Profits & Margins for E-commerce

One of the most important aspects of running any business is its ability to make a profit. I don’t care whether that business is your bread and butter or a side hustle carried out on a Friday evening after a day in the office.

Your business has to make a profit. No profit means very little in the way of success or progression for you, your company, your community or your family.

But how does one go about making a profit? How do you charge enough to ensure you’re covering the costs?

Profit? What is it

There are two types of profit, the first is Gross Profit and the second is Net Profit.

Gross Profit: The money that is left over minus the Cost of Goods Sold.

Net Profit: The money that is left over minus all of the expenses from the company ie advertising, rates, rent etc.

Cost of Goods Sold: The amount it costs you to sell that one product, such costs include manufacturing, obtaining the stock etc.

In business people often get the gross and the net mixed up. Gross is what you have after you’ve taken off what its cost you to get the product. Net is what you have left minus everything.

Profit how to make it?

This is a very simple thing to do. In its basic form lets say you buy a set of headphones for £10.00 from your wholesaler and you resell them for £20.00.

Your markup is £10.00, mark up is not profit, markup is the amount you’re adding on top of the cost of the product to cover the costs within the company.

Let's say you carried out some advertising for your headphones and it cost you £5.00. Your profit would be £5.00.

£20.00 (RRP) — £10 (COGS) — £5 (Expenses) = £5 profit

Your job is to calculate how much expenses you have and then workout how much markup you need to add to each of your products in order to be able to cover those costs.

Once you know this you can then workout how much profit you should be making on each item. They say you should be looking to make a profit margin of 33% of all turnover.

Turnover: The amount the business makes before COGS and Expenses.

Payment Fees

Most of you will be using an online payment terminal such as PayPal, Stripe or similar.

All of these systems take a small % of the amount of funds you’re putting through the account. You will need to factor these into your markup cost to ensure you’re covering the fees.

Conclusion

Making a profit isn’t as hard as you may think.

Sure it will take a bit of time to get your numbers right but as long as you’re covering all of your costs and expenses your company is making progress.

As your company expands you will need to hire staff and this, in it self, is where the real work has to begin. Not only are you responsible for your own success but you’re responsible for the success of a member of staff.

Their success depends on your companies ability to land new work or sell more products.

If you don’t know how much profit you are currently making, take this afternoon to sit down and run those numbers before you go further.

Resources

There are some great books online, including Profit First and Pricing for Profit.

Highly recommended.