Many assume that seller commission is the only thing that affects an online seller’s revenue when compared with offline selling. That also is nullified as the overhead cost is less when it comes to an ecommerce business.
However, Seller commission is not the only thing that gets deducted from an online seller’s income.
Take for example Flipkart’s seller fee structure:
Following charges are deducted from the Selling Price, before the final amount is paid to the seller:
- Marketplace Fee (Shipping Fee + Closing Fee + Selling Commission)
- Service Tax (14.5% of Marketplace fee)
So for a product with Selling Price INR 1000 at 5% commission, a seller earns approximately INR 900 on an average after all the above-mentioned charges are deducted.
The shipping price changes with shipment weight and area of delivery.
Another pricing example is of Fulfilment by Amazon service.
These things determine the rate:
- Product category
- Its dimension
- Weight of the product/package
- Shipping method
For example – For a toy with shipping weight of 780 grams, pick & pack fee is Rs. 10/unit, Rs. 50 weight handling fee, 1% delivery service fee, 14.5% service tax and additional storage fee per month.
Add to that Operational Cost
This typically involves:
- Rent and utility bills
- Employee salaries
- Logistics cost
- Marketing expenses
On an average, 20-30% is deducted from SP (excluding operational cost) while selling on marketplaces.
Are you wondering that in the midst of all these charges, how can a seller earn profit? It’s hard, yes. But not impossible!
Read on to understand the factors that affects an online business’s profitability.
What kind of seller are you?
Spot the difference between these two statements:
Some are passionate about ‘selling online’
Some are passionate about ‘selling their products online’
Could you spot the difference?
Well, the first ones are sellers that are interested in selling online, irrespective of the product category. Decision to sell online comes first, product comes second. Drop-shippers, resellers fall under this category.
While the second category of online sellers are the ones that are passionate about selling their product. Here, the product is born first, decision to sell online happens as the business progresses.
Why this contributes to profitability?
Because this factor affects realistic profit figure, how much can you play around with product pricing, the extent one can stretch to achieve profitability and the level of competition a seller will face.
Is it a hobby? Side business?
Ecommerce is such a fast-growing and competitive space, that one can’t expect to build a sustainable & profitable online business, if it’s a supplementary, part-time business or a hobby.
During peak holiday seasons, sellers may have to work 18-20 hours a day to fulfil orders, which isn’t possible for those who have other important professional, academic and personal commitments.
Grayson Bell, who used to run an online store and sell on marketplace shared, “The biggest issue with me is that I was trying to build my business only being part time and save on business expenses. I still worked full time and then went home and worked more on my business. I would wake up at 7am and go to bed at around 3am. I didn’t get much sleep, but I was driven by the thought of success.
He added, “There were so many facets that I needed to take care of with the business that it was taking a toll on me because a business is not passive.”
Own store or marketplaces
A seller can easily get rid of marketplace fees by selling through their own online store. This means you have complete control over order fulfilment and payments. But it also means that you would find it difficult to match the volume a marketplace is able to provide.
Too niche and too common
Your profits will decline if you are selling a product that no one is interested in (too niche) or if you are selling something that’s already sold by 1000s (too common).
Key is to find a product with reasonable profit margin with less returns possibility like antiques, collectibles, bespoke fashion & accessories, and technology accessories.
For example –If you want to sell sneakers or t-shirts, you can use your own creative skills or rope in a designer to customize plain shoes/shirts by printing/painting it. It’s still a fast-selling product with good profit margin without being too mainstream or odd.
Are you providing value?
An online seller shared on Quora how by investing in good pictures, SEO keywords marketing and opting for better packaging material by reducing profit margins earned her a top spot in marketplace search results.
Some Tips to fill your profits tin little by little:
- Pack light & tight – lower the weight of your package as much as possible
- Dedicate a couple of days to visit local courier companies, jot down shipping charges for different cities/states and zero down on serviceable areas that are most and least profitable (in terms of potential order volume and shipping rates)
- Pass on the shipping cost to customers whenever possible either by charging upfront or by including in the SP
- Alter shipping rates according to pin codes
- Keep record of EVERY sale & expense and inventory. No matter how tedious or boring it is
- Delist from marketplaces that are contributing to your losses
- Remain listed at least on one of the top marketplaces
- Don’t slash price of your products at the cost of degrading brand value
- Be flexible with pricing around festive sales and other big sales event
- Net in hand should always cover manufacturing cost/buying price, operational cost and marketplace fees. Raise your prices the moment net in hand is less than the three costs.
- Request marketplaces to provide product analytics so that you can study customer’s buying pattern and make timely changes
- Used items in good condition sell well. Keep an eye on that
- Resellers, please regularly visit flea markets, thrift stores, garage sales, clearance sales and classified ads/sites. You never know what comes your way
- Save (or ask friends/family) bubble wraps, newspapers and boxes to reuse. You’ll be surprised how much money you can save by doing this
- Buy a shipping scale
- Keep a record (written & visual) of product & accessories’ serial number, IMEI number (in case of phones), product code etc. To cross-check and nail those unfair returns
- Maintain buyers’ record to spot and weed out fraud buyers
- Download product search & price comparison apps to scan on the go, gauge a product’s general selling potential and add to your portfolio
Yes, it is profitable to be an online seller! It is just like any other business, any other industry, where you need to take risks and learn on the job. It is wrong to blame the medium as even in the offline retail world, not all fail or succeed.
What’s important is to educate yourself about the online selling medium and set specific goals & limits for your business and work towards it. Find the ‘type’ of online selling that works best for you and explore it until you find the right formula. Maths is boring but very helpful. Sit at regular intervals (not just at the end of FY) and calculate all the costs so find the source of loss and eliminate it.
Online sellers, do you think selling online is a profitable venture? Do you have some tips & tricks to share with online sellers that can help to increase profits? Do you want to share your online selling experience? Please leave your helpful comments below.