Do you know your profit margins?
When you’re so busy selling and making money sometimes you forget to look at your business and figure out just how much you’re making. It’s not easy when you have costs such as warehousing, gas, electric, phones and Internet bills to figure out just how much overhead you have per transaction.
The guys at iwoca have analysed the data from thousands of their customers to generate the breakdown of a typical ecommerce transaction.
Of course the costs will vary, for instance are you VAT registered as that’ll affect the percentage of tax that you pay. If you still work from home then your warehousing costs might be negligible.
There were two things that stood out for me – the first being how low the iwoca loan fees are compared to the overall cost of doing business. One reason for this is that the loan is to cover the cost of acquiring stock and isn’t a percentage of the sales price. If you’re looking to expand and invest wisely however, the cost of finance shouldn’t be prohibitive.
The other standout item is the cost of goods. Although iwoca point out that margins vary enormously between businesses it’s still over half of most businesses total expenses. This should be emphasising that anything you can do to cut down on your purchase prices is the quickest way to increase profits.
Whether you negotiate for discounts for faster payment, use finance (from iwoca or elsewhere) to increase order size in exchange for discount, or look to buy end of season or slow moving stock in bulk, any savings you make will have a big impact on your bottom line.
Don’t forget that just placing an order at the end of a month or end of a quarter could help your wholesale supplier hit target – they might be more willing to offer a discount that at the start of a financial period.
You can read iwoca’s full analysis on their blog. In the mean time how do your number stack up against the averages in the chart above? Do you have much larger expenses in certain areas or are your costs below average. Most important of all, are you beating the average circa 18% overall profit margins?