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You can pretty much make whatever you want on ebay depending on how hard your willing to work but it all boils down to a math problem. Sell through rate X # of active listings X Average net profit per item = MONTHLY NET INCOME. Granted this is a heavily over simplified equation but for most people the math will be very close. As long as your numbers stay pretty consistent that is, if your sell through rate or average net profit fluctuate it’s much harder to calculate but add in those variables to your equation and you should still get the number your looking for.
example if I sell on average 100 items per month and my number of active listed items stays around 2000 items then my sell through rate is 5% and if I net around 9 dollars profit per item then….
5% X 2000 = 100 X $9.00 = $900.00 per month net profit
If I want to net $1800.00 per month I need 4000 items listed at the current sell through rate and average net profit per item.
It’s pretty easy to see why a better sell through rate and average net profit are key to having a higher income. Sooner or later your going to hit your personal wall where you can’t go any higher without help. I guess it just depends on how far your willing to go.
I grant that this isn’t any kind of guarantee but for someone trying to get an idea of what it’s going to take then it may be helpful.
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This is a good big picture explanation. I would say that raising your profit per item is easier than just listing more low dollar items. $9 profit per item is pretty low IMHO.
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I agree 9.00 net profit is a crazy low amount as is the sell through rate but my hope is to show that no matter how horrible your items are where you live the dream is possible if you want it.
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I agree but the problem for most is the calculation of that NET PROFIT NUMBER.
If you sell and item for $50 and it costs you $10 to buy it, subtract that $10 from the $50 and you get $40, well that is nowhere near the end of it. I use an accounting program and so do most business that have a COA [chart of accounts] that takes into account the categories that all of your business expenses go into. My COA has about 25 to 30 line items in it.
Most busineeses average about 10% of their GROSS SALES that end up as NET profit. If one can avg. 15%-20% you are the rare few. Most corporations are only in the single digits.
So the Sell through rate is easily found, so is how many you sold for the month and the 12 month avg. of those items, but the next number, most people and I am going to go out on a limb and say 90% of sellers can not accurately come up with the real net profit per item.
Here is using J&R rentals as an example and this includes a term called capacity. Take their farm house.
Their capacity is 365 nights rental. They can’t rent for more nights than that because that’s all the days there are in a year. So if they rent every night of the year for 1 year.That’s a 100% sell through rate = 365 sales at $150 per night = $54,750 per year max. GROSS, now down to that net number? What does it cost them per day to run that Farm House Rental. The expenses are not per day but “Periodic”
Labor [cleaning help], electricity, heat, water, laundry, soap, mortgage, taxes, interst, replacing lost-stolen worn out items, depreciation, legal fees, phone costs, accounting fees, etc., etc. So then what are they actually NETTING OUT PER DAY and what are they actually then paying themselves per day?So the cost per item is the actual cost of an item, the auto expense to go to that auction or estate sale, the box you ship it in, the tape you use, the label you buy to print on, the cost of the printer ink, the label, the electricity used to keep the lights on in your office, the bank fees, your accounting fees at year end, part of your automobile insurance that is used for business, cleaning supllies, paper towels, silver polish, dryer sheets, soap, magic markers, staples for your stapler, pencils, pens, storage tubs, tape measures, rulers, calculators.. etc., etc. Granted some of these are one time purchases, but in the year they are purchased they are EXPENSES that goes agaginst your business which comes out of those gross sales numbers.
Now those using QuickBooks, Go Daddy, Quicken any type of real accounting programs that allow the set up of a COA or Categories as some call it allow the lumping togather of all of these extrememly small items, but the individual costs are still there, just lumped into those categories.
The real way to know what you are making is to use an accounting approach and pull a Profit and Loss sheet. That will show you the picture. If you are OCD and want to see that Net profit per week, then pull your P&L at weeks end, I do ours monthly and also shows what percentage of our gross sales each category is using. i.e. is our Office Supplies 7% of our gross sales, then if I want more NET PROFIT one way to accomplish that is to REDUCE those PERCENTAGES per category. Buy less office supplies, electricity, turn off the lights, use less tape per box, travel less miles to acquire the merchandise. This is the way large companies reduce costs, is by reading their P&L, looking at the percentages of GROSS SALES each category [line item of expenes] was using up and tell everybody to knock off the over spending and cut back on costs.
That is why when large company see over spending the fastest and easiest way to immediately reduce costs is to lay-off or fire people. Dump 30 people of Friday and come Monday morning, you have reduced your costs via Payroll cuts by XX percentage.
Not knocking your formula, but you said it was simplified. Well, extremely simplified and for the real business minded would not be of a whole lot of help. For those not accounting inclined it could give a false sense of security when it comes to what you are NETTING out of the business.
Here is a very simple way to accomplish the same thing it is called OCRA [Operating Capital Reserve Account]. Every business large or small should have this. A business savings account in other words.
Start on Jan 1st with a separarte savings account. At months end take every dollar in your paypal account and put it in the savings [operating Capital Account]. Then at the end of the year take the amount in that account and split it in half. Half is your salary for the year and the other half is for your company. That is your operating reserve funds for the coming year. Every business deserves to be treated as an entity and should be being paid just like you are.
I really belive why so many stores open and close each year on all platforms, Ebay, Etsy, any of them, is the fact that most people who start these businesses do not understand business.
All of this is just one Sotherners opinion and that with $.50 will still only get you that half a cup of coffee.
Respectfully responded to and no offense intended at all. Just the sharing of 50 years of running a business and one of those being an 18 million dollar plant.
Mike at MDC Galleries and Fine Art in Atlanta [for the SEO Gods and another wall of Text for Jay] LOL 🙂 🙂
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Mike – So, $0.50 went from a third of a cup of a coffee the other day to half a cup today?
Just want you to know that I’m watching your coffee expenses :).
I paid $1.60 for a 16 oz cup of coffee at a bagel shop over the weekend …
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Sharyn.. Funny. Worse thing we have at our local Kroger grocery store is a StarBucks inside. Wife Susan walks in the door and first thing she does is buy a Large / Grande Latte, Mocha, something sweet, super hot something, something at about $4 per cup. I can buy a whole can of coffe for less than that on sale. I can’t go shopping with her, she hates it. I am looking at every unit price sticker, searching on my phone for coupons, looking for BOGO’s, taking way to long. She sneaks off to the store so I won’t hear her and ask to go along. I slow her down and she says, all I do is complain about the prices. AND SHE IS RIGHT!!!! LOL 🙂 🙂
MC at MDCGFA in ATL GA
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Mike: “If you are OCD and want to see that Net profit per week”
Soooo….what are you calling me Mike? 🙂
PS – 100% agree with you and with Tony 2Times
This is my point on making sure that you forecast your business. First, gather your numbers (STR, ASP, Average COGS, and Net Profit). From there, you can do reasonable forecasting, which I do monthly. One big key is understanding that while you are growing, your CASH is lagging your PROFIT. Meaning that if you are listing 100 items per week, and selling 70, you are behind on cash flow for the 30 items per week of growth times the average COGS of those items. This is a number you MUST know when you start to go big, or you go from part-time to full-time. You need to know how much you will be investing in inventory each week, and how long it will take for that inventory to sell (your STR will tell you that).
And to Mike’s point, we should ALL be in the 30%+ net profit range in this business. We dropped below that this summer since we started ramping up our inventory buying and paying for a photographer, but only hit a 20% net profit low. Now that sales are picking back up with Q4 starting, we are back closer to where we want to be.
And to Tony 2Times point…we will be where I want at about 3,500-4,000 items. That is the goal…
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Thanks Tony.
Looking at the three variables:
1. Listing quantity. “List more” increases this number (obviously) but as Tony notes, we are subject to some practical limits here: we can work to increase the efficiency of our listing process, but even so, most of us can only list so much. (Listing more multi quantity listings can help here as well, but, as scavengers, most of us don’t source that type of stuff very often.)
2. Sell through: I think of this as sales velocity. Again, there are things we can do: run discount sales, use social media, as well as list more non-long tail items in the mix. How much time and effort to invest in these efforts versus simply listing more is always an open question.
3. Net profit. Of course, I agree with Jay here, increasing the ASP of items reduces the need to increase listings, and this is largely a function of sourcing.
As a scavenger seller, I tend to think of my formula for success in the simplest terms possible. Two things: Learn and List. Learn all you can about what to source and where to source and how to list efficiently, etc, and list, list, list.
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@mycottage as usual I like your post and it’s good advice no matter the size of a reseller’s business. There is always more to be learned, and listing as consistently as possible is key. I would just add with respect to #2 that initial pricing strategy is also a key component and one I’ve been thinking a lot about lately.
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I think this is an oversimplification of things – if you are selling random items, your net profit will remain random.
I know that my net income from eBay fluctuates based on the quality, and quantity of items I find. It is not a straight and easy per item $ profit model.
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Exactly Inglewood. That is why using an accounting program for your whole financial picture and a P&L is so important. A P&L does show you an exct picture of where your profit is and if you are running your business in the red or the black and by how much.
I like to keep my NET Porfit as low as I can. I try to run my business as close to a break even point as I can, but everything in our lives can’t be expensed, but you will be surprised how much can be.
We do expense out our office space from our personal space. We use approx. 50% of the square footage of our house for work. So 50% of our mortgage, taxes, all utilities, yard, house maintenance, everything is expensed against the business. Most of our auto expenses is business related. So keeps our NET PROFIT lower due to those expenses being deducted from the GROSS income.
Mark Twese “Not Your Dads Accountant” explains a lot of this in his articles and interviews with Jay and he also has some downloadable booklets.
And BTW, doing your business accounting correctly is a standard part of running any business, large, small, [part time, full time. If you don’t understand it all then as J&R say and do as well as many other SL members, seek out a CPA and get an apointment and go over all of this.
As Tony 2 Times originally said, “if you want to grow”, then to do this is to get a handle on a proper accounting procedure.
These SL weekly number don’t do a whole lot for me. One reason i never post ours. Doesn’t mean a whole lot about the bottom line. What would trip my trigger is for everyone to post their P&L from their accounting app every quarter. Would love to see J&R P&L for the last 5 years!!! LOL 🙂 :-). Sure make a $100k per year gross, but what was their bottom line??? Obviouslt their Retained Earnings or OCRA Account has been sufficient enough to allow for “Plowing Funds Back Into” their business which happens to be Real Estate Investment. This is their accountants way of showing them how to reduce the bottom line that they have to pay taxes on, and by plowing back into their business, they are re-investing for the future. Their profits will come through landhold capital improvements which they have done on 2 properties and are now doing on a third, appreciation in value but from the increase in property values and building equity, and then from the profit made at resale.
Which mark my words they will probably do when they do retire!! No kids probably to inherit their “empire”, so can you imagine when it comes time for J&R to “DOWNSIZE”…WOW!!! They worlds largest yardsale!! LOL 🙂 :-). I won’t be there to see it because I am 69.5 years old, but the time will come for them to “Divest”.
A Souhtern Boy running off at the mouth who should be listing and building our nest egg, but worth may expressing my opinion. And opinion is all that it is.
Mike at MDC Galleries and Fine Art in Atlanta, Ga.
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I suppose I disagree with your value of the weekly numbers. Weekly numbers let me see the trends in my sales and listings. I also like the aspect of taking time every Monday to go back through all my sales and reflect on the week.
You really want a P&L report from everyone? BORING! I’ll give you mine for the entire year. My Final P&L for last year was $0. Yep, right on the money, 0 dollars. I was shocked when that number spit out and had to verify everything in case something was wrong with the software or numbers.
That is not a real number though as you well know. As a small business owner, I expense a lot of things that I was going to be doing or buying anyways. I have my house whether I have an ebay business or not. I have a car either way. I combine a lot of trips for efficiency, so I drive anyway. We took weekend trips throughout the year before ebay, and now we still take those trips but I source a lot when we are on them.
This business isn’t just a job, it’s basically melded into my everyday life – thus making a majority of my existing life tax deductible. By just reporting on my gross sales and listings, you get a more true vision of how my business is improving and growing (or shrinking if I go on a months long listing break).
One last thing, I value the input of folks here who post their numbers much more than those that do not. I encourage you to report numbers each week. It’s fun and informative.
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Im with Tony2Times. A simple run of the numbers was enough to push us to go full-time eBay. I honestly dont know how to create the complicated spreadsheets and reports I hear you guys discuss. That must come from your days in the corporate world.
We’re more like the corner car repair business. Money in and money out. He knows how much he needs to make to keep the bills paid, put his kids through school, and own his time.
Mike says: “Most busineeses average about 10% of their GROSS SALES that end up as NET profit. If one can avg. 15%-20% you are the rare few. Most corporations are only in the single digits”
So if you sell something for $30 on eBay, you’re really only making $3?
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Yep.. If you factor in everything that is an expense.
You say: “I honestly dont know how to create the complicated spreadsheets and reports I hear you guys discuss.” ….. Well you are already doing it.
I hear Ryanne say that at the end of the month, she sometimes has to go and categprize things that GDB missed. The other items not missed have already been categorized by her. So you are running what is called a Journal entry bookkeeping system. You said GDB furnishes a P&L. Bet you dollars to donuts there is a category that says uncategorized. Once everything gets into it’s category then, there you go, you are putting everything into a category. You are doing the exact same thing. Again dollars to donuts you have every expense put into a category so when you give your summary sheet to your accountant he has the areas to fill in on your tax return.You are doing category accounting you just may not know it. I would doubt very seriously if you have a misc. category that shows $85,000 worth of expenses that are not assigned to a category. Dining, mortgage, utilitizes [whether you break it out or not by type of utility]. Bet you Ryanne has already set all those up when you guys first started with GDB and she only has to tag those that don’t automatically fall into those categories.
NOE just Google avg. net profit of corporations which can be any small business also. Or better still NET Profit of americas small business. Actually here’s one result for you.
>>> ” Each employee in a small business drives the margins lower. One study found that 90% of all service and manufacturing businesses with more than in gross sales are operating at under 10% margins, when 15% to 20% are likely ideal.Aug 2, 2017″And yes, you can make zero on a sale but not on an item by item bases. We all just read that RTWV showed ZERO=$0 Zip at years end. I did not say just 10% on a one time $30 dollar single item. I said on a basis of total gross sales. If you expense everything you can, like RTWV and we do, we both run our business at close to Zero. I even evry one or two years run our business in the red. I do it by design. So with that in mind, Year to date our P&L shows a Gross Sales figure of $20,035.22 our Cost of buying inventory is only $5,271 but our NET PROFIT is showing a loss to us [in the RED by -$2,471.63]. So HOW CAN THAT BE! Well therein lies the secret of detailed business expenditures just as RTWV said above. They took a trip BUT did buying while they were on the trip. Bet you agagin, dollars t donuts that trip went into “business expenses”, may not, but as said above, the business is intewined into our way of living.
Ask Mark Twes about this and he will tell and show you the secret.You need a new sofa for your rental. You buy 2 of them for $200 each. You buy with your business money or card. You put one in the farm house, you replace your current couch with the second one you bought and now you have a new couch, BUT you create an inventory tag for it, you use your house as the storage of it, you sit on it and you list it for sale. I will sell anything in my house for the right price. AND nobody says you have to list it for sale this year, Sit on it for a year then maybe put it on Craigs lList for $5,000. Whatever. But it was expensed, you bought it, are using it “until sold” and so far have made zero on it.
Mobile Oil type Corp. live in the single didgits for Net Profit. So do most large Corp. but they make billions. One safe haven is to buy famous artwork. It is an investment piece for $32 million dollars. They won it, it will appreciate but they also donate it so a Museum and Bingo, tax write off. Ever heard of the J. Paul Getty Art Museum as in Getty Oil Corp.? Same concept only on a huge scale.
But it is not complicated. And I don’t disagree that using weekly numbers can be of value when you are looking at specific type of things. But you can stare at the minute details a little too much also. Most don’t buy stock then watch the ticker tape every hour on the hour. But if it tells you something then it is still OK.
What I am saying is that many dont categorize their expenses, or don’t categorize into correct categories, but still bet Ryanne does when she reviews those expenses on her monthly reconcillation.
Here is a good question to ask mark Tewes, If I make $50,000 next year how can I show a loss at year end. He will then show you the magic formula. Exepnse everything you can, legally. What is legal, that is what I pay my CPA for, and guess what, he has the answers.
Boy, didn’t want to wade into the weeds so deep. Been a while, but guess I dig my own holes when I do.
TTFN … mike at MDCGFA
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Understood. What you describe is basically how we do taxes. This would be unhelpful for normal reporting to the community.
We’re living in our simple cashflow week to week. This is how most beginners will probably start. How do I make enough to pay my rent, utilities, fuel, and food…and still be able to afford new inventory. This is a small list to keep track of.
Taxes are different since as you said the game is to legally show as little profit as possible.
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Yeah I am on the same page with everyone. Just saying that defining NET in Tony 2 times formula is difficult at best and is very hard to define without detailed tracking. And those with a simple program like Quicken or Go Daddy can automate everything once set-up. No body wants a surprise at year end, that is why you pay quarterlies.
In any case I went from being in the Red earlier today to being in the Black with a 6 second process, clicked on update, and Quicken downloaded all new cash deposits and captured any new expenses, even Sue’s purchases two hours ago, into in our accounts and also pulled in all credit card movement and Bingo, we are back in the black again. Literally took seconds. Pretty simple to me.
So for new comers, the formula is very loosey goosey. T2T formulas states for $1,800 a month one would need 4,000 items at the same sell through rate and cost per item. We have little over a 1,000 items and Gross approx. $3,000 that. That’s because we started focusing on higher sales price items several years ago when you put forth that theory. Pay more, sell higher, work less, make more.
So I counted in T2T scenario whereby the formulas relies on 5 What Ifs. That is a lot of what If’s for me.
Even if one plays the game that most antique booth guys do is the Cash in My Pants game. My receivables [cash from sold items is in my left pocket] my payables is the cash in my right pocket, when I buy something or will spend for something, even rent, gas, food, I put the expected amounts in that right pocket, and at the end of the month I hope my left pocket is larger than my right pocket. The booth guys were always telling me there was not enough money in their right pocket, then when I ask how much do they pay for their booths, how much gas do they burn coming out to their booths twice a week, how often do they buy new tires for their car that they wear out, how many paper towels and windex and magic markers do they buy. No one ever knew. That’s about as simple as it gets.. Pants on the ground, pants on the ground.. 🙂 🙂 LOL
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Net/gross/COGS/Avg. sale/etc are calculated in my inventory system automatically and I mainly look at that for what I’m bringing in each week. However, monthly numbers are the most valuable/realistic IMO since my budgeting software (YNAB for personal & spreadsheet for business) both work on monthly figures, so I know exactly where inflow is going to be allotted. I use the “budget to zero/give every dollar a job” method and can’t recommend it enough. That said, I might be critically low one week and way, way up the next. All that matters is that the budget zeros out at the end of the month and that I see numbers trending upwards in some regard to ensure that I’m growing the business and not just cruising.
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IndySales: That is a great way to do things. Monthly numbers are definitely one of the best time frames to use, as things smooth out a bit over the days and weeks and it is better for getting solid averages. I use the monthly numbers myself for forecasting for that reason.
I like to see the weekly numbers as it lets me know how the month is shaping up, and I like to see how each week compares to that same week in past years. Plus I can see the cashflow for the week, since we basically run our business on a weekly basis (when are we sourcing and listing for the upcoming week).
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BINGO INDY Sales. I showed I was in the BLACK last month. We don’t have any personal needs right now. P&L showed a surplus so we spent about $2,000 first few weeks of Sept. and now we are in the red again as well as year to date because we have been spending a lot more on inventory.
Also on the Ebay Seller Dashboard is a section that shows some of this and it shows that the overall expense of Ebay is a lot more than we throw around here on SL. It on the Ebay selling cost area of the Sellers Dashboard. Interesting how Ebay breaks it down, now add on top of all of there numbers, one’s own categories and costs and it will take up a lot of that Gross Profit number.
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Thanks to everyone that has contributed on this subject, very informative. I know my formula was missing components but the reason I did that was to try to make it very simple for someone who knows absolutely nothing about business or accounting to get a ball park idea of what is possible no matter what level of NET or sell through your seeing from your sales. Like Jay said in the beginning, it’s a Big Picture explanation. The hope here is that this will inspire someone who may have thought this life wasn’t possible to push forward.
I used to think this wasn’t possible where I live because of the lack of great items. The truth is this life is possible no matter where you live as long as you have the drive to do it.
Motivation is a powerful tool, if you have it you can accomplish almost anything.
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