Don’t try and ‘second guess’ it. All businesses are not the same, but you can make a difference to your profit margins with a few simple reminders!
All too often I receive emails asking me how on earth online sellers (particularly on eBay) are able to offer free delivery to buyers when the basic cost to send a small parcel second class via Royal Mail is £2.80. Add selling fees on top of this and profit margins immediately shrink! Not good if you haven’t got much profit to play with in the first place.
There are various reasons why some sellers are able to comfortably offer free delivery and/or lower prices without compromising their profits and you may be surprised to learn that actually there is no big secret to this – you just need to be a bit savvy and use some common sense!
Lets say that you are looking at selling a product which is currently listed by another seller on eBay for £10.00 with free P&P.
Product Cost: Are you negotiating for the best price?
Having researched the product you know that the item costs £5.00 at wholesale. If postage is then £2.80 and then you add your packaging, listing and selling fees on top, at first glance it looks like the seller will only be making pennies on the product. But, just because you’ve researched the product and have secured a wholesale price of £5.00 per item, this doesn’t mean that other sellers have the same deal.
They may have a different supplier, or buy in huge bulk, or have a longer relationship with the supplier for example. All of these things can mean a lower wholesale price – and bigger profit margins. So, it’s important to ensure you have researched the lowest possible wholesale price and have negotiated further if possible.
Packaging Cost: Are you over-packing?
A typical small parcel weighing 100g and sent 2nd class with Royal Mail costs £2.80. This is significantly more than sending a Large Letter, also weighing 100g, which comes in at 73p. The problem arises with the dimensions of the package, because whilst your item may only weigh 100g and be 35cm x 25cm in size (ok for a Large Letter), if it’s thickness is more than 2.5cm then you have to go up to a small parcel instead which adds a whopping £2.07 to your costs. This is where savvy packaging comes in!
If your product is borderline and can be fitted into a Large Letter then make every effort to do so because as I’ve already said, the postage cost savings are significant. Undoubtedly this is not going to be an option for all products because 2.5cm is a very thin margin – however if you are currently using mailing bags with bubble wrap or if you are using padded envelopes, bear in mind that this extra packaging could be bumping up your postage costs unnecessarily, so it’s worth checking to see whether without extra wrapping you can fit your product into a Large Letter size.
Then, instead of adding bulky bubble wrap to keep an item safe from damage, consider using a PiP box.
PiP stands for ‘Pricing in Proportion’ and this type of packaging comes in the form of boxes, perfectly sized to match all of Royal Mail’s package sizes. You can source PiP boxes from Defendapack here
Postage Cost: Are you using the cheapest option?
It’s important to be aware that Royal Mail Business Accounts offer cheaper postage than you can get as a Post Office Counter customer. So whilst you may be calculating your competitors’ postage costs as one amount, they may actually be paying a completely different rate!
There are two options – firstly using ‘franking’. You will have to purchase or rent a franking machine if you opt for this method but you will benefit from lower prices. How much you save will depend on the volume of parcels you are sending though. You can find out more here
Alternatively, consider PPI. This stands for Printed Postal Impressions and discounts are available for some services. It’s simple to set up and is an alternative to traditional stamps and franking machines. You simply preprint your postage on envelopes or labels and pay online. More information on this is here
Don’t forget that Royal Mail is not the only delivery company to consider either. For small and medium parcels, My Hermes is very competitive and should not be overlooked. Make sure you look at courier services too if your parcels are larger.
A Final Consideration
There are always going to be sellers in your niche who are able to undercut you – it’s the nature of the beast I’m afraid, but take comfort in this. Some sellers may simply be using certain products to build feedback and to achieve higher traffic to their other products or online shops.
This means that they have no desire to make real profits from the product and in some cases may actually make a loss, but by selling so cheap they build lots of positive feedback, a good sales history and in addition potentially get viewers to see and purchase their other more expensive products.
This may seem extreme, but it works for those who have large inventories and who can afford to make a loss or break even on some products because they can make it up on others.
So, next time you spot an item being sold at what appears to be an inconceivably low price, take the points I have made today into consideration before jumping to conclusions and fearing the worst.
Research more than one supplier, use your negotiating skills, check you are using the most cost effective delivery service and that your packaging is spot on and doesn’t shift your postal costs into a higher band. Then make an informed decision as to whether it is worth pursuing the item further yourself.
As always I wish you the best of success,
This article first appeared on The Source Report » » Blog. Read more and comment here