Do you know your margin?
Wednesday, October 24th, 2012
Do you know your margin?
This week, iwoca a finance specialist give great tips on how to keep your margins healthy.
The first call of business for an eBay trader is to know their profit margin. Your margin determines the success of your business but how do you calculate a margin and what size of margin should you be aiming for?
First look at your gross margin. This is simply the difference between the cost of goods from your supplier and the price at which you sell the product. It ignores operating costs.
Let’s take an example from iwoca picks, a regularly updated selection of trade ideas. Carole is an eBay seller. She takes a small business loan of £2,700 from iwoca to buy a wholesale lot of 500 snapback baseball caps. The caps cost her £5.40 each and Carole sells them on for £12.50. That means her gross margin is around 57%. Most sellers should be aiming for a gross margin of over 50%.
Now Carole needs to look at her operational costs. That means things like:
- eBay Fees (40p listing fee for most items + 10% of sales price)
- PayPal Fees (Up to 3.4% + 20p per item)
- Postage and Packaging
- Storage Facilities
- VAT (for VAT Registered Businesses)
- Salaries
- Other Overheads (Phone, Insurance, Financing…)
The iwoca pick shows that once we take these costs into account Carole is left with a 34% net margin. That means a total profit of £2140 if she sells all 500 caps. Nice!
Competition between eBay businesses continues to be intense. Buyers are increasingly price sensitive and sellers sometimes need to sacrifice margins in order to stay in the game, especially in highly crowded sectors such as apparel or mobile phone accessories.
If competition is driving down your margin try to claw it back by lowering costs. Negotiate a better deal with your suppliers, explore cheaper postage options and make sure you’re taking advantage of PayPal fee discounts. Selling on eBay is a tough business and it’s easy to be absorbed by day-to-day operations but ultimately there’s no point if you’re not making a profit.
Who are iwoca?
Iwoca are a London based finance company who provide short term finance (3-6 months) to online sellers, their mission -
“To help online sellers in the UK sell more by financing their growth based on annual sales and customer feedback scores, factors that a traditional lender won’t consider.”
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