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How to calculate your profit marginsLet me set the scene. You’ve spent a bit of time doing some research so you have an idea of the niche market that you’d like to operate within, and have even selected a first product that you’re confident you can sell on. You may even have started researching where you can purchase this particular product, and how much money it’s actually likely to make you. That’s a great start, but it’s really important to remember at this point that you need to take all of your costs into account when calculating your profit margins.

Although I’m willing to make an exception for items that I can sell in bulk, I personally like to make £5 or more profit from each sale that I make online, be it on eBay, Amazon or through my own website. This means that after I subtract the initial cost for the item and all fees from the website that I’m selling from, I should be left with £5 or more.

It’s important to know the website that you’ll be selling your stock on, because each different online selling venue has different fees that it applies to your selling. You’ll need an awareness of these values so that you can perform some calculations relating to your profit margins. At the time of writing the following fees could be applied to your sales:

eBay

The fees that you will pay on the eBay website are split into several different parts:

1. An insertion fee. The amount depends on the category in which you are listing and the starting price of your auction or your buy it now price.

2. A final value fee. This is typically 10% of whatever you make from your sale, up to a maximum fee of £75. Once again, the value here does depend on your category as the percentages do vary from 5% up to 12%.

3. A PayPal fee. You don’t have to take payment through PayPal of course, but it is highly recommended. The PayPal fee is usually 3.4%, plus a one off value of 20p.

4. Postage and packaging. Okay, this isn’t exactly a fee and you’ll have to think about it everywhere, but it’s important to take into account how much it’ll cost you not just to ship the item, but also to package it up.

You should keep an eye on eBay’s current fees and check how much you will need to pay within your chosen category by visiting this website address.

Amazon

Amazon’s fees are a little different to eBay’s because you have the option of two different types of seller accounts. In both accounts you’ll need to pay a percentage value of the final sale price, usually 17.25%, however you can either pay a completion fee of 86p for each sale as a seller with a free account, or waive that fee but pay a monthly charge of £25.

Once again you’ll also have to take your postage and packaging into account. Unlike eBay where you can specify a value for P&P, on Amazon the amount that you can collect is a fixed quantity and occasionally you may find that it isn’t high enough to cover all of the postage costs, meaning your postage can bite into your profit.

You can keep an eye on the current fees that you need to pay to sell on Amazon at the following address

Your Own Website

If you choose to sell through your own website rather than eBay or Amazon then it’s likely that the 3.4% PayPal fee is the only payment that will come off the final sale value, aside from postage and packaging of course. This does sound like the more profitable option, but remember that there will be other costs associated with running your own website, for example website hosting charges and potentially the cost of hiring a designer to create and / or maintain your web pages.

Knowing the values of the fees that you need to pay is incredibly useful when it comes to calculating your profit on a particular product, as it will allow you to perform a simple calculation to know how much money you can expect to make. Just take a look at this example of an LCD bike computer on the eBay website:

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This particular unit is selling for £16.49, and from a wholesale website I can see that I should be able to source the product for just £6.11.

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 Now, we know that the seller on eBay collects a total of £16.49, so let’s calculate everything that he or she needs to pay:

  • eBay insertion fee – £0.40
  • eBay final value fee at 10% – £1.65
  • PayPal fee at 3.4% plus £0.20 – £0.76
  • Postage and packaging costs – £2.30
  • Stock cost – £6.11
  • Import charges: Duty – £0.00, VAT – £11.10, or £1.11 per item

It’s always important to check if you need to pay Duty or VAT on items that you might be importing from another country, so check out the following website to enable you to easily calculate these additional fees:

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The total cost of everything all together for this particular item is £11.93. If we subtract that from the £16.49 payment that we receive we can see that we have a total profit per sale of £4.56, not bad at all.

Performing these simple sums is something that every eBay seller should know how to do. When looking into selling a new product this can really help you to calculate its profitability, and therefore let you know if it’s worth selling at all.