Post a new topic
    17 Replies Latest reply on Jan 1, 2010 7:46 PM by FranchiseHope

    How do you determine if an online business is profitable?

    NatOnline Tracker
      Hello,

      I would like to know how do you determine if an e-commerce is profitable?

      What is the average percentage of benefits make a sucessful online business?

      Thank you
        • Re: How do you determine if an online business is profitable?
          moogrdotcom Wayfarer
          Benchmarks. The most basic is your P&L. Are you generating more incoming than expenses and is your debt costing you money or is your margin high enough that you debt is merely an instrument to sell more?

          I'm not sure what your second question is - percent of benefits make a successful online business? I'd say the most succesful online businesses are ones that get repeat customers, sustain sustainable growth and don't spend themselves out of existance.

          in ecommerce margin and controlling your costs is the name of the game. Product selection, ease of navigation, prompt in support/delivery are all aspects that create success but when it comes to profit its all about margin
          1 of 1 people found this helpful
            • Re: How do you determine if an online business is profitable?
              NatOnline Tracker

              I really don't know the meaning of P&L :-(

              My margin is enough to pay bills, products, and some advertising.

              My second question was about the benefits was a little bit confuse, I am trying to ask after all the bills paid, what is the average pourcentage you should keep for an healthy business?

              Product selection is pretty tough, we've got some products that don't sell very well, and when it comes to choose a vendor, either the price of the products dont have enough margin for retailers, or like recently one vendor was trying to sell us a whosale price list that their distributor was selling at the retail prices. So if we cannot find a vendor with decent margins, it is impossible to sell their products, because in the margin there is a big pourcentage as you can imagine to pay the functionning of our e-commerce.

                • Re: How do you determine if an online business is profitable?
                  FranchiseHope Newbie
                  What products are you selling? You may need to re-think the market and what it is calling for? Your ability to sell your product is critical for your business.

                  When I went into business I spent 2 years determining what to sell and created an anti-aging line that matched my business. I research companies from Neiman Marcue to Walmart and wanted to have the quality that meets the standard of a Neiman Marcus yes a price that was reasonable.

                  I would first suggest if your product is not selling you have to reassess the product then move forward into what it is that you are attempting to accomplish. Profits are derived by the markets ability to need, want or enjoy the product.

                  Review you concept and look into what your market is. Determine what you need. Ask your current clients and take a survey. if they are not selling then you need to rethink if that is what you want to do.

                  Best to you, if you need more information, you can contacty me at info@dnawoman.com
              • Re: How do you determine if an online business is profitable?
                LUCKIEST Guide
                Nat, I know you have been posting a while and doing a great job of Marketing your product.
                Moogr had a great answer "The most basic is your P&L"
                What system do you use to keep track of income and expenses. As you know I am a Quickbooks Consultant,
                But even an Excel spread sheet can help determine what is and is not profitable.
                Do you have an Accountant?? and also you know about SCORE.
                Please explain what you are asking "
                What is the average percentage of benefits make a successful online business"
                For a few reasons, I do not think there is an "average percentage".
                LUCKIEST
                .
                1 of 1 people found this helpful
                  • Re: How do you determine if an online business is profitable?
                    NatOnline Tracker

                    Hello David,

                    Yes we are trying to market our products everywhere with no cost or limited cost.

                     


                    My wife use quickbook for our business, so we keep track when she has the time. I use Excel to track our stock and statistics, we more than double our gross revenue since last year, because I am working hard to be visible on internet and spend money on advertising when it is possible.

                    The two first years all our benefits went back in our business for products and advertising. Now we've got an idea of what the people are looking for, but choosing new products are always a big risk for us, as we don't know if they will be popular or not.

                  • Re: How do you determine if an online business is profitable?
                    moogrdotcom Wayfarer
                    P&L = Profit & Loss Report. Its how you see your earnings in relation to your business by a breakdown of all your cost centers and your final revenue.

                    As for "benefits" it sounds like you mean net profits = your after tax earnings. Since i'm a C Corpo i keep my maximum allowed at lowest after tax cost whenever possible but during growth periods we run lean and mean. by that i mean we tie up most of our net profits into inventory and work on selling.

                    We typically start new products by drop shipping them and run a thin margin if any at all. Once we see products that sell we start to carry them - especially if we can negotiate bulk pricing.

                    I typically have 75k skus though so thats the only way i could manage the nightmare that is product management ;)
                      • Re: How do you determine if an online business is profitable?
                        NatOnline Tracker
                        LOL nightmare product management that's very true.

                        Drop shipping could be interesting, but not all our vendors do that, and once again margin is 10% which will not cover our e-commerce functioning cost.

                        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)
                          • Re: How do you determine if an online business is profitable?
                            NatOnline Tracker
                            "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...
                              • Re: How do you determine if an online business is profitable?
                                moogrdotcom Wayfarer
                                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 Tracker
                                    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 Wayfarer
                                        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 Tracker

                                            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 Ranger

                                  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?
                                      NatOnline Tracker

                                      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?
                                      fccgold12 Wayfarer

                                      Goldinterlink is designed to maximize your online earnings while minimizing your efforts. Legitimate work at home business anyone can do.
                                      Visit the link below to see if you can promote any of the affiliate programs.

                                       

                                      http://www.goldinterlink.com