The First Is The Gross Profit Margin

Business, E commerce.

Ebay basics: how to keep your profits from evaporating - if you' re fairly new to ebay, or business in general, you may be scratching your head and wondering why your profit isn' t what it should be. There are two main aspects to ensuring profits in business - and this applies to any business, eBay or otherwise.

This article looks at some ways to plug the profit hole and keep you afloat! - let' s look at them in turn. This is the term applied to the portion of any sales amount that is the profit element. The first is the gross profit margin. For example, if an item costs you$ 50 and you sell it for$ 100, it' s tempting to think you' ve made 100% profit. This, for newcomers to business, is a common mistake and can give the trader a much rosier view of their profit margin than is real. This is incorrect - what you have in fact done is applied a 100% mark - up to your cost, which equals a 50% gross profit margin.

Also, the difference between gross profit margin and nett profit - the magic' bottom line' , so called because the nett profit always appears on the bottom line of a profit and loss sheet - is something not always fully understood by newcomers to business and trading. - these payments include such things as rent for premises, staff wages, rates, transport and insurances. Put simply, nett profit is what you have left after everything else is paid out. These cost elements are usually known as overheads. Too often these overheads are either ignored or simply forgotten - and this can have a disastrous effect on the difference in the amount of money you should be making and the amount you actually are making. Although a full explanation of overheads is beyond the scope of this article, as described above, basically they are, anything that is not classed as' direct costs' - defined as what you pay for your stock. This difference can, in some businesses - especially those in high - volume, low - margin markets - mean either success or failure.

For that we turn to the second aspect of ensuring profits in business: price setting. - so - what can be done to ensure that this does not happen to your business? Price setting literally means just that - setting the price for any item that you are selling. This may seem very straightforward but there is one' hidden' charge that is regularly overlooked by those traders who use eBay and PayPal on either a regular basis or as a core business vehicle. Again, a full discussion on price setting is too large in scope for this article but, you must set, basically a price for your item that will do two things - firstly, the price must be competitive( you have to sell your goods! ) and secondly the gross profit margin must be sufficient for you to make the nett profit you require. This is, the percentage charges, of course levied by eBay for listing your items and also the final value fees.

In fact, to set a price for an item that will take into account eBay and PayPal charges the formula is cost price+ required profit+ 15% . - as for paypal, the charges for accepting money via their service are significant. This is a rough figure but certainly not far off the mark and a good' rule of thumb' to work to. Your overheads( so you think! ) equal$ 30, leaving you with a nice$ 20 bottom line nett profit. What this means in real terms is this: buy an item for$ 5Say you want a 50% gross profit margin - plus$ 5Now say you sell your item. Whoops!

These equal roughly 15% of you sale price which is$ 1Suddenly your$ 20 nett profit is reduced to a measly$ 5! - you forgot the ebay and paypal fees! This equation is even more important when selling items on eBay by the auction format. I beg to differ. It' s very tempting to just put the item on at$ 5, or$ 99, or whatever - 'because everyone does that' . Many people may do that but the ones making money are those who stick to a formula such as the one I' ve listed.

The moral of this article is simple. - if your item does not sell, or regularly falls below the price you think is viable - choose another market or maybe another supplier. Always, always examine all your costs before setting your selling price. Failure to do this may not result in total disaster - but you will be making far less than you should be!