A margin refers to the difference between a seller’s revenue and his expenses. When determining which products to sell it’s crucial e-commerce sellers keep in mind associated fees, taxes, and other costs to ensure a complete and realistic understanding of expected sales profit. To get an accurate picture of eBay seller profit margins, or Amazon profit margins it is recommended sellers use a product research tool to gain actionable insights and data.
There are several different kinds of margins that are tracked by businesses:
1. Gross Profit Margin: Measures a company’s financial health.
Equation: (Revenue-Cost of Goods Sold) / Revenue
2. Operating Profit Margin: Measures profitability.
Equation: Operating Earnings / Revenue
3. Net Profit Margin: The percentage of revenue remaining after all expenses have been deducted from sales.
Equation: Net Profit / Revenue
How can sellers increase their profit margins?
Outsource: Running a business is extremely time-consuming; therefore, it is frequently more efficient to outsource parts of your business such as packaging, product sourcing, inventory management, marketing, and other aspects of the business so you can focus on your more pressing business matters. Check out this post for an informative discussion as to why outsourcing is key to your success as a seller. It is physically impossible for you to tackle everything in your business and be the most productive you can be.
Improve customer service: Amazon’s algorithm for the Buy Box winner takes into consideration your feedback score which is based on your refund rate, shipping speed, seller ratings, and defect rates. For both eBay and Amazon, sellers should focus on trying to improve their shipping speed and lowering their refund rate to below 2.5%. Also, to help with your seller ratings, send a follow-up email to your customers after delivery and respond to emails from customers no later than 24 hours after it was sent. Defect rates are based on credit card chargebacks, negative feedback, and A-Z claims. To help keep this rate below 1%, make sure to test your product beforehand and respond to customer feedback promptly.
Manage inventory effectively: Use a product research tool to help determine which products to sell, develop your negotiating skills with suppliers, and prevent an Amazon Stockout with targeted strategies– like always keeping a bit extra inventory on hand and managing your supply chain (and knowing your suppliers shipping time!)