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Re: How do you determine if an online business is profitable?

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Re: How do you determine if an online business is profitable?

NatOnline — Sat, 05 Jan 2008 15:02:04 GMT

You made a very good point

Re: How do you determine if an online business is profitable?

Lighthouse24 — Sat, 05 Jan 2008 06:02:46 GMT

I agree with you (that's why I defined those percentages as "a target to shoot for," not an indicator of where a relatively new business should be right now. By some standards, if you're a one or two person operation, just having any profit and surviving beyond the second year equals success!

Re: How do you determine if an online business is profitable?

NatOnline — Sat, 05 Jan 2008 05:09:20 GMT

We don't just pay bills and sustain our business, we make profit, and this profit pay a part of our advertising.

We are able to save money of course, but we have two choices, either buy new line of products or just save money. when we sell a new product, we need also to spend money on the contents of our site and wait 3 or 4 months before the new page product show up and rank well on search engines.

As far as the banker, they can see how I am doing and what I am doing. I think they should encourage more the small business owners with promotion on their services if they are doing well, particularly on internet because it doesn't matter what you are doing, it takes time to get listed, to be known, etc...

A friend own and run a new store brick and mortar, it took him only 6 months to do well, on internet it is impossible to generate a good revenue in less than 6 months. So I am not sure if the banker take this in consideration in their formula.

Re: How do you determine if an online business is profitable?

NatOnline — Sat, 05 Jan 2008 04:40:37 GMT

Drop shipping is great for high price tags, so 10% on $1,700 Plasma TV is not the same with 10% on a lip balm stick at $2.95 lol.

Seriously drop shipping involve a total confidence between the vendor and the retailer.

Bigger stores than us don't deal with orders less than $30. Even if that cost us a little I think, someone can test us, or it could be a kid with not a lot money, that's why in our store we accept small orders.To be honest with you there is no big or small customers for me, there is a customer and we provide the same service, except giving away free shipping or free products for higher orders but I think it is normal to do that.

We try to reduce the cost of packaging but we don't have a lot of choice. We don't pay employees, but we are working 7 days a week, because we want our customers to have their orders as soon as possible, that's the plus to buy to our store and to have our stock.

I think both are good, own stock or drop shipping depends on the field we are working.

Re: How do you determine if an online business is profitable?

Lighthouse24 — Fri, 04 Jan 2008 23:42:14 GMT

Nat, you really can't use traditional measures like profit margin to compare your business to others -- especially not publically-traded companies (and they're the only ones for which you can find reliable P&L data for comparison). My eCommerce clients are generally in the 45 percent vicinity for gross profit margin, and around 20-25 percent net -- but they are either huge in size by comparison or they manufacture what they sell (as opposed to just distributing it, as you do).

I think the most useful measure for a very small business that is only a few years old (or less) is the same one that lenders use. They look at where your profit is going . . . if you're able to save or invest 40 to 60 percent of your profit in something other than your business, they consider that successful. If you're having to use all your profit just to pay bills and sustain the business, they are wary. (See the second-to-last paragraph of my "Get to Know Your Banker" article in the STORIES section -- three different banks plus American Express gave me those percentages I illustrated). So relative to your question, "What is the average percentage you should keep for an healthy business?", I think this would be a credible target to shoot for.

Hope this helps. Best wishes.

Re: How do you determine if an online business is profitable?

moogrdotcom — Fri, 04 Jan 2008 22:34:22 GMT

10% if you drop ship isn't bad. Look on the flipside - How much do you save by drop shipping? I find that some of my items after i "pick, pack & ship" that drop shipping looks cheap.

How much are you getting boxes for? How much is your shipping pickup costing you? how much does your label machine run? how much toner are you using on labels? how much does bubble wrap/packing paper cost you? How much are you paying employees to ship a product?

I'd rather pay 3-5.00 per dropshipment on 10% margin than to manage the supply chain myself. Holding inventory is nice for core products and fast shipping items but if i sell accessories up the wazoo that take up lots of room or have complex package requirements due to size, shape or form then i'm actually saving money hirring (drop shippers) with the volume to do it. Some items the box ALONE costs me 5 bucks

advantages on both sides of the fence.. i'd say the biggest risk is being liable for drop shippers issues but on the inverse of that sometimes they have less error rates than a new/startup or small business. For example 1000 packages out of a fulfillment center may be a .003 error percent while an internal shipping process may be a 3% (3 errors vs 30)

Re: How do you determine if an online business is profitable?

NatOnline — Fri, 04 Jan 2008 22:12:50 GMT

10% margin if we do drop shipping with one of our vendor, which is not enough to cover our cost.

So we don't do drop shipping, we buy our stock to get a better margin. Better margin give us the possibility to offer free shipping on $50 minimum order, giving away free products, or allow us to drop prices for holidays, etc...

If vendors do not allow us room for margin, we do not buy from them.

Re: How do you determine if an online business is profitable?

moogrdotcom — Fri, 04 Jan 2008 21:46:31 GMT

10% - is the your complete margin or is that your adjusted profit margin after expenses?

As for as "being" profitable i believe its all down to managing cost of sale vs profit for each sale. If you can create a balance of that which leaves you revenue/earnings then you are successfull.

For example i can sell fewer tvs working with select vendors but make more money than trying to sell a bunch of tvs at lower costs.

Sell 1 Toshiba HDTV = 200.00 profit (usually costs 100 bucks in advertising)
Sell 10 Toshiba HDTV = 250.00 profit (more sales = lower cost)
Sell 10 "Floored" Toshiba HDTVs then my profit is 350.00. "Flooring" is basically net30-120 where a company busy the asset and you sell it and pay the difference to the flooring company within the alotted period. Toshiba sponsors flooring and sometimes throws in 2500.00 advertising incentives so that covers my 100.00 per tv cost and then some.

So i guess my answer is it varies and work with your vendors, distributors, wholesalers and core products to do arrangements that allow you to sell the most. Take advantage of flooring opportunities, mass purchase discounts and closeouts to offer the same to your customers.

Re: How do you determine if an online business is profitable?

NatOnline — Fri, 04 Jan 2008 19:52:35 GMT

"I will not say net profit, but something between gross revenues and net profit (what you've got left after you paid products and functioning cost)"

What you've got left after you paid products and functioning cost I meant before investments, advertising etc...