Monday, June 29, 2009

Calculating Profit Margins When Purchasing from a Wholesale Supplier by Worldwide Brands

By Chris Malta, CEO & Founder of Worldwide Brands

Wholesale Tip Series: Tip #8

Many eBay Sellers ask what profit margin they should expect from a wholesale supplier. A ‘good’ profit margin is not a standard percentage. One must take into account the market, product, the demand, competition and many other factors. eBay market research tools can help sellers determine demand, price, and sell-through success on eBay. You'll gain a better understanding of what your likely sales price will be to help you decide which products will be profitable for you from wholesalers.

Another criterion affecting your margin of profit is your purchase volume. New eBay Sellers sometimes expect to make 100% profit on each of the products they auction or sell, because they are buying products at wholesale prices. Big retail chain stores may achieve 100% profit margins; but even for them, it is not typical. If you're like most eBay sellers, your business is small; and while that’s OK, it does mean you will not get the same wholesale price breaks the big chain stores do. You cannot expect to make the same profit margins big retailers make for the products you sell.

There are no hard-and-fast rules laid down for online retail profit margins. But there are a few general guidelines for what you can expect to earn. You certainly don't want to sell product at profit margins around a 15% profit. If you're earning 30 to 40% profit, you're doing very well.

Calculating your profit margin is not as easy as subtracting your wholesale cost from your retail cost. For example: if you buy a products for $5 and sell it for $10, plus the cost of shipping and handling, your profit margin is NOT 50%. Your profit margin is actually your retail cost minus your total ‘Cost of Goods Sold’ (sometimes called COGS). Your COGS must include all the costs involved in selling a product - the cost of hosting your website, or the fees for listing your auction, the advertising costs, and so forth.

If you take the time to know your real profit margins, you'll be better positioned to select the right products to sell. Don't try to achieve a standard value for your profit margins; the margin will change from product to product. It’s important to figure out the TOTAL cost of selling products, so you can calculate what your REAL profit per product is. Anything you exclude in your calculation when you determine your pricing will eventually come directly out of your profits!

Worldwide Brands is an eBay Certified Solution Provider providing product sourcing access and information for eBay sellers. They are the publishers of an extensive directory of legitimate, fully-verified ecommerce wholesalers and manufacturers.

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