Forum Moderators: buckworks
I have a new ecommerce site and for months I have been battling myself as to which is better.
Low profit margins with more sales? Or higher profit margins with less sales?
I just cannot seem to get the right balance to maximize my sales potential.
Does the profit margin even matter?
Any sound advice on this matter would be appreciated.
Thanks!
For me, its a mix of both. I have some products with good margins, but I don't expect to sell it every day. While I have other products with decent margins that give me steady income.
I would look at your competitors and see what they are doing. Do they sell their widgets for less than you? Do you want to offer your widgets at this price or lower? Do you want to compete in other areas, e.g. free shipping, free gifts, service levels...
As a philosophy for small businesses I have always believed it is better to have high margins, even if that is at the price of sales volume.
For small businesses increasing sales volume via lower margins usually means even lower margins because of the increased overheads associated with higher volumes.
But again it depends upon your overall strategy. Amazon might not exist today if it took the advice that it should operate with high margins from day one.
No rule can ever fit all, you really need to find the one that best fits your long-term strategy.
As a philosophy for small businesses I have always believed it is better to have high margins, even if that is at the price of sales volume.
I think you are right here percentages. Keeping margins high is probably better than getting into a price war with your competitors.
Amazon might not exist today if it took the advice that it should operate with high margins from day one.
They also may not have exsisted if they didn't start offering free shipping if you spend enough money with them.
Seriously though, getting into price wars is simply not an option if you want to stay in a profitable business.
That said, price is not the only factor in determining your margin. It seems perfectly sensible to start with low sales/ high margins and try to grow from there as you identify new opportunities. (Possibly outsourcing more functions, even at a higher cost, while you concentrate on those things only you can do).
With recent discussions about exchange rates, and a friends' business laying off people because of poor USD/CAD rates, one more element to consider is how vulnerable you are. If they had a small margin to start with, they could not have taken a 10% blow on revenues with identical cost structures: they would be out of business.
Generally speaking, the more risk you face, the more margin you'll want as insurance.
At the end of the day "Revenue is for vanity and profit is for sanity"
You need the sweet spot between mark-up, inventory, shipping costs, tax and import customs etc etc. A lot of people see electronic downloads, eg. ebooks, as a great money maker and others go with dropshipping which negates lots of the afforementioned costs.
[webmasterworld.com...]
but one thing i have observed, if you do not have a unique product and if other people can sell it, the only way for margin to go is steadily down, competition erodes margin, the internet has fewer barriers to entry than traditional retail
Lower margins for goods that they can compare - these are also far easier to sell.
You can of course be to low and people just wont buy from you - strange but true.
High margins guarantee profit, and profit is what counts. It also enables you to safely do more advertising, until you figure out your ROI over a reasonable time frame.
And add the big "But": your competition and what they are doing, is a driver also. I have found many Internet shoppers to be savy researchers for price. Which is where advertising and visibility counts. If you are more visible than your competitors you might get away with higher prices. But if you charge more than your competitors and they are more visible ... you have an almost lost cause.
