Another Friday, another Reader’s Question blog post!
Today I want to talk about profit margin and specifically what margin you can and should be ready to accept when selling on eBay. Pretty much the same principles will apply to Amazon too but if you’re running your own online shop, these numbers will be (well, they should be) different as the whole point in having your own online shop is to have much healthier margins compared to eBay and Amazon. More on that later.
So here’s the email Karen sent in:
Hope all is well!
Love reading your blog, so thanks for that!!
Just wondering – was reading your latest post and it got me thinking – what would you consider a good profit per item on eBay? 30p? 40p? 80p?
What sort of profit per item should you aim for?
Thanks again and keep up the good work!
Thanks for your email & question, it’s a good one! 🙂
First of all – you can’t really talk about potential profit per item without taking into account things like:
This is probably the most important one – you can’t expect to make the same level of profit on an item that sells for £2 and an item that sells for £50 or £100. I mean of course you could accept just £1 profit on a £50 item but why would you want to? If you get one return or defective item out of 50 sales and have to refund, you wipe away all profits you made from the last 50 sales.
So you need to look at the target selling price to see how much profit you should aim for.
If we look at profit in terms of percentage – you’ll get a MUCH higher number when you sell cheaper products compared to more expensive ones.
For example, you can make a £1 profit on a £2.99 sale which would be a 33% net profit margin, which is very good!
A £1 profit on a £20 sale is just 5% net profit margin, which is not acceptable really.
If you’re not familiar with what net profit margin is, please take a look at my article that explains all basic business terminology here.
Going back to the £2.99 example – if you sell an item for £3 quid and make £1 profit on each sale, that’s a very good margin to have when selling on eBay and Amazon! While a NET profit margin of 33% may not sound that high, on eBay and Amazon marketplaces I like to use ROI instead as that, in my opinion, is a more accurate number to use.
Because eBay’s final value fee, PayPal fees, shipping & postage fees occur only after you make the sale, so the majority of your costs are not fixed, like they generally are with a brick and mortar store.
The ROI number I use is calculated by taking your NET profit after the sale compared to your FINAL product cost. The final product cost is all the costs associated with the purchase of your goods, including the price you pay to your supplier, shipping to your location, import duty and taxes.
As I explain in my How To Start an eBay Business With Just £300 guide, you can buy cheap items from China for less than 50p and sell them on eBay for £2-£3.
If we take 50p as the FINAL cost of goods and assume £1 net profit per sale – that means a 200% ROI!!! You invested 50p in a product and made £1 profit. That’s an insanely good profit if you ask me! Have 10 such products in your portfolio, each making 10 sales a day and that is a £3000 net profit per month business, just by investing £1500 a month in stock.
Hope that does makes sense? Good!
I don’t want to give any exact figures here as it is really impossible but as a general guide, here are some price ranges and profit I would expect to make on eBay & Amazon:
- Selling price: £0.99 – £2.99, profit range of £0.10 – £1
- Selling price: £2.99 – £4.99, profit range of £0.50 – £2
- Selling price: £4.99 – £9.99, profit range of £1 – £3
- Selling price: £9.99 – £14.99, profit range of £2 – £5
- Selling price: £14.99 – £19.99, profit range of £3 – £8
- Selling price: £19.99 – £24.99, profit range of £4 – £10
- Selling price: £24.99 – £29.99, profit range of £5 – £15
With higher prices the situation gets more complex but usually the net margin (in terms of %) goes down with higher priced items. It’s not unusual to make a £10 profit on a £100 item, which in pure monetary terms is good, but obviously 10% would be very poor when looking at lower priced items.
PLEASE TAKE THESE NUMBERS AS GUIDANCE ONLY!!!
Each and every situation is different – there are products with which you can make way more money than what I have listed and there are products that are so competitive that you won’t be able to reach the lower end of my example price ranges.
This is another important factor that plays a huge role in pricing your products and your profit at the end of the day. Obviously the more saturated the market is, the lower the prices will be for everyone. On the other hand, if you’re the ONLY seller for a specific product and there’s demand for it, you can pretty much set your prices as high as you want (to a certain limit of course).
In fact, if you’re indeed the only seller for a product, I HIGHLY recommend that you test out various price points and see how it affects your sales! Don’t think that more sales means more money in your pocket, it doesn’t work that way. Let me give you a clear example:
You sell a widget for £20 and make £10 net profit. At this price you constantly get 10 sales per day (great!) which means £100 net profit made on average each day.
Now, you decide to increase the price to £30 which will make you £17 profit per sale. Suddenly the order count goes down and you only make 7 sales a day, instead of the usual 10. BAD, right? Not so fast!
7 sales each making you £17 profit means you’re making £119 per day instead of £100 previously! So with less orders and time spent processing those orders, you’re actually making more money.
And it can work the other way around too – you decide that you want to make more sales and LOWER your price from £20 to £15, which now means you’ll only be making £6 profit per sale.
Once you lower the price, order count increases and you start averaging 15 sales a day instead of just 10. Great, right? Again – take a look at the numbers!!! 15 sales times £6 profit per sale means you’re only making £90 profit now instead of your previous £100 AND with 5 more orders to process.
Out of these 3 scenarios, the best pick would be to increase the price to the £30 level, make less sales (7) but make more profit (£119) as a result.
There could be cases where you would still want to go for higher sales number though – when you have a good back-end sales process in place where eBay/Amazon customers go to your online shop to make repeat purchases. If that’s the case, you may want to sacrifice profit on that first order to build up your loyal customer base quicker.
But going back to competition – in very competitive niches where hundreds and even thousands of sellers are all selling the same product, there’s not much chance to play with the price as you’ll be pretty much locked into the rough price that other sellers are charging. The only way to over-come this is by….
First of all, I would actually recommend avoiding very competitive markets by default. They’re super difficult to work in – mainly because it’s hard to get decent search rankings for new listings when there are dozens & hundreds of long established listings with thousands in sales history.
If at this stage you’re wondering how to know which products and niches are competitive, it means you’re actually not ready to start selling yet! You haven’t even done basic research using Terapeak! So if that’s the case, check out my Market Research tutorials first, before you even start planning on buying products for re-sale on eBay.
Ok, but if you’re already working in a competitive niche (most will be anyway), there are basically two ways you can POSITION yourself to stand out/attract some attention:
- Offer the lowest price
- Be unique
Offering the lowest price is the easiest method to get attention and sales in! Everyone loves a bargain and IF you can be the cheapest on eBay for a competitive product, it’s very easy to make those sales EVEN with crappy presentation, customer support and a low product quality.
You can find many such shops on eBay that have massive sales history, a large range of goods, and lots of negative feedback but they still somehow manage to move along and probably make profit too. Usually though these are companies that can invest hundreds of thousands of pounds in stock, they have massive warehouses etc. Something not many (if any) of you would have.
But even on a smaller scale it can work – you can pick a very cheap product that costs say 20p in China and order 10,000 units of it! Sell them for £1.99 and make a decent margin on every sale by offering the lowest price. So it is possible even with small budgets to sell an item for the lowest price on eBay.
The other option is to use your brain power and come up with something unique! There are many ways you can achieve this, like:
- Improve the functionality of an existing product on market;
- Change the design of an existing product;
- Create a new bundle/kit for a product;
- Create awesome branding/packaging for a product;
- Offer some kind of service to go along with that product;
Basically you take a proven selling product and make it your own – create a unique version of it! If you do this, you can usually charge higher prices for it than your competitors and if not higher prices, at least you’ll be able to stand out in search listings with your unique product/gallery image!
Obviously I’m a huge fan of this concept as I have never liked the lowest price game as with that concept – there’s always a possibility that someone will come in and under-cut your price (it’s actually not a question of whether it will happen, it’s a question of WHEN it will happen).
Sure, other people can also improve products, create similar unique offers BUT you’ll still face less competition compared to a situation where you simply import and sell exactly the same product as dozens or hundreds of other sellers.
One other thing I want you to think about when looking at potential profit margins is what kind of business model you want to build? Do you want a massive operation with a warehouse, dozens of employees shipping out thousands of orders per month at small margins OR do you want to create a business where you and maybe your family members work – basically a family business where you can get everything done on your own and make a living?
As these two are very different models, you must understand that! In the first one, you’ll work on volume – buy each item in massive quantities, sell quickly at the lowest price on eBay/Amazon, make tiny profit, and try to keep that all running and profitable (we all know how it ended for Babz Media though right?).
And then you have the second option, a more “down to earth” operation where you can process orders on your own, put more time and energy in to product sourcing, branding, and presentation and offer personalised customer support and charge higher prices for your products?
These are two VERY different strategies and basically your whole business model will change based on this decision.
People with limited budgets won’t have much choice though – you won’t be able to buy goods in massive quantities to offer the lowest price, hence the only viable option is to go with the 2nd concept by default.
Still, this is something you and only you can decide and you should do this BEFORE you even start doing market research, looking into niches, products etc.
Long Term Strategy
As I already explained, sometimes you don’t necessarily want to go for the most profit initially, as crazy as that sounds. If you use eBay & Amazon as lead generation platforms, you can sell products at lower prices – at cost price or even at a loss! Yes, I know that there are companies out there that sell products on eBay at a loss, just to get new customers in and funnel them to their online shop as repeat customers.
MAKE NO MISTAKE HERE!!! You can only do this IF you know exactly how to get that 2nd sale and more from your eBay customers. Your sales funnel must be precisely targeted, with a great online shop set-up, email sequence created etc. It won’t be enough if you just put a flyer with your website details in each eBay order you send out – the % of people who will go to your shop will be very small. You really need to set up an autoresponder campaign and offer some great value deals on your website.
And this concept really works in “sticky” niches (as I call them). A sticky niche simply means a niche/product which naturally attracts repeat purchases. Just to give you some examples:
- DIY supplies
- Craft supplies
- Razor blades
- Etc. etc.
So basically products that people need on a regular basis. If you work in a niche like this and have an ecommerce store set-up, you can seriously consider going for the HIGH Volume LOW Margin model on eBay just to get as many new customers to your business as possible.
Ok, we have looked at the most important elements that affect how much profit you can make on each Amazon/eBay sale.
These are just general guidelines of course as each and every situation is unique.
In general – the more work you put into your product and listings, the higher price you can charge and the more profit you’ll make. This means:
- A product that is BETTER than your competitors’;
- Product images that are BETTER than your competitors’;
- Product listings that are BETTER than your competitors’!
Basically you want to have the BEST offer and then you can charge top range prices which will bring you in a healthy profit margin. Average effort brings average results – nothing can be truer than this when it comes to selling on eBay & Amazon! Don’t be that lazy person with half-baked listings! If you do, don’t expect good results.
We would all want higher margins and higher profit per sale but the reality is that eBay & Amazon are very competitive marketplaces nowadays and competition is the major force that drives prices and margins down for everyone.
There will always be people who just look for the cheapest price, especially on eBay. You have to ignore that segment as you will never build a healthy business on eBay if you play the lowest price game, sorry, it won’t happen! There are people selling £10 items making 10p profit per sale – that’s INSANE! You can’t build a sustainable business on margins that low!!!
And competition on these two marketplaces is why I strongly recommend that after you have fully established your eBay & Amazon presence, you start work on your own online shop as that is really the only way you can keep full control on pricing (with limits of course) and be in control of every process of your sales funnel.
I have created a special video course on how to start a profitable eCommerce shop called eCommerce Magnates. In this course I cover in detail how to choose the best shopping cart for your new shop, how to set it up, how to properly add products, create page structure, do SEO on your shop, the best ways to drive traffic to it and many many more topics! So if you want to increase your profit margins, start working on your online shop as soon as possible!
Ok, that’s it for today – I hope this answered your question Karen and helped some other people too! Don’t forget that anyone can send in questions via my help desk here and get them featured in up-coming Reader’s Question blog posts!
Have an awesome weekend everyone!