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Ecommerce Profit Margins?

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RockyRambo

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Aug 4, 2014
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Hey everyone,

Hope you're all well and killing it today!

I'm in the process of starting up an ecom store and came across a few articles today that paint a pretty depressing picture about the profit margins in ecommerce. See below.

The Inconvenient Truth About E-Commerce: It's Largely Unprofitable
Why It's So Hard to Make a Profit in E-Commerce

Just wanted to hear from anyone who currently runs an ecom store or has a lot of ecom experience who could offer their opinion on it.

I see ecom as a business model that satisfys 4/5 of the CENTS requirements (Commandment of Entry i see as being a bit too easy) but other than that seems pretty solid, but the possibility of super low margins has me a bit worried, hopefully someone can prove me wrong.

Thanks :)
 
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ay47

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Hey everyone,

Hope you're all well and killing it today!

I'm in the process of starting up an ecom store and came across a few articles today that paint a pretty depressing picture about the profit margins in ecommerce. See below.

The Inconvenient Truth About E-Commerce: It's Largely Unprofitable
Why It's So Hard to Make a Profit in E-Commerce

Just wanted to hear from anyone who currently runs an ecom store or has a lot of ecom experience who could offer their opinion on it.

I see ecom as a business model that satisfys 4/5 of the CENTS requirements (Commandment of Entry i see as being a bit too easy) but other than that seems pretty solid, but the possibility of super low margins has me a bit worried, hopefully someone can prove me wrong.

Thanks :)

I earn about 30%- 50% net margin on each of my products and just cleared a 45k month. I do no advertising as it's a well known product. Been doing it for more than 6 years now. I'm at my limit for fulfillment so I need to operationalize before exploring how to expand my sales.

So the margin is there. You just gotta find the right market for your products.
 
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Cashflow Queen

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Hey everyone,

Hope you're all well and killing it today!

I'm in the process of starting up an ecom store and came across a few articles today that paint a pretty depressing picture about the profit margins in ecommerce. See below.

The Inconvenient Truth About E-Commerce: It's Largely Unprofitable
Why It's So Hard to Make a Profit in E-Commerce

Just wanted to hear from anyone who currently runs an ecom store or has a lot of ecom experience who could offer their opinion on it.

I see ecom as a business model that satisfys 4/5 of the CENTS requirements (Commandment of Entry i see as being a bit too easy) but other than that seems pretty solid, but the possibility of super low margins has me a bit worried, hopefully someone can prove me wrong.

Thanks :)

It depends entirely on your business model. There’s so many ways to make money in Ecomm. If you wholesale products the profit can be as low as 5%, leaving little room for error. My private label products get me ~20%. With dropshipping you can do well too, that is lowest risk. My advice for you is to keep going and you absolutely need to pick up skills to distinguish yourself from the thousands of other sellers... maybe you can become good at building funnels and advertising, or you’re great at sourcing. My talent is photography and Copywriting so I find great success in Amazon/private label route. Most people drop out a few months in because it’s difficult.
 
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Walter Hay

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Hey everyone,

Hope you're all well and killing it today!

I'm in the process of starting up an ecom store and came across a few articles today that paint a pretty depressing picture about the profit margins in ecommerce. See below.

The Inconvenient Truth About E-Commerce: It's Largely Unprofitable
Why It's So Hard to Make a Profit in E-Commerce

Just wanted to hear from anyone who currently runs an ecom store or has a lot of ecom experience who could offer their opinion on it.

I see ecom as a business model that satisfys 4/5 of the CENTS requirements (Commandment of Entry i see as being a bit too easy) but other than that seems pretty solid, but the possibility of super low margins has me a bit worried, hopefully someone can prove me wrong.

Thanks :)
Those articles are barely relevant to the small scale newbie starting up in eCommerce. They are talking about the giants in the industry such as Amazon and WalMart.

  • There are two main factors to take into account when choosing what to sell online. Competition. Too many people use tools such as JungleScout to find hot sellers and they finish up launching into highly competitive areas where margins get lower as more people find the same product in their JungleScout research.
  • Sourcing. Profits begin with buying, and unless you buy at the right price your margins will be low.
There are many members on this forum who make high margins and make a very good income from eCommerce. Many start off on Amazon, and the savvy ones set up their own eCommerce sites at the same time, directing their Amazon customers to their site by putting their URL on all their labeling, and sometimes as an integral part of the product itself.

There are ways to make your URL a part of the product post-production. For those doing private labeling my labeling book could help. It shows how to use various forms of permanent branding at low cost once you receive the goods, but I am sure that if you give it enough thought and research you will be able to work it out for yourself.

Walter
 
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Walter Hay

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I just found a post I made a long time ago, and it highlights the fact that big margins are possible.
Jul 10, 2016 #893

Walter
 

Laughingman21

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Hey everyone,

Hope you're all well and killing it today!

I'm in the process of starting up an ecom store and came across a few articles today that paint a pretty depressing picture about the profit margins in ecommerce. See below.

The Inconvenient Truth About E-Commerce: It's Largely Unprofitable
Why It's So Hard to Make a Profit in E-Commerce

Just wanted to hear from anyone who currently runs an ecom store or has a lot of ecom experience who could offer their opinion on it.

I see ecom as a business model that satisfys 4/5 of the CENTS requirements (Commandment of Entry i see as being a bit too easy) but other than that seems pretty solid, but the possibility of super low margins has me a bit worried, hopefully someone can prove me wrong.

Thanks :)

I'm glad you've asked the question as it's something I've been thinking about as I've been looking at a range of product that have a gross margin of 50%. However, when distribution and other costs are taken into account, this quickly reduces to 20-30%. I have no idea if this is worth pursuing or not?
 
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MythOfSisyphus

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I've been in Ecommerce for nearly 3 years full time and my profit margin is about 40% after all costs are taken into account. Ive never had a brick and mortar business so I have no idea how Ecommerce compares.
 
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IGP

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I've been in Ecommerce for nearly 3 years full time and my profit margin is about 40% after all costs are taken into account. Ive never had a brick and mortar business so I have no idea how Ecommerce compares.

40% Net Profit Margin is awesome!

A lot depends on your market, product and on your customer acquisition costs.

If you sell a commodity you can usually expect lower margins. However, if you sell something in beauty, fashion, apparel etc. (high perceived value) you can expect higher margins.

In my stores my gross margins are 70%-80%, but my net is closer to 20%-25% because my customer acquisition costs are very high. (FB Ads, Adwords, AMZ PPC etc.)

The upside is that my repeat customers who come back directly or when I email my list I make the full 80%.

The only thing that matters is your Net. One million in revenue is not a lot if your net margin is 5%.
 

IGP

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RockyRambo

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Thanks everyone for the awesome insight everyone, feeling much more reassured about ecom now :)
 

Laughingman21

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I found this report from eCommercefuel that gives a huge range of statistics on ecommerce from across the world. One of the statistic they give is gross margin at 39.2% and net margins at 17.4%.

The full report is here:

2018 State of the Merchant Report | eCommerceFuel
 
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RockyRambo

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I found this report from eCommercefuel that gives a huge range of statistics on ecommerce from across the world. One of the statistic they give is gross margin at 39.2% and net margins at 17.4%.

The full report is here:

2018 State of the Merchant Report | eCommerceFuel

Thanks Laughingman, that's a nice article and a really good website, lots of useful info, do you have any other quality websites or industry resources for ecom that you use?
 

Laughingman21

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Thanks Laughingman, that's a nice article and a really good website, lots of useful info, do you have any other quality websites or industry resources for ecom that you use?

Glad you found it as useful as I did. The three main sources of info I use for building my site are:
  • Fastlane Forum - This place is a goldmine! I'm always amazed at how generous people are with their time and knowledge. There's nearly always someone with an answer to my questions.
  • Shopify blogs & help centre - I use this a lot, but mainly because my store uses the Shopify platform
  • Google - No matter what question I want to ask, someone out there has already asked and answered it.
I don't follow any specific blogs or websites anymore as I found I was getting distracted with new ideas that I wasn't in a position to apply. By focusing on what I need to do and using the above sites when I have a question, it keeps me taking action, not action faking.
 

Walter Hay

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I find it surprising that so many people are willing to work for such small profits. At 17.4% average net, they are selling their time, and are effectively employees of the manufacturers, distributors and wholesalers they buy from.

My former franchisees paid me 10% royalty based on turnover. They were happy to pay that royalty because their net profit as I promised them, never went below 60%.

Profit starts with buying, and it is clear that too many eCommerce sellers are paying way too much. I believe this is a result of following faulty sourcing advice, which is widespread.

I see such faulty advice on forums, and in the great majority of the Amazon and other eCommerce courses that I review. I don't pay for those courses. People who have been disappointed at not achieving the big profits promised give me access to the course they are following, and frankly, I am staggered at the poor quality of most of those courses, some of which cost a substantial amount.

In my introductory post in my AMA I wrote: "There are myths and misinformation in abundance on forums everywhere. I am here to dispel those myths and correct the misinformation that I see being published daily in business forums."

Misinformation is a wealth hazard.

Walter
 
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MiLeung

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"free returns, and appeasing an increasingly demanding customer that does things like buy multiple sizes of an item just to return all but one."

Why not just make the return sequence so troublesome that customers just keep what they bought or better yet, not pull something like this in the first place?

Make them pay for shipping. Everything has to be in perfect condition. Add an extra fee for handling the return.
 

IGP

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"free returns, and appeasing an increasingly demanding customer that does things like buy multiple sizes of an item just to return all but one."

Why not just make the return sequence so troublesome that customers just keep what they bought or better yet, not pull something like this in the first place?

Make them pay for shipping. Everything has to be in perfect condition. Add an extra fee for handling the return.

Because that's called shitty service.

You would really sabotage your entire business and offend repeat customers just to spite a few bad apples?

Chalk that up to cost of doing business and treat everyone the absolute best you can!
 

EPerceptions

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As someone else said, it generally boils down to a personal choice and/or business model. Some operate on slim margins (usually paired with high volume) while others don't.

FWIW, I don't buy something to sell unless I'm fairly confident I can earn equal to or greater than that cost back in full after all expenses.

Admittedly I only do ecommerce sporadically as an opportunistic thing.
 
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MiLeung

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Because that's called shitty service.

You would really sabotage your entire business and offend repeat customers just to spite a few bad apples?

Chalk that up to cost of doing business and treat everyone the absolute best you can!

When you're a brand that has high demand, low supply, and strong customer loyalty, you can do that.

Supreme will gladly exchange an item for online store credit only. Before sending the item back, please fill out the return form found in your order shipment confirmation within 2 days of receipt of your shipment. Packages sent without first contacting us will not be accepted. Items to be exchanged must be returned in perfect, new condition with all original tags attached. Supreme must receive the returned item within 7 days of return authorization.
 

IGP

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biophase

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"free returns, and appeasing an increasingly demanding customer that does things like buy multiple sizes of an item just to return all but one."

Why not just make the return sequence so troublesome that customers just keep what they bought or better yet, not pull something like this in the first place?

Make them pay for shipping. Everything has to be in perfect condition. Add an extra fee for handling the return.

LOL, try keeping customers that way. You would not survive in this current state of ecommerce.
 

biophase

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I find it surprising that so many people are willing to work for such small profits. At 17.4% average net, they are selling their time, and are effectively employees of the manufacturers, distributors and wholesalers they buy from.

My former franchisees paid me 10% royalty based on turnover. They were happy to pay that royalty because their net profit as I promised them, never went below 60%.

Profit starts with buying, and it is clear that too many eCommerce sellers are paying way too much. I believe this is a result of following faulty sourcing advice, which is widespread.

I see such faulty advice on forums, and in the great majority of the Amazon and other eCommerce courses that I review. I don't pay for those courses. People who have been disappointed at not achieving the big profits promised give me access to the course they are following, and frankly, I am staggered at the poor quality of most of those courses, some of which cost a substantial amount.

In my introductory post in my AMA I wrote: "There are myths and misinformation in abundance on forums everywhere. I am here to dispel those myths and correct the misinformation that I see being published daily in business forums."

Misinformation is a wealth hazard.

Walter

My site is running less than 10% due to my business model. But it makes up for that in volume, which was my plan.
 

biophase

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Sure. Just don't be so nice to your customers that they take advantage of you and your free shipping.

We offer free returns and exchanges and also lifetime warranty. We had a 2 customers ask for 6 replacements within 3 months. We just dealt with it.

In fact returns, exchanges and refunds are now taking up a few hours a day. But this also meant going from 0 to $2mil in sales in 3 years on an average $15 cart. Customer service is one of the best ways to get and keep customers.

Sure a few people will take advantage of it, but you can't let that affect you. 95% of the population will not take advantage. I've never done the numbers but let's say we average 400 sales a day and we probably get around 10-20 returns and warranty claims. That's 5%. I can live with that.

400 sales a day x 365 = 146,000 units a year
5% warranty = 7300 claims
Cost per claim is about $6 = $43,800 in warranty claims a year.
$43,800/$2,190,000 = 2%
So our warranty cuts into our margin by 2%
 
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