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Chris Malta, Lisa Suttora - What to Sell on eBay and Where to Get It .pdf

Chris Malta, Lisa Suttora - What to Sell on eBay and Where to Get It .pdf

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12/06/2013

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Determining an acceptable profit margin per product is something that
only you as a retailer can decide. Frequently, people are advised that they
should take no less than 100 percent, 250 percent, or 400 percent profit on a
product. In reality, there are no cold, hard, and fast numbers that apply across
the board to every product and every business.
Certain product lines—electronics, for example—come with a built-in
profit margin range. In the case of electronics retailers, even very large com-
panies are working on a very slim profit margin, often about 10 percent. They
make their money on volume and add-on products and services. If you’re
a small retailer attempting to sell electronics on a 10-percent profit margin
without being able to do the sales volume of a Best Buy or offer the add-on
products and services, you’ll be operating in the red before too long.
Conversely, expecting that every product you sell will carry with it a
100-percent profit margin isn’t realistic. Profit margins vary based on market
demand and product life cycle as well as your ability to sell and market your
products. A store that sells high-end luxury products in a hot niche will be
able to elicit a much higher profit margin than a store that deals primarily in
lower-price commodities with a customer base focused primarily on price.
When asking yourself how much of a profit margin is acceptable for
you, keep in mind the following five points:

1. Not every product will be a candidate for keystoning, a retail term that
connotes selling a product at a price that’s double the wholesale cost.
For example, if you purchase a table at $100 base cost, and sell it for
$200, you’re keystoning the price. If you’re selling it for a “triple key”
price, the retail price is triple your costs. Even though you won’t be able
to command these markups on every product, you must have a base of
products in your business which are at keystone and, ideally, triple-key
pricing, to build up your profit margins.
2. Some products you’ll sell based on volume, others you’ll sell based on
profit. There’s nothing wrong with accepting a lower profit margin on
a product that you sell a lot of. Especially if it’s an item that’s quick to
package and easy to ship. What is important is that you have a mix of
products that contribute to your profit margin based on volume and a
higher margin.
3. Profit margins will change with market fluctuations and product life
cycles. Just because you’re selling a product at a 150-percent profit mar-
gin today, doesn’t mean you’ll continue at that profit margin 6 months

Evaluating Your Product Ideas

121

from now. Tracking your margins, which we’ll talk about next, is critical
so you’re not lulled into a false sense of profitability.
4. It’s your overall profit margin that’s important. A high-end luxury
watch may command a profit margin of 1000 percent, but if you only
sell one every three months, that won’t generate enough income to build
a business with. Add to the mix a watch with a 200-percent markup that
you sell on a daily basis and you now start to build a business model
with a margin and a volume to generate significant revenue.
5. Testing and tracking are also key. Unless you test different ways
to market your product, you’ll never know whether or not you can
increase your profit margins. And until you track those results, you
won’t be able to identify trends and spot the inventory winners and
losers in your store.

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