Calculating the profit off a sold product is easy, you would say. However, with a lot of merchants this seems to go awry. Resulting into that every sale costs more than initially calculated. It won’t be the first time that a merchant is selling at a loss.
With determining your selling price it is of importance to know what costs should be taken into consideration. In addition to that it is of importance to determine your margin.
Once you know what the selling price is going to be, what costs there are and the margin you want to uphold, it is time to calculate what the maximum purchase price may be.
If you are selling with set prices, repeat this calculation for all your products. Purchase prices may differ and the costs of shipping and handling can fluctuate. By knowing exactly what your purchasing price can be, you can in turn guide your purchasingteam better.
Many merchants determine their minimum selling price on marketplaces based on their purchasing price. In theory this is a good starting point. After all, you what you buy and to what price, what the shipping costs are, the handling costs and the V.A.T. that needs to be calculated.
However, given the fact that you are selling on a marketplace, the commission rate plays a part as well, so it is wise to keep to take that into account.
Commission. You pay it for every order that is placed on the marketplace. However, you can add this to the purchase price. In the case of 15% commission you just calculate the purchase price times 1.15?
No! This is where it all goes awry with many merchants and why they make less margin. And sometimes even loss!
15% commission is not equal to 15% raise on the purchasing price!
Imagine if you have a purchasing price of 50 euros excl. V.A.T. . You employ a 30% raise. You have 5 euros excluding taxes on shipping and handling. You pay the marketplace 15% commission + 99 cent set commission over the selling price including taxes. And of course you need to add the taxes to the selling price.
A lot retailers therefore use this formula:
In this case the commission you tally for the commission percentage should be €10,65.
The retail price should be: €98,78 including taxes.
When we calculate the commission based on the from here on out calculated retail price, this should be: €14,82.
In other words, with this calculation you are €4,17 short per sold product
It goes wrong in the calculation for the commission percentage. You need to utilize a different factor. With 15% this factor would be for instance 22,174709835%.
The formula should be: ((((50*1.30)+5,00)+0,99)*1.22174709835)*1.21.
Based on this formula de retailprice should be €104,95 including taxes.
These calculations are cause for a lot of headaches with salesman. That is why we have come up with this handy commission calculator who will do all of the heavy lifting (or thinking) for you!
Are you using the EffectConnect repricer? Then we will show you the formula which you can use in the repricer.
This calculator shows you what your minimal retailprice should be. Use this tool as an additional check to prevent you from selling at a loss (currently only available in Dutch)!
What if I have too little margin and make loss? Sometimes you have too little margin to carry all of the costs that come with the sale of the product. Then you are selling at a loss, however this does not mean that you cannot make profit!
When I started in 2003 with my entrepreneurial venture my accountant told me: ‘’low costs will be the first profit!’’. And he was right!
In the entire operation profits can be made by optimizing certain parts of the selling process, so costs can be reduced. That is why automation is the best solution to establish efficiency and be clever with your logistic operation.