Many businesses commonly misconceive that they cannot really make much dough from online business. The testimonies of many more internet marketers give a different suggestion.
With dropshipping alone as a form of e-commerce business model, you can get as much profit as you want to. Dropshipping profits are really much, and the business is growing year by year. When compared to other forms of E-Com businesses, dropshipping has a lot of advantages that make it low-risk yet quite profitable. Here, we are going to look at every basic thing you should know regarding dropshipping profit margin.
Dropshipping Profit Margin
A dropshipping margin talks about the proportion of all income which is left after a dropshipper has deducted dropshipping taxes, marketing costs, and other expenditures. You are able to think of profit margin as a means of calculating the amount of profit the business has brought in upon every sale made. What majorly affects your profit margin is the qualitative element.
The qualitative elements are the type of advertising chosen, the way you select prospective buyers, and make sales pitches, the way in general how you run your dropshipping business. All the sum ups are what affect your profit margin. There are nonetheless different kinds of profit margins.
These are:
–Gross Profit Margin
Gross Profit Margin = (Net Sales - COGS) / Net Sales
where: COGS = cost of goods sold
–Operating Profit Margin
Operating Profit Margin = Operating Income / Revenue
–Pre-Tax Profit Margin
Pretax Profit Margin = Profit Before Tax / Net Sales
–Net Profit Margin
Profit Margin = Net Profits (or Income) / Net Sales (or Revenue)
NPM = (Net Sales - Expenses) / Net Sales
NPM = 1 - Expenses / Net Sales
NPM = (R - COGS - OE - O - I - T)/R
NPM = Net Income / R
where:
NPM = net profit margin
R = revenue
COGS = cost of goods sold
OE = operating expenses
O = other expenses
I = interest
T= taxes
SaleYee Helps you to Maximize Profit Margins
SaleYee offers high-quality products at unbeatable wholesale prices, free delivery, free membership, and greater discounts than other dropshipping suppliers. Choose SaleYee, you can take advantage of our product research, local US/UK warehouses for fast delivery, and flexible cash flow to reduce overhead costs.
How to Calculate Profit Margins?
Calculating dropshipping profit is often not the challenging part for dropshippers but knowing how to design a good strategy to calculate the profit margin. This would be a strategy to know the dropshipping profit margin with the aim to improve it. You can calculate profit margins making use of a simple formula:
Profit Margin = (Total Sales Made - Total Expenses) / Total Sales Made
Let's have an example to make this clear.
Imagine your business raked in $200,000 in sales the previous year. Immediately you remove all your expense costs such as cost of goods, rent, ads, you're then left with $50,000. From there, everything you're to do to estimate your profit margin is to divide the remaining profits by the total sales made. And don't forget you calculate your dropshipping profit margin in percentages.
So, from the above illustration a good dropshipping profit calculator puts your profit margin at $50 / $200k = 2.5%. If you care to know whether there is any dropshipping profit margin calculator it is only any calculator you find following the above formula for calculating your profit margin.
Total Sales Made = $200, 000
Total Expenses = $150, 000
Profit Margin = ($200, 000 - $150, 000) / $200, 000
Profit Margin (in percentage) = 2.5%
Average Dropshipping Profit Margin
An average dropshipping profit margin has to do with the industry and development goals including a horde of other factors. It may be like comparing a bear with a fox but it is still knowable. Naturally, industries that have little overhead costs have greater gain margins than industries with little overhead costs like payroll, facilities, inventory, and many more.
A profit margin that is 10% and above still sounds good. Moreover, you may not easily how sales turn out for each business as all enterprises are distinctive and perform otherwise.
Nevertheless, in dropshipping to get an average dropshipping profit margin you should be mindful of the units of the items you sell as well. It's an important thing in the final analysis.
1. High Margin – Cheap Items:
You can have high margins and cheap products. If you sell comparatively cheap items on Amazon and you source them for a lesser price this can bring in great profit margins. The idea of "high margin – cheap items" works because you're able to make voluminous sales different from when you're having costly items that buyers go for usually. As you logically could predict, cheap items can sell on a day-to-day basis and in many situations, they sell numerous times each day.
While sourcing a product at a cheap price and selling it at a relatively high price (like in "Low Buying – High Selling Price") could bring in the same profit margin. Though many sales per day will not be the case. If you got a supplier that supplies you a product at $5, selling 100 units of it will bring in a 50% margin. While a product sourced at $50 will bring in the same profit margin when 10 units are sold.
2. Low Margins – Expensive Items:
By making more sales in less e-commerce profit margins maybe like a dull means to rake in money online. Where you're able to make a 2 – 5% profit margin. You will come to realize the much effort you're putting into managing your online stories yielding a lower turnover for you. What you can do is to rather make sales of expensive items. For example, the selling price of a product is $5 and you do sell as much as 100 units daily, that's cool. High sale per day, but what is your profit at the end of the day? Low right?
This may sound impossible but it is possible. You can decide to sell that same item for $10 and people will still buy from you. If you're selling this product on Amazon, some sellers will be selling the same product on Walmart and other stores for a lower price, almost the same price, and even above your price that you think is high.
The point is that this seems impossible but it is possible.
Let's take a product on Walmart for example. "Nine Stars 13.2 Gal Stainless Oval Trash Can" is sold at $68.00 on Walmart. The same product on eBay sells at a lower and a higher price.
At the time of writing this article, this is the price on Walmart.
While on eBay it sells for $49.00 and $86.31
Is Dropshipping Profitable?
To answer the question, "Is dropshipping profitable?" it is important you look at what important factors to consider to bring in a higher dropshipping profit margin. The moment you're able to put a working strategy in place and boldly you'll surely enjoy the awesome profits dropshipping offers.
