Finance

Work out decent business profit margins

Selling online can come with its challenges, but achieving decent profit margins should be at the top of the agenda. It’s easy for a busy eBay or Amazon seller to spend all their time on the day-to-day running of their business and lose track of its overall financial health.

Gross margin is the figure that represents sales minus cost of goods sold. It doesn't take your operating costs into account. In most cases a seller will be looking for a gross margin of around 50% or higher. This allows for the other operating costs which come with running an eBay or Amazon business.

Operating Costs

Here are some example operating costs that an eBay seller might encounter:

  • eBay listing fee of £0.40 and final value fee of 10% (for most products)
  • PayPal fees (up to 3.4% + £0.20 per item)
  • Postage and packaging (varies depending on size and weight)
  • Storage facilities
  • VAT (for VAT registered businesses)
  • Wages
  • Operational overheads (storage, insurance, internet)

Selling on eBay or Amazon is hard work. You can end up spending so much time fulfilling orders that you miss the bigger picture and fail to realise you are making no profit.

How about a practical example? Imagine an eBay seller borrows £2,700 from iwoca to buy 500 snapback baseball caps at a good wholesale price. One unit costs £5.40 and the trader sells them on for £12.50 each. The gross margin on this deal is 57%.

The iwoca pick above shows that once the operating costs are accounted for, the seller will return a 34% net margin. If they sell all the caps they stand to make a total profit of £2140.

What to look out for

Competition between eBay and Amazon businesses continues to be intense and buyers are extremely price sensitive. Sellers may need to sacrifice their margin to stay competitive on price. This is especially true for traders selling apparel and mobile accessories - particularly competitive sectors. If competition is squeezing your margin try to bargain a better deal with your suppliers or make every effort to reduce the costs. No margin means no profit.

Are you happy with your products' profit margins and how do you barter a better deal with your suppliers? Share it with us!

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Alycia Wilson is Head of Marketing at iwoca, a limited London based startup that provides instant working capital to commercial eBay sellers. Visit th...
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    Fellwalker
  • December 19th, 2012
I take issue with this advert.
It is dated November but just included on TSC newsletter now in December. When I search I find it has been posted all over the place on different sites and forums.
The finance costs are NOT per item. It is NOT a variable cost, it is a fixed cost that has to be paid whether or not you sell a single cap.
Should lending not have to quote an APR?

The figures are far too simplistic and do not cover the potential downside. What if they don't sell? What if they don't sell at that price? You are in competition with 449 other UK listings at £11.99 or less, none at £12.50, and only a further 2 at £12.99. (ebay search 19 December 2012)

So if you make 51p less on each cap to match others, you are already down by over £250.

You have assumed each cap is listed individually at 40p, but despite saying postage covered by the buyer, you have not included that cost in the sales income, and hence in ebay and paypal fees. Typically it is £2.75, and that is not far from the actual cost including £2.20 postage, labels, wrapping, tape etc.

The 40p gets charged every 30 days for a buy it now listing.

If your caps are different sizes, be prepared to have some sizes left.
If your caps are different colours, be prepared to have some colours left.
If they are branded or seasonal, be prepared to have some left.
It would be a miracle if they all sold in 3 months.

I would reckon you have returns with refunds, unsold hats, claims through paypal that the hat never arrived. Your profit is down.

If you had to cut half to £10 to sell, you lose £625 of top line income (and a little cost from ebay etc).

Then there is your time:
To list 500 individual caps is going to take you on average 5 minutes each to photograph, list, upload the photo, check the listing. That is 42 hours total; maybe you will speed up and cut it to 20 hours? You will be cross eyed and hunch shouldered. I hope you have a reasonably fast internet connection!

To pack and post 500 caps, you are looking at something around 5 minutes per item to process. Doing it singly on ebay will take a long time. If you use the ebay postage service, that is more paper and labels or tape. If you use a post office, be prepared for some happy smiling faces at the counter.

So I reckon 20 hours to list, 42 hours to pack them all, plus a batch a day to the post office and a time to travel and wait there of perhaps 30 minutes a day, for three months is another 30 hours. At MINIMUM wage that is nearly £570, and you need to be getting more than that. This ignores any time cost of answering questions.


It is not easy to make money on ebay.

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    Corey W
  • December 19th, 2012
I live in the US, can I still use your service? If not, is there a similar company over here that does what you do?
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    Fellwalker
  • December 21st, 2012
Thank you for your reply. I believe the article was far TOO simplified. There is much more that can impact. That was my main point. Looking at your November Shamballa watch pick, you show a P&P cost of 90p, but Royal Mail second class for a 100-250g large letter is £1.10, before packing. I can't see a watch weighing less than 100g, and could well be into the 251-500g range once packed, costing £1.40. A strong envelope and labels might be another 30p. If you have cheaper P&P, I know a few businesses that would love to share.

You may feel monthly interest is more representative, but the law says you should quote an APR if you are advertising finance. If you have ever tried to calculate APR, you surely know that it is far from easy.

The Laws are:
Consumer Credit (Advertisements) Regulations 2010
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The 2010 regulations apply to unsecured credit including loans, hire-purchase and credit cards.

They apply to all forms of advertising, including in print (for example, newspapers, circular letters, flyers, catalogues or billboards), on television or radio, on the internet, on teletext or by way of telephone canvassing.

In particular, the regulations provide that - if an advertisement includes an interest rate or any amount relating to the cost of the credit - this triggers a 'representative example' including a 'representative APR'. This must be representative of agreements expected to be entered into as a result of the advertisement, and at least 51 per cent of borrowers must be expected to get the advertised APR or better.

Calculation of APR
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A single method of calculating the APR was introduced in directive 98/7/EC and is required to be published for the major part of loans. The basic equation for calculation of APR in the EU (see image for formula)

(read it properly on http://en.wikipedia.org/wiki/Annual_percentage_rate#European_Union)


I did look on your site and could not find an APR. A google search for APR on your site finds a hit
"Amount of credit £1,113.00 for 90 days. Total amount payable £1,224.30. Interest £111.30. Interest rate 60% pa (fixed) Representative APR 79.6% ..."
but I couldn't see that when I looked at the site live.

After several attempts, and finding a hidden div statement in the html of the page, leading me to waggle my mouse all across the page, I've finally found that there is a pop up when I hover over the finance fee per item.

BUT because you post a picture on this site (and all the others on which you post) those do NOT copy across the hidden code, so the APR is not shown except on your own site.

Perhaps you don't want potential customers to focus on APR 79.6%?
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