I have had an active on-line shop since October 2020. Today, I sat down and figured out what portion of the money that PayPal has collected from my shop is actually profit.
There are lots of ways you can look at all the data. I wanted to know what portion of the revenue was available to spend on reinvesting with ads on Facebook and how much I needed to squirrel away to pay for the products I have stocked my store with.
To do that, I first sat down and figured out what my cost for each item was, what the regular price was, what the profit was and then I figured out the profit margin for each item (profit/price customer pays)
Most of my products showed a profit margin of over 50%. Which is great. The larger the profit margin, the better. There is one product, however, that is much much lower. I knew it when I got the product in, but I couldn’t afford to buy this item in a large enough bulk price to substantially lower the costs and increase the profit margin. And I only sold about 50% of the product I got in. I don’t know if I will continue to keep this product in my shop, but it is such a fun product that I want to keep it. If I buy a huge amount (like 34 times more than all the items I’ve sold in my shop since October) then I can get a rocking great price and an awesome profit margin and I could lower the price too! But I’m not sure I have the room to store that much product of one item.
Because I have had so many sales lately, I wanted to see what the profit margin is for each item when it is on sale. I still have a profit margin of 40% or higher on almost everything. There are two exceptions: the item mentioned above and 1 other item. This last item is hard to sale, has a really low price, and when I gave it away, it took a lot of time to fulfill. I learned it wasn’t worth the trouble. It’s amazing what you can learn when you start to lose money.
After I figured out my cost per item and my profit margins, I printed off all the orders I received since October and wrote on each order what my costs were. Those included how much it cost me for each product, how much PayPal charged me, how much Squarespace charged me, what I had to pay for shipping, and what I had to pay to fix the occasional problem.
I’m grateful that I’m small enough that I can personally fix each order as I find the problem with it. It teaches me what I am doing wrong and I’m going to guess it is cheaper to learn all that now than later when I have to hire someone to do fulfillment. I also learned valuable lessons. Some of the lessons I learned include:
Offering free shipping does cut into your profits. (You think?)
If I leave a free shipping option in my store, it will be used. Even if I didn’t plan on it being used. (uh..oops!)
Weighing my products and entering the weights does help to make sure I charge enough for shipping.
A certain drop ship supplier will only get it out ASAP if I pay for premium shipping.
If I buy the product and have it on hand, I can get it to my customers faster and cheaper than a drop ship supplier will.
Mistakes are costly.
Extra shipping to send “sorry your order is so delayed” gifts eat into your profit. (see #4-6)
Free gifts cost you money. (Duh)
I need a store that I can enter cash payments into so I can keep all my orders in one place and local customers who end up paying sales tax, also like to pay in cash in person. (I’ve only collected sales tax on 2 orders and both paid with cash.)
I need the option of using other payments besides PayPal in my shop.
I need to change who I am using for the back end of my shop
I’m sure there is more to learn as I go forward.
After I had the costs down, I pulled together a spread sheet. I took what each customer paid pre-tax on their order, subtracted all of the costs including shipping, and came up with a profit. I got to see how much profit I made on each and every order. On a few orders, I realized that after the dust settled, I had only made $1.25 on the whole order. That maybe next time, I shouldn’t offer such a low price on that item. O, I needed to quickly fix how they shipping was calculated because that order didn’t end up charging the customer any shipping. (oops)
I had also offered a couple of items for free early on in October and November. They didn’t really cost much to create and they would get my product out into other people’s hands. And they did. Not everyone who ordered the free items have turned into a paying customer yet, but I’ve only been at this for less than 3 months. Still plenty of time for the investment to pay off.
On paper, however, it looks dismal. I lost money in October. Not a lot of money, but it was a negative number. But that is a good thing. That means I am investing in the future of my shop. I think it was Seth Godin that said that the more you give away at the beginning, the more you will make at the end.
I’m not in business to make $200 to pay for one of our bills. I’m in business to eventually replace my husband’s income. If I’m using that as my guide, then I need to be trying to make my expenses the same as my sales. If I am looking at it that way, then I succeeded in October and failed in November and December….
Except…, the figures I pulled together today do not include the Facebook Advertising and Google Ads and Instagram Ads I’ve been running. I just did a quick look and found that I’ve spent more money in Facebook and Google Ads than I made in profit in November and December. So, if I am trying to reinvest all my profits into growing my business, I have succeeded!
I have not made any sale via Facebook and Google Ads though. Everyone who has bought something in my store so far are my friends or family and they found out about my shop because they are already my friends on Facebook. So, should I stop advertising on Facebook and Google Ads?
Well, I see a pattern to my sales. A new product, I get a spike in sales. A really low price, a get a little spike in sales. Often, however, I feel like I am just hounding my friends and family to buy my stuff. I have always hated MLM’s because that is what they suggest you do. How much of my stuff can my friends and family buy anyway? I need a bigger audience. One way of increasing my audience is to venture out into paying for Ads. When I think about the companies that I have ended up buying from that I see on Facebook, it is because I have seen their ads so often and finally, I am in the market for their product or I have been worn down until not only do I click, but I buy. I’ve heard it takes 7 times of someone seeing your company, your brand, before they buy.
What do I need to do to sell to someone who doesn’t know me personally? I’ve only found one answer to that question. Build a relationship with them. And in time, those relationships will help to bring in the profits that eventually will replace my husband’s income.