This Elevate Your Curiosity episode is all about your product profit margin.
When I work with my 1:1 retail mentoring clients, one of the first things that come up is we look at their profit margins and how much money they are actually making.
You need to have a good profit margin on your products because this is the only place where your retail business is going to make money. The difference between what you sell your product for and what it costs you to make it. This profit is where you are going to make your money. And ensure that your business is a business and not a hobby.
You’re looking for at least a 60% profit margin on each of your products. And if you want to wholesale, this needs to be 70 to 80%.
I will caveat this with, if you are testing out a new product, or beginning your business, you can have a slightly lower profit margin. This is because you will be buying less stock or materials. I recommend if you’re testing something new to start with just 50 units. It is tempting to buy more, but if that product doesn’t sell, it will be sitting on your shelves. And you want to see that as literally piles of money sat there.
This is why product profit margin is so important. It’s vital that you don’t just pluck a number out of thin air. But really think about how much you sell your products for and then what are all the costs that go into this product too.
Create a product profit margin spreadsheet
The ideal way to work this out is to create a spreadsheet and I’m going to list out the areas you want to include on this product profit margin spreadsheet.
- Total product costs
- List out everything!
- Packaging costs
- Everything from dispatch notes, leaflets and packaging such as the envelope/box
- Postage costs – if you include these
- Customers do like free postage and will help conversion at checkout, particularly on online marketplaces such as Etsy or notonthehighstreet.com
- Hours you take to make the product if you’re a maker
- Consider what your hourly rate is
- Is VAT included if you’re VAT registered
- What your RRP is
- Add in your website translation fee
- Work out your gross profit is as a £
- RRP minus total costs, labour prices + transaction fee
- This is your gross profit £
- Then work out your gross profit as a percentage
- RRP / gross profit * 100
It is simple and so important that you work out your gross product profit margin is. If you need a helping hand I have a pre-made spreadsheet with the formulas ready to go in it. Plus you also get the ‘How to analyse your sales in 4 ways’ PDF workbook too!
Want some extra support?
If you’re also looking for extra support through the decision-making process of running your business, help to spot new opportunities and advise you on what actions to take to grow your brand. All combined with accountability to keep you working towards the bigger picture. Then I’d love to work with you as one of my 1:1 retail mentoring clients!
From establishing your USPs and utilising sales analysis to developing new product ranges, understanding wholesale and more, I’ll be by your side and on hand with personalised advice and I won’t just be consulting on how to do things, I’ll be getting involved with key action points too to help you make these changes happen.
If this sounds like something you need, then book a discovery call and I’d love to chat with you and see if we’d be a good fit.
