Action - Calculate Profit Margin Estimate
congratulations on finishing mini golf or by now you've looked on Alibaba and you've decided on those two or three suppliers that you can order a sample from in this next mini goal mini goal five. We're going to complete the final research for our product in this first video we're going to calculate a profit margin estimate for our product. A profit margin estimate is a great way to find out how much we can expect to make in profit for each item that we sell now that we've gotten quotes from our suppliers and we've decided on the three suppliers we want to import a sample from. We can get a pretty good estimate of about how much money we can expect to make for each of these double dog leashes that we sell and the sheet we're going to start out with to calculate this is the calculating profit margin sheet and you can find it in your resource packet or as an attachment to this video and we do have an Excel calculator that does all the math for you. But I wanted to walk you through using ...
this tool once just so you really understand what we're doing here for the product name. I'm gonna type in double dog leash Then for the sales price, I'm going to put in $ since that's what we determined we'll be able to sell this product for. And then to get the wholesale price, we can open up our supplier comparison sheet and I'm gonna do this first one up here Dongguan Qing speed pet products And our wholesale price per unit is $3.90. The next item is the shipping cost from china per product. As of now, we haven't asked our supplier for a shipping quote yet, so we don't have an exact cost. But for the sake of this, which is just a profit margin estimate, I'll estimate the shipping cost per product and I'm gonna say that the shipping cost will be around a dollar for each double dog leash. If we wanted to be 100% sure what the shipping costs would be, we could send a message to our supplier and get a shipping quote. But for now I believe this is good enough. Next up is the shipping cost to amazon per product, ideally we're gonna be shipping directly from the supplier to amazon. And for that reason I'm going to put a zero, then come to amazon FBI fees and in order to calculate these fees, we're gonna be using a free tool created by amazon called FBI Revenue calculator. And to find this tool, we're going to open up an internet browser from here, type in FB a revenue calculator and you're gonna want to click on this first one. FBI revenue calculator, amazon seller central. The way this calculator works is you search for products that are already for sale on amazon and then amazon will pull all of the information for that product and estimate their fees. In our case we're planning on selling the double dog leash. And for that reason I'm gonna search double dog leash and we want to find a product that looks similar to ours. I'm gonna select this one because I think this is the most similar And now it's pulled up the dimensions for that product and also the product weight down here. We have a new option to compare rates because Amazon is changing its fulfillment fees and to keep this video relevant in the future, I'm gonna select the newer fulfillment fees that take effect February 22, 2017. Then if we scroll down, we see two columns, your fulfillment fees and amazon fulfillment fees and we want to ignore the your fulfillment column and just focus on the amazon column. The first thing we want to do is click the calculate button And this is a way of setting the calculator to zero. Once we've done that, we want to type in the item price and this is the price that we think we can sell our product for on amazon For the double dog leash that was $15. Next up is the cost to ship to amazon. And we estimated that that's going to be a dollar per leash. And finally we have the cost of products And for the product that we're looking at now the cost per unit is $3.90. Once we've inputted these values, Check, calculate and here we have our net profit per item and also our net margin amazon has already calculated everything for us. But if we wanted to fill out the sheet ourselves, we could manually pull out these fees to get the amazon FDA fees. We look at fulfillment by amazon fees And we can see that that's $3 per unit. And next up is amazon's referral fee. And if we look at selling on Amazon fees, we'll see that fee is $2.25. If we were to manually calculate this on a calculator, we should get the same profit margin listed here of $4.85. Let's try it out. And there it is $4.85. What this means is for every double dog leash that we sell, we can expect to keep $4.85 in profit. This sheet is a great way to calculate the profit margin manually and to really understand what type of fees we're paying if you want to calculate the profit margin for multiple products or from multiple suppliers. And we've created an Excel sheet that does this work for you automatically. This excel sheet is called the profit margin calculator and you can download it as an attachment to this video or find it in the folder where your resource packet was located. We're going to use this sheet now to find the estimated profit margin for each of our three suppliers instead of putting the product name in this row, I'm gonna put the supplier name and that way we can tell them apart. The first supplier we have here is king speed, the second is senior and then barry and now I'm just gonna delete all of this sample data. And the way that this sheet works is all of the boxes that are tan are areas where you're supposed to input a value and then the areas in white are values that are calculated automatically. We don't want to delete what's in these boxes and instead we just want to delete everything in the tan boxes and as you can see everything up top is going away automatically. Now let's start from the beginning, the item price is the price that we plan on selling our product for. And we said that's $15. The next is the cost of the product or cost per unit. And with king speed, we saw earlier that it's $3. per unit. The shipping costs. Now this is the amount you pay for shipping of the product. Now, before we get into the shipping cost, one thing about using the profit margin calculator is we have to decide how many units we plan on ordering before we fill this out. And for this example we're just going to say we want to order 100 units. That's because this price of $3.90 per unit Was quoted for an order of 100 units. If we end up placing a larger order, they might lower that cost for us. And for that reason down here, a number of units, I'm gonna put Next we need to put a total shipping cost. We estimated earlier that it would cost a dollar to ship each product. Now I think with an order that's 100 units, it's a little bit on the small end. And for that reason our shipping costs is probably higher than $100, which would be the dollar per unit. But for the sake of this example, we're just going to put $100 which is a dollar per unit. Next up is the shipping cost to amazon and we would only put a number here if we planned on shipping our products from our supplier to our home or business and then again from our home or business to amazon. We don't want to make it that complicated. We want to go straight from supplier to amazon and for that reason, we're going to say this cost is zero. Next up are the amazon FB. A fees and the referral fee to calculate this, we can use FBS revenue calculator just like we did earlier. And there's a really easy link down here, But we don't have to do this again because we've already done it here. We determine that the fulfillment fees are $3 and the Amazon fees are $2.25 cents for FDA fees, I'm going to put $3 And referral fee are $2.25. We know that these fees are gonna be the same no matter which supplier we end up ordering from. And for that reason I'm just gonna copy it over. If we scroll up, we'll see for our king speed, we have the same profit per unit that we got earlier, $4. cents And our profit margin per unit is 32%. Now let's do the same calculation for our other two suppliers for senior. The cost per unit is $3.70. Keep in mind that we don't want to put anything in these white boxes and we want to start at the item price, the first tan box And the item price we plan on selling it is $15. The cost of the product, $3.70 for the shipping costs were going to say the same thing, estimate a dollar per unit. So I'm gonna put it in $100. Number of units were saying we want to import 100 shipping cost to amazon, this is zero because we're going straight from supplier to amazon, not to our home or business first, then to amazon and then we can leave these fees just how they are. And if we scroll up, we'll see that the profit per unit is a little bit higher. And so is our profit margin. Now let's try with the third supplier first. We need to find the cost per unit for barry. And if we pull up our comparison sheet, we see that it's $3.56. And we'll put in the item price of $3.56 is the cost per unit. Shipping costs were estimated at 100. And for this example, we're ordering 100 units. Shipping cost to Amazon is zero and that's it. If we scroll up, we see this has the highest profit margin which is to be expected because the cost of the product is the lowest. And for each of these that we sell, we would make $5.19 and make a profit margin of around 35%. Keep in mind these are just estimates. But we do have a lot of information so they are fairly accurate estimates. I would say the biggest thing that we would want to fix if we wanted 100% accurate estimate is the shipping cost. And the best way to get an accurate reading there is to send a message to your supplier, tell them exactly how many units you plan on ordering and ask them to give you a quote for shipping. In this video. We calculated a profit margin estimate for each of our three suppliers. In the next video, we're going to research competition for our product, pause this video right now and don't move on until you've calculated a profit margin estimate for your product.