In this week’s episode of Upside, Ali & Zamir explore the different types of profit margin, the distinction between gross and net, and how operating costs and fixed overheads affect each.

Hear how factors including selling price and category competitiveness influence target margins, and whether aiming for profitability on the first sale is always the best strategy, not forgetting the often overlooked costs, including Amazon selling fees, cost of goods sold (COGS), and of course, advertising.

We advocate for maintaining a minimum 30% margin, and always knowing your total revenue requirements. By providing a deep dive into these areas, this episode aims to arm you with the knowledge needed to navigate maximising your margins. Whether you're just starting or looking to optimise your existing operations, understanding these areas can be the key to achieving the sustainable margins your business needs.

Key Takeaways:

Understanding Margin Calculation: When selling products online, especially on platforms like Amazon, calculating margins accurately is essential. Sellers need to factor in all costs, including platform fees, advertising expenses, and the cost of goods sold (COGS). Common mistakes include overlooking hidden costs or forgetting to account for their own time and effort.

Amazon Fee Structure: Sellers on Amazon should be aware of the three primary fees involved: referral fees, fulfilment by Amazon (FBA) fees, and storage fees. These fees are typically straightforward to calculate but play a significant role in determining profitability.

Cost of Goods Sold (COGS): COGS includes all costs required to produce and ship the product to a fulfilment centre, such as manufacturing, tariffs, duties, freight costs, and shipping. VAT costs can often be excluded if the seller is VAT-registered and eligible for reimbursement.

Advertising Budget Guidelines: Advertising is a critical expense for sellers, particularly when launching new products. Beginners should allocate 30%-50% of their target revenue for initial advertising, with the budget reducing over time as the business becomes established. Mature businesses should aim to spend around 10%-15% on advertising, depending on the competitiveness of their category and strategies.

Incorporating Overhead Costs: Sellers should account for additional overhead costs beyond unit-level expenses when calculating their overall margins. Overheads could include rent, software subscriptions, utilities, or other recurring business expenses that impact profitability.

To access more insights on boosting sales, minimising costs, and maximising profitability across online marketplaces, visit https://thiswayup.online/resources