|Profit per item to small for eCommerce?|
I have operated a flea market booth for a few years and I have done well, sometimes matching my regular monthly income. Lately I have been considering going online. I believe I have identified a niche that hasn't been filled and I know I can supply the merchandise. My only concern is that the products I sell are between 5 and 8 dollars, and it is not the type of product that people buy in multiples. My profit per item is between 3 and 4 dollars. My question is, is it even feasible to run an eCommerce business with such small profit margins? When I think about packaging, shipping and all of the other logistical aspects of an online retail operation, I feel that my profit per item just isn't enough. I am only in the early stages of even considering going online. I'm just trying to get a feel of whether it's even worth pursuing.
Welcome to Webmaster World!
The products you sell at the flea market are $5-8. That doesn't necessarily mean that you must sell the online for $5-8.
You have the expense of a website, merchant account, packaging materials, maybe eBay seller costs, Paypal costs, postage account, etc.
When you sell online, your market is worldwide. You'll be shipping to Canada, Russia, Sweden, South Africa, etc; so it's safe to assume that none of your online customers have seen your products at your flea market. And you can set your prices differently.
Your gross profit is $3-4, or 30-60%. I'm assuming "gross" profit, because you probably aren't including your "wage" (a net profit of 30-60% would be Applesque).
I would calculate a wage for your hours worked, and target a net profit of 10-20%. Be sure to include the delivered cost of boxes, bubble wrap, advertising (Google AdWords), website costs, PayPal costs, and eBay seller fees.
Once you calculate your true costs, don't be surprised if your items sell for $10-12 online. (I'm just guessing here, but it'll likely be higher than what you're charging at the flea market).
If you include free shipping, keep in mind that residents of Alaska and Hawaii love that, and your costs may be significantly higher shipping outside of the lower-48. I'm not endorsing free shipping; I'm just saying that shipping costs can sink you, and you need to really watch out for that.
I hope this information helps.
Very helpful, thankyou. It makes sense to adjust pricing to the extra costs associated with online selling. Though I question whether I could increase prices and still make sales. I won't know until I try I guess.
As a smart friend once told me... If you can sell 20 of something... you can sell 2000 of them.
I think it all comes down to quantity. Look at the Wrigley family.
I would go the eBay route to see if it is even a viable enterprise. That way you won't have to invest very much time and money.
As mentioned, your best bet is to first try on eBay and/or Amazon (ebay being the easiest choice). There's no reason why you can't be on eBay and selling within a couple of days worth of work.
After credit card/PayPal fees along with eBay/Amazon fees, you're looking at paying approximately 20% of your gross sales in fees. If you have your own website you're going to pay somewhere around the same in advertising and maintenance. But I'm sure you pay for a table at the flea market so you're familiar with the fees for selling on market places :)
There's nothing wrong with selling things for $3 or $4 in profit. Dollar stores make fortunes with much smaller margins. And if you're net profit is 40% you're laughing. Most retail is around 5% (don't confuse gross with net margins though). The only danger when dealing with small profits like this though is that you actually are making far less than you believe when overhead and other things are taken into account.
But again, your best bet is to go on eBay and trying to sell immediately. Don't worry about questions like 'can I be profitable?' 'how profitable?' etc. right now. First see if there's demand online. If you can't sell anything on eBay, chances are you'll have a tough time selling anywhere else. If you can sell a few on eBay then there's a huge online universe awaiting you :)
most interesting topic.
Im also looking to quantify and budget an e-com start-up operation.
I believe some folks here are working with autorize dot net as merchant account provider.
In the Eu land, what would be your favourite provider to acept online payments please?
thanks a lot for any input on this.