Step 11: Making a profit

So now you know WHAT you want to make, repair or sell. And you know how much you can SELL it for. But have you worked out how much profit you’ll actually make yet?

Working out your gross margin (how much profit you’ll make before tax etc) is pretty much vital in deciding whether to kick of the business. Unless you’ve decided to do something for the greater good and are happy providing a service for little or not profit, it makes sense to work out the overall costs. You’d be amazed at how few people actually do this properly.

For example, you could have taken all of the obvious / material costs into account, but have you worked out how much your time costs? After all is said and done, what does the hourly rate work out as? If you’re spending 10 hours making one item and then sell it for £20, you’re effectively working for £2 an hour – and that’s not including materials.

Digital only products

These usually rock because while there’s usually something to pay for in terms of supplier costs (tihngs like desktop publishing or software development tools often need a license), they’re often a one-off cost at the start. You don’t have a regaulr fee to pay to suppliers for each and every product you make / release.

That said if you’re developing software or apps or websites, bear in mind the time it’ll take to create that. This is where thoughts about your hourly rate really do count. While your supplier and day to day costs may not amount to anything huge, if you’re taking 3 months to create digital assets, how do you feel about not being paid for that work for those 3 months? Assuming you’re fine with that, you had better check there’s enough interest in your product that you’ll eventually pay yourself back – and more.

Selling physical products

Say you’ve decided to repair broken smartphones and tablets and sell them on for profit. First you need to source broken tablets (via eBay or car-boot sales, both of which have their own risks). Then you need to figure out the extent of the damage and fix it. Broken screen? You’ll need to source a replacement. Once you’ve spent 2-3 hours removing the old screen and fitting the new one (without breaking any of the 101 delicate electronic components inside most tablets) you then decide to sell your refurbished tablet for a profit.

Here’s a breakdown:

  • Broken tablet: £55 (including £4 postage costs)
  • New screen: £15 (from eBay)
  • Sold for: £76 (after taking off the 10% sellers fee eBay charges)

That leaves you with just £6 profit. And assuming you’ve worked for three hours on it, that means you paid yourself £2 an hour. Go buy that yacht!

Bearing all of the above in mind, you can see why selling art might be an attractive option. After all the material costs are taken into account, something like a canvas painting is not going to be hugely different from a similarly sized painting. The material ‘cost’ is low, but the ‘perceived’ value is flexible because the beauty is in the eye of the beholder (kind of).

If you want to find out more about setting up a blog, improving your social media campaigns or how to drive more sales online, get in touch.