamental logic and rigor behind the same-store sales metric that makes it compelling for understanding traditional retailers, namely, “how well is this business doing in the areas that it has previously built out?”  Without this rigorous standard to stick with, it’s too easy for online retailers to get away with a whole lot of fluff and b.s. 

I once witnessed the perils of the choose-your-own-metric dot-com management style at an e-tailer’s company meeting, a few years ago.   This was a company that, according to a well-known retail veteran,  was “subsisting as the #2 or #3 player in a whole bunch of different categories,”  with “unstable leadership.”  As an observer, I initially thought they had promise.  But then, at the end-of-year company meeting, management made an announcement that annual sales were “up”…. well…, up…. WHEN YOU IGNORED those  product categories where their competition out-maneuvered them, and which they ultimately retreated from.  Yes, management insisted, not only were sales “up,” but they were “growing at an amazing rate.”   Yes, sales grow at an amazing rate when you ignore the part of your business that is just a few years old and dead, and focus only on the part that took off in recent months.  It’s ok guys.  Just fess up.  Your earlier store didn’t succeed, so you’ve decided to build a new store.  Time will tell if that new store does better.   However, lacking the discipline of a true same-store-sales -like metric to stick by, but having plenty of deep fear and insecurity, these folks perpetuated the image of the unscrupulous dot-con,  spinning their humble-but-still-decent story into an out-of-proportion blustering lie. Was it neccessary?  Probably not.  Did it cultivate employees trust in their leadership? Definitely not.  What it did do was prolong the inevitable decisions that would have to be made, to insure the health of the company and the protection of the venture backers’ considerable investment.

So where do we go from here?  I say, release the key metrics.  Tell us your conversion rates.  Tell us your average order size.  There’s no competitive issue — all the e-tail insiders know these numbers anyway. 

Barring that, at the very least, let’s get a breakdown by website (flagship site versus all the other stuff, including recent launches and acquisitions), or perhaps a little more granularity on those merchandise categories.  Not to pick on Amazon.com or anything (but this is what comes with the leadership territory), here is the merchandise-type breakdown of their Net Sales, in their last annual report (divided between the “North America” and “International” regions):

Media . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Electronics and other general merchandise . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 

Compare that against how they broke-out their “Cash-and-Equivalents” holdings:

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government and agency securities . . . . . . . . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign government and agency securities . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Seriously, I would gladly trade some of that detail on Amazon’s cash-equivalent securities, to get some info about, oh, I don’t know, let’s say… BOOK sales. Or maybe even a distinction between the “Electronics” and the “other” for starters.

This lopsided approach to what is important detail from an investor’s point of view is largely a function of SEC reporting requirements. When those requirements change, there will be some accountant fees and some bruised egos, but long term, we’ll see better-educated investors and improved management practices. And a lot less bluster.

In brief:  After several successive (and annoying) postage rate hikes in the past 10 years, the U.S. Postal Service (USPS) finally decided to adopt an idea that several people had previously proposed, namely, that the USPS offer a thing called the Forever Stamp. The idea is simple: The Forever Stamp costs whatever the current standard First Class postage rate is (e.g. 41 cents), but can be used in the future, even if the rate increases (e.g. 42 cents starting May 12, 2008, as announced today).

What we, the USPS’s customers get from the Forever Stamp is the convenience of not having to worry if our standard First Class stamps are any good after a rate hike (I’ve still got some 37 centers lying around) … and not having to buy all kinds of pesky 1 and 2 cent stamps to compensate. (Meanwhile, email is free.)   The USPS doesn’t really lose much money, because even if customers stock up on Forever Stamps immediately prior to the rate increase, these purchases act as an interest-free loan to the USPS, to say nothing of the “shrinkage” resulting from unredeemed Forever Stamps that get lost in the shuffle.

All this is obvious.  And yet the analyst in me wanted to know EXACTLY how much one could save by stocking up on Forever Stamps.  Help cure world hunger? Design a better CSS template for my blog?  No.  I think I’ll put together a Google spreadsheet.  Here it is:

http://spreadsheets.google.com/pub?key=piH-UDyfEQzQQNxGKlfo4VQ

This spreadsheet illustrates how the “savings” that you get by stocking up on Forever Stamps will be quickly eroded by the cost of capital — ie, the tie-up of funds which could otherwise be used for other things, like municipal bonds, certificates of deposit, shares of Berkshire Hathaway or collectible Star Wars memorabilia.

Here’s a screenshot of the spreadsheet, using an example of buying 500 Forever Stamps, for a total outlay of $205 dollars. 

In this example, assuming no monthly compounding, using even a modest 5% return on capital would mean that your savings on the Forever stamps would be gone after 6 months. Heck, the $5 you saved in the first place cost less than my making this spreadsheet and blog entry (although I haven’t played with Google spreadsheets in several months, so I count this exercise as an R&D expense). 

In summary, if it makes you feel any better then, yes, go ahead and by a few hundred Forever Stamps before May, especially if you have a whole bunch of June wedding invitations to send out. Once you’ve done that, wipe the smug, miserly grin off your face and donate your $5 in savings to a worthy cause.

1) The U.S. Postal Service’s First-Class postage increases are indexed to inflation, see chart below.

2) Therefore, the Forever Stamp, viewed as an investment vehicle, is also indexed to inflation.

3) Therefore, the Forever Stamp is very much like certain U.S. Government bonds, with all the same currency risk exposure (i.e., their value is tied to the U.S. dollar and the U.S. government). 

4) The main financial differences between Forever Stamps and U.S. Government Bonds: Forever Stamps can be bought in very small increments, and are redeemable only in exchange for a specific service (not cash).   They also don’t have serial numbers tied to a specific beneficiary, so they’re easier to lose/transfer between owners. 

5) None of this has anything to do with the romantic/emotional aspect of dusting off decades-old “Forever Stamps” in the middle of the 21st Century (assuming there still is a U.S. and a P.S.) and paying for $2+ First-Class letters with postage that cost less than half a dollar “back in the day.”  

6) In fact, it will help the USPS better balance its budget if more people pursued a “buy and hold” investment strategy with Forever Stamps. If you think about it, the Forever Stamp is actually a really clever way to expand the total population of stamp collectors.  Stamp collectors and junk mail marketers — two key elements to helping the government fund this simple, reliable messager service that we all take for granted.

1)  “The Travails of Tracking Web Traffic” by Catherine Holahan (BusinessWeek, April 30, 2007)

2) “IAB Call for Audits: Transparency or Conspiracy?” by Kate Kaye (ClickZ News, April 20, 2007)

Both articles mention one of the more nimble competitors in this space: the up-and-coming  Compete.  Another company mentioned is Quantcast.  Hopefully these smaller firms will have the opportunity to innovate while the whole cycle of disbelief-scrutiny-pressure-and-recalcitrance plays out between Nielsen/comScore and the IAB’s publisher constituents .

What follows in the next two sections of this post is a bit of a dissection of the above two articles.  Click below to read more, if you’re into web analytics (or if you work for one of the Big Four auditors)…

1)  “The Travails of Tracking Web Traffic” by Catherine Holahan (BusinessWeek, April 30, 2007)

This piece covers the issue nicely and is well organized, like many of BusinessWeek’s articles. It works well whether you are new to the subject or are just looking for an update and more complete perspective. However, it did fall into a couple of spin-doctor traps:

a) The article explains why user panels fail, sometimes by orders of magnitude, in predicting the total traffic to a given website. However, right after doing that the article proceeds to mention that panels have certain advantage over server logs in that, “Unlike server logs … panels can tell companies more about the audience’s demographic composition. This is possible as panel members share such information as age, gender, and income level.”   Yes, that’s what part of the whole panel pitch.  But no, it’s not true.

See, by extrapolating their user panel results, these analytics firms have failed to guess even the order of magnitude of a given website’s traffic.  The composition of that panel and the erroneous total derived from it, in terms of user demographics, is part of the problem math.  Therefore, the demographic profiles they report are just as likely to be grossly incorrect. There is no reason to trust those demographics if you can’t trust those totals… because the two measurements (quantity and quality) are tied together in the methodology itself.  They can’t say, “well, we might be wrong on the scale of this, but qualitatively we’re still correct in the audience makeup.”

(The article later mentions the “niche demographic” aspect of online (non-mass) media, which is related, but it’s not exactly the same issue. ) 

b)  The article correctly points out that traditional server logs have the weakness of not accounting for web surfers who switch computers (though I wonder if those panels are any different in this respect?  Does your Nielsen NetRatings tracker follow you from home to your work computer?  I don’t think so. ) and that although the server log and cookie-based tracking systems can give a more precise count of visits to a Web page from unique IP addresses, “... it can also be thrown off by users who periodically delete the bits of tracking code from their computers.”  Absolutely true.

I would have been cool with that, and I would have been happy if the article then quoted a reliable authority on the percentage of users who periodically delete their cookies. They did this, except… the “authority” in this case was comScore! Jeez, come on.  comScore pegs the number of users who periodically delete their cookies at 30%.  Ok, just because it’s from comScore, I’m gonna discount estimate that by half… no, by a quarter, and call it 7.5%   comScore’s CEO said, “These serial resetters have the potential to wildly inflate a site’s internal unique visitor tally, because just one set of eyeballs at the site may be counted as 10 more unique visitors over the course of a month.”   These serial resetters?  It sounds scary. 

In any case, there is probably a range of percentages, based on how ”tech savvy” a given user group is, on this cookie-resetting factor. Whatever that percentage is, it would be an okay discount to apply to a given server log totals, and in terms of statistical deviation it would not be orders of magnitude off reality.

2) “IAB Call for Audits: Transparency or Conspiracy?” by Kate Kaye (ClickZ News, April 30, 2007)

Unlike the BusinessWeek piece, this is the insider’s article on the issue.  You want to hear what people are saying on the sidelines?  It’s all there.  

I think all this scrutiny and debunking of comScore and Nielsen will accelerate the trend of more and more advertisers asking publishers for third-party audited numbers on their traffic… and for publishers to have those audited numbers ready for their advertisers.  I disagree with the fear mentioned by an anonymous media agency insider, who ”thinks exposure of the NetRatings or ComScore innards may backfire. If advertiser trust in these large two measurement firms erodes as a result of audits, their trust in online advertising could weaken, dampening enthusiasm towards Internet spending. “   In the short term, some of the agency’s large CPG (consumer packaged goods) clients may cite the article they saw about this issue in the Wall Street Journal and threaten to reduce their online ad spend budget… but in the end, they’ll keep buying more, because those online ads bring measurable results (in terms of clicks, and where applicable, online revenues), and those measurable results usually outperform whatever they’re getting from the glossy magazine ads and T.V. spots that they’re still buying. 

CONCLUSION:  Clearly, the big winners who will come out of this will be the “Big Four” accounting firms.  The owners of major content websites have already started shelling out big bucks to get a “Big-Four-certified” audit of what is really a fairly straight forward (and largely automated) data analysis.  This is a consulting/accounting services firm’s dream:  An easily scaled, commodity-type service that can be sold at a premium. 

At the end of the article, Stephen DiMarco of Compete is quoted, “Is this going to have the impact of a [Sarbanes-Oxley]? That sounds like a stretch.“    He’s right from the point of view of the auditors, but maybe not entirely from the point of view of major publishers.  The outcome of the debunking of panel-based traffic estimates will add to the cost of doing business for major publishers, just as Sarbox has added over $2 billion in accounting costs to public companies.  [ Mind you, how much can Deloitte, Ernst & Young, KPMG and PwC charge for server log audits?  It couldn't be that much... could it? :-P  ]   For auditors, however, this will finally be a case where the added billable work will not create a tremendous CPA labor crunch, the way all the FASB/SEC-related legislation did. 

This icon signifies that a blog entry has been predated (or if you prefer, backdated), meaning, the date that the content was originally/initially created is earlier than the date it was posted on this blog. With some of the longer entries, it can also signify that there has been substantial editting to the writing during the interim.

You may ask, “Why would you date a blog entry on an earlier date than the actual date you posted it? …and even if you do that, why bother to call it out? “ What follows is an explanation of this idea, with some ruminations on the Nature of Blogs and why I personally bother blogging at all. (Come join me for this journey…)

[ NB: For the record: I dislike the word "blog," "blogger," "blogging" and most of all, "blogosphere." But here we are, we bloggers in the blogosphere, blogging our blogs and nobody can say blah, because although we are participants in the process, we don't fully control the English language and the turns it sometimes takes.]

Ok. Although a blog is typically written with a “letter to the world” voice, in my case I view my blog as a personal reference source and sandbox. This is a place where I work out ideas and record things I’ve found interesting… but with the added twist that it has to be done with some rigor, because I might want to share it with someone I know, or someone out there *might* even just stumble upon it.

I think this dimension of the blog makes it a better medium for idea-gathering than the old-fashioned diary or scrapbook, which are off the public record of the all-seeing Google. With physical scrapbooks in particular, these tend to be more consistent in quality, more well crafted and are more carefully considered in their content when there is an intended audience, such as family members. If it’s just a private affair, I imagine that most people’s private scrapbooks will devolve into a mixed media filing system.

So, at least for me, the purpose of this site is to act as my own virtual diary/scrapbook. As such, the date of the first draft for any entry is most important (to me) in terms of archiving and retrieval, even though I may only release a final draft at a later date when I feel it’s coherent enough… or, in certain circumstances, if enough time has passed. Furthermore, I may revise my entries later, sometimes using a date-stamped comment or epilogue, sometimes not. In this respect, I’m probably more of a “wiki editor” than a “blogger.” I considered using a wiki, but a blog is so much easier to get up and running. In fact, I only started this blog after wringing my hands for years over what CMS would be most appropriate for writings, links, pictures, etc. (which live in different places) with the right mix of functionality and ease, all bearing in mind questions about platforms, standards, support, obsolescence, oh my. Then one day I’m having coffee with Shawn Broderick and he gave me a “Just Do It” pep talk.

As such, I am blogging backwards and forwards… forwards as stuff happens and I write about it, backwards as I tap into my backlog of stuff I’ve written in emails, notes to self and various unpublished whitepapers, manifestos and rants.

As for why I’m even calling out the fact that this is going on, well, I guess it has to do with being authentic, or something. I imagine that the few people who might actually read any of this would be people who know me, and if they ever bothered to read a part of this blog twice and noticed that I was surreptitiously pre-dating entries, well, I’d feel like such a tool. It’s all about having respect for the reader, man. Now, I’m sure many bloggers pre-date an entry here or there, for any number of reasons, and it isn’t necessarily “inauthentic” to do that. I’m just saying this works for me.

In conclusion, here’s an analogy: In some very large accounting software setups, the books are always “closing” behind you and you can’t just change the way something was booked in the pre-closed period. Even if there was an error, say, last week, you can’t just go make an correct the book entry itself. Instead, you have to issue a big ‘ol honkin’ JOURNAL ENTRY to reverse the error, and if you want to be nice you also have to add comments to the JE so that people understand what it was all about, etc. Now, when Quickbooks swept through the business market, one thing that auditors didn’t like was that, by default, the books always stayed “open.” That meant at any moment, a bookkeeper could add, delete or change any transaction in the books, from the past. Having worked with many an auditor and worn the hat of VP Finance / Controller, I’ve found that, once things are up and running with Quickbooks and have settled into a routine, the best practice is to turn on the “audit trail” function. That way, you can go back in time and change the entries themselves without making a big stink of it, but the fact that this change happened is documented by the system. That way, you can also keep track of what’s what… for example, if a printed and dated financial statement doesn’t match with what’s currently in the system, it’s easy to figure out why… and it make the job of those forensic accountants / fraud detectors much easier. So you see, this blog is all about having the right financial controls. It’s about checks and balances. Integrity. Authenticity. Obsessive Compulsive Disorder. Whatever you want to call it.

Plus, it’s always fun to design icons.