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Posts Tagged ‘make money selling on ebay’

2013 Last Minute Holiday Preparations

October 18, 2013 Leave a comment

Despite the just ended government shut down, my online sales have been going well.  It looks like it’s going to be a strong Christmas season!

Here are some last minute things you should take care of now, in case you’ve fallen behind:

First, make sure you have up to date information on total cost associated with every sku you sell.  You need to know what your margins will be at any given sales price, so you can set your prices correctly based on competition.

Second, if you sell on an online marketplace like Amazon or eBay, spend some time checking out your competitions’ pricing strategy.  Remember, people can set prices differently based on day of the week and time of day, so start sampling your competitions’ prices throughout the day for several days in a row, and keep it in a spreadsheet.

Third, decide what your sales strategy will be for each of your products.  E.g., if you don’t have a lot of inventory on a strong selling product, you may want to raise your prices now and let other retailers sell out their inventory, so you can sell at a higher margin later in the season.

My next post will be right around Halloween, and traditionally my sales slow down in the days leading up to Halloween.  So there should be some extra free time in the next couple of weeks to spend on looking for more products to sell.

Good luck, and let me know how your holiday sales are going!

 

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How Much Money Can You Make Selling On eBay or Amazon?

April 12, 2013 Leave a comment

Obviously the reason to sell online is to earn an income, so it’s important to understand why you’re making as much as you currently are, and what you need to do to improve it.  This post shows what determines your gross profit, so you’ll have an idea of what changes you can make to your business to earn more, and how to estimate the effect of those changes.

Let me take a moment to provide some caveats.  I’m going to use numbers in this post for illustration purposes.  I’m not saying these numbers are representative of mine, of a typical seller, or of anyone else.  I’m also not saying these numbers should be your goals, that you’ll do as well as these numbers, or that you can’t do any better.  The numbers are completely fictitious.  They help to understand the concepts presented here, but shouldn’t be used for any other purpose.

One more thing I want to point out is that gross profit is (sales – cost of goods sold), but in this post I’m going to include cost of fulfillment in gross profit as well (sales – cost of goods sold – fulfillment expenses, including marketplace fees).  Your accountant will point out this is wrong, and your accountant is correct.  However, for online sellers cost of fulfillment is often high, so I want to make sure you account for it in your planning.

With that out of the way, let’s get started.  Let’s suppose that you have inventory that cost you $1,000 to buy (inventory value will be represented as ‘IV’).  Also, suppose that for every $1 of inventory you sell, you get back $1.20 after accounting for fulfillment expenses (postage, shipping materials, marketplace fees, etc.).  That means that for every $1 of inventory you sell, you get back an extra $0.20, or 20% of your investment (this percentage will be represented as ‘M’).  Finally, suppose that in a typical year you turn your inventory 4 times.  I.e., you sell the value of the inventory you hold 4 times, or $4,000 worth of inventory per year using the fictitious assumptions here (inventory turn will be represented as ‘T’).  Therefore, the gross profit (‘GP’) per year would be:

 

GP = $1,000 * 4 * 0.20 = $800

 

Therefore, your annual gross profit is $800, or 80% of the value you invest in inventory.  As an aside, this number, annual gross profit as a percentage of the value you invest in inventory, is something you should track as a guide post to how you’re doing.  In general,

 

GP = IV * T * M

 

A good way to use this formula is actually to work backwards, and see what you need to do to achieve a target gross profit.  For example, suppose you want $25,000 per year of gross profit from your online selling business.  If you only change one of the assumptions I made above (about inventory value, inventory turn, or margin), what do you have to do to make $25,000 of gross profit annually?  Suppose we want to just increase inventory value:

 

25,000 = IV * 4 * 0.20, or IV = $31,250

 

So if you don’t do anything to improve inventory turn or margins, with all of the fictitious assumptions made, you would need to have $31,250 available to invest in inventory.  Along a similar line, if we only have $1,000 available for inventory, and our margin remains 20%, what does our inventory turn need to be to make $25,000 in gross profit per year?

 

25,000 = 1,000 * T * 0.20, or T = 125

 

Wow, with only $1,000 in inventory, we’d have to turn our inventory 125 times per year (about once every 3 days) to make $25,000 in gross profit per year.  Finally, if we have $1,000 in inventory, and we can turn our inventory 4 times per year, what margin do we need on each sale to make $25,000 of gross profit per year?

 

25,000 = 1,000 * 4 * M, or M = 625%

 

To put this in perspective, for every $1 of inventory we sold, we’d need to get back $7.25 after fulfillment expenses.

Of course, you can change all 3 to achieve your goals (inventory value, inventory turn, and margin), and you need to choose values that, based on your personal experience, you can achieve.  While the value of inventory you work with is very much under your control, the inventory turn and margin are heavily dependent on consumer choices and competition from other sellers, which change constantly. 

This illustrates the importance of constantly, accurately measuring your margin and inventory turn for every product you sell.  If they slip and you aren’t aware of it, you’ll feel it at the end of the year when you’re calculating your profit, and suddenly discover it’s much lower than you expected.  Don’t use guesses, estimates, or rules of thumb for your margin or inventory turn, use precise measurements.

If your business has hit a plateau and you’re wondering what to do to improve it, setting a specific goal for gross profit and thinking deeply about the equation GP = IV * T * M will provide clarity like you wouldn’t believe.  You won’t find answers in a day or two, but if you spend time every day in undistracted thought on specific changes you can make to achieve your gross profit goal, you’ll develop long-term, realistic strategies that get you there.