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.

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Step 10: Check out competitors using analysis tools

One important part of checking if there’s a market for your business is to look at competitors and brands that are already ‘in your space’.

One easy way to check out your competition is to look at how many people are searching for what you’re selling. If there are millions of searches for ‘coffee subscription service’ then you may want to think again unless you’re keen to slog on and make your new / small voice heard in a very noisy market (unless, of course, you believe you’re offering something truly unique and different to everyone else).

If there are too few searches for ‘fluorescent knitting needles’ then your bright idea (geddit?) may need some further questioning – eg are people not searching for this product because they’re unlikely to buy it? Or are they just not aware of such a unique product because no brand currently offers this edgy product and could actually be temped to buy if they were exposed to it?

Also, have a play with Google Trends (https://trends.google.co.uk/trends/) to see when these searches rise and fall, so you can get an idea of when sales may rise and fall throughout the year (you can also filter results by country and other factors).

If you’re up for some deeper research you could also use some of the tools in Google Adwords (its advertising platform) to deep dive into very specific insights about what keywords people use to find certain products. Google’s free tool ‘Keyword Planner’ lets you search for keyword ideas, get historical statistics, see how a list of keywords might perform, and even create a new keyword list by mashing up several lists of keywords together. Keyword research is useful to consider when it comes to writing some of the titles and headings on your product website or deciding which products to focus your efforts on – which is all part of Search Engine Optimisation or SEO – but more on that later.

Don’t fret about using these tools – they’re easy once you get stuck in. As Google says itself – ‘Whether you’re new to online advertising or an experienced pro, you can use Keyword Planner to lay the groundwork for a successful campaign.’

Step 9: Selling on Amazon Marketplace

Like eBay, Amazon Marketplace lets small outfits get noticed by millions of users. There’s also different levels of service when it comes to setting up shop.

As with eBay, you can ‘sell one like this’ as a private trader or you can set up a Pro account and get a better deal for selling more items.

If you’re reading this blog, you’re probably already familiar with how to sell the odd item on Amazon as a private seller – namely you ‘sell one like this’, Amazon takes a fee for each item sold, and it processes the payment for you. It even collects the postage costs and credits these for you to post the item on. So far so good (if you’re selling physical items that can be sent via post).

For a business looking to sell higher volumes than the odd AC/DC Deluxe singles CD Box Set (no idea if this is a real thing), it may pay to look at an Amazon Professional account which charges a monthly fee (around £25 + VAT) instead of per item. Because you’re benefitting from the passing traffic of Amazon’s millions of users (so to speak), you’ll also be charged a ‘referral fee’ depending on what you sell. For example, if you sell computers, you’ll be charged 7% while jewellery is 25%. There’s often a minimum referal fee of 40p. On top of that there’s something called a ‘Variable Closing fee’ but only for high volume stuff like books, DVDs (remember them?), music and video.

Amazon provides the following example:

Book sold: £10

Domestic shipping cost: £2.80

Total: £12.80

Amazon Referal fee: -£1.50

Amazon Closing Fee: -£0.43

Total fees: -£1.93

Total credited to your account: £10.87

Granted, the referal fees might be more than you expected but – and it’s a big but – sell via Amazon and you’ll be visible / able to sell your goods via five of Amazon stores including www.amazon.co.uk, www.amazon.fr, www.amazon.de, www.amazon.it and www.amazon.es.

Find out more at https://services.amazon.co.uk