Profit Margin | Marketing | Online Course With Appy Pie Academy

Profit Margin

Lesson Details:
February 15, 2020

Video Transcription: In this video we're gonna calculate your profit margin now this is going to be the most math intensive video in this course but don't worry I think you can handle it it's not too tough so it's very important that we ask ourselves what is our true place L it for $15 the natural thought is that we're making $10 profit but as you'll see that's not true and that's because we have a lot of other costs that we have to factor into every time we sell a product so first we're going to start out with a drop shipping equation and this is if your drop shipping products so all the costs that you have to consider are the cost to buy the item itself the shipping fee that your drop shipper is charging you any extra drop shipping fees that your drop shipper is charging you eBay's fee and paypal fee so as you can see all of those five costs are very important to factor into our total cost and eBay's fee is ten percent of your selling price and PayPal's fee is 2.9 percent of the selling price plus an additional 30 cents per transaction then the wholesaling equation is very similar to the drop shipping equation. The only difference here is instead of adding a drop shipping fee we're using shipping supplies so the five costs that go into your wholesaling equation are the item cost the shipping fee shipping supplies the ebay fee and the paypal fee just like I mentioned earlier eBay's fee is ten percent of your final selling price and PayPal's fee is 2.9 percent of your final selling price plus an additional 30 cents per transaction now keep in mind that the shipping supplies is upfront which means you must buy all the shipping supplies first but you can spread that cost over time when you ship more products so now let's run through an example so let's go back to that banana holder you saw earlier and let's say that we found the competitors on ebay or selling for around $15 and on Alibaba we saw that we can get a banana holder for $2 each so let's add the item cost which is $2 plus an additional $4 to ship the item and then we figured that it's going to be about $2 in shipping supplies and that's not completely exact but based on our cost we can estimate that then 10% of $15 is a dollar 50 so that's our eBay fee and then the PayPal fee is found by taking 2.9 percent of the $15 which is 44 cents and then adding that extra 30 cents per transaction to get 74 cents so this means that our total cost for selling a single banana holder is $10 and 24 cents so now with that information we can go back to that selling price of about $15 and if we subtract our cost of $10 and 24 cents from our selling price we'll arrive at a profit of 4 dollars and 76 cents and that's assuming that we're not getting any returns so our new profit margin or our profit margin percentage is 4 dollars and 76 cents divided by $15 which gives us a 32 percent profit margin now typically 30 to 50 percent is pretty good now we might want to look for a product with a higher profit margin from fifty to a hundred percent but if this is the best that we can find that's not too bad and we can make a lot of money with that.

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