It’s important for you to know how to calculate your profit margin. Many online sellers ask me about the profit margin they should negotiate from a wholesale supplier. That’s always difficult to answer. An acceptable profit margin is not a fixed percentage. Many factors interplay: the product, the market, the demand, and many other factors.
Your purchase volume impacts your profit margin. It’s not realistic to expect to earn a 100% profit on every product, just because you are buying them at wholesale prices. It may work for a few products for in big retail chain stores; but even for them, 100% profit margin is not the norm. Most online sellers have a relatively small business; and that’s not a problem, your up against the lower wholesale prices the big chain stores can secure. You just can’t expect to make a standard profit across the board on all your products.
Hard-and-fast rules? There are none. When it comes to online retail profit margins, there are a few guidelines about what you should expect to earn. GENERALLY, you shouldn’t sell products where you can’t earn a minimum 15% profit. Most online retailers are happy if they can earn a 30 to 40% profit.
Calculating your profit margin is not just a case of subtracting your wholesale cost from your retail price. For example, buying products for $5-each and then selling them for $10-each, plus shipping and handling costs, does not yield you a 50% profit margin. Your profit margin is your retail price less your total Cost of Goods Sold (know as COGS). Your Cogs includes all the costs incurred in selling a product – the advertising costs, hosting costs for your website, or the listing fees for your auction, etc.
If you carefully understand your true profit margins, you’ll be better at choosing the right products to sell in your business. Avoid tring to achieve an absolute value for your profit margins; they will vary from product to product. You must calculate the TOTAL cost of selling all your products, so you can determine what your REAL profit margins are per item. Anything not included will decrease your profit per item!