topic Re: Calculating profit in Selling

Calculating profit

egglesdtp — Tue, 28 Jul 2015 01:51:00 GMT

Accounting was never my strong point, but I have been trying to work out how to calculate my profits. I don't have a shop, and I sell items from around the home (so no buying costs as such). Average item price is $10.

Item price + postage (cost to buyer) = A

Actual postage cost.= B

FVF on item = C

FVF on postage = D

Paypal fee = E

The formula I have come up with is as follows: A - B - C - D - E = profit.

Percentage profit per item = profit / item price x 100

I have worked out that most of my % profit is in the range of 75% to 85%. Does this sound about right?

There is nearly 10% difference in profit between a $10 item posted in a 500g satchel (~85%) and a $10 item posted in a 3kg satchel (~75%) as the profit is nearly $1 less due to the higher postage FVF, Paypal fee and I make a slight loss (7 cents) on the actual cost of postage of a 3kg satchel. But if I increase the postage charge by 50 cents, I actually would make a loss of 12 cents, so my current charge on a 3kg satchel is the one where I make the least loss on actual postage cost balanced by the ebay FVF on postage.

Re: Calculating profit

digital*ghost — Tue, 28 Jul 2015 02:54:35 GMT

@egglesdtp wrote:
But if I increase the postage charge by 50 cents, I actually would make a loss of 12 cents, so my current charge on a 3kg satchel is the one where I make the least loss on actual postage cost balanced by the ebay FVF on postage.

If you're charging actual cost ($13.40), between eBay and PayPal the fee percentage on the postage charge would = $1.68 (this is excluding the PayPal flagfall, which would be paid regardless of postage charge), leaving you with $11.72.

If you increase the charge by 50c to $13.90, eBay/PayPal will take the same percentage of that 50c, but you'd still be left with more to pay the postage, not less.

i.e. The fees would amount to $1.74, so 6c more, so they only get an additional 6c from your extra 50c, leaving you with the remaining 44c, or $12.16 from the $13.90 charge, and the same principle would apply no matter what your actual postage charges are.

(NB Based on 9.9% FVF and 2.6% PayPal fee).

Re: Calculating profit

egglesdtp — Tue, 28 Jul 2015 03:48:03 GMT

It's a little more complicated regarding postage, as I buy my satchels in packs of 10, which means cost per satchel is $12.73. I charge $13.50 for postage, which means with the postage FVF of $1.34, the postage cost to me is 12.73 + 1.34 = $14.07 (disregarding the PP component), which means I lose 57 cents, not the 7 cents I mentioned (I told you accounting was not my strong point). If I charge say $14.00 postage, then the FVF becomes $1.39, and the postage cost to me is $14.12. So then I only lose 12 cents. However, I wonder if raising my postage cost to $14 will reduce sales, which are poor enough as it is.

I've just checked out what others charge for 3kg satchels by looking at women's boots (as these are more likely to weigh over 500g). It seems to vary between $13.40 and $15, with the majority around the $14 mark, so perhaps from now on I will start charging $14.00 for a 3kg satchel.

But I would still like to know whether others are getting the same sort of % profit I am i.e. between 75 and 85%.

Re: Calculating profit

wendshees-rocks — Tue, 28 Jul 2015 05:51:03 GMT

I bought an item the other day that was posted in a bag but it wasn't a prepaid satchel. Actual cost was I think $14.10 and the seller charged me $17, which was for 6 items. I was more than happy with that cost as he'd included a small handling fee for each item and covered his fee costs.

Re: Calculating profit

digital*ghost — Tue, 28 Jul 2015 06:40:58 GMT

@egglesdtp wrote:
It's a little more complicated regarding postage, as I buy my satchels in packs of 10, which means cost per satchel is $12.73. I charge $13.50 for postage, which means with the postage FVF of $1.34, the postage cost to me is 12.73 + 1.34 = $14.07 (disregarding the PP component), which means I lose 57 cents, not the 7 cents I mentioned (I told you accounting was not my strong point). If I charge say $14.00 postage, then the FVF becomes $1.39, and the postage cost to me is $14.12. So then I only lose 12 cents. However, I wonder if raising my postage cost to $14 will reduce sales, which are poor enough as it is.

Ah, ok, I misunderstood your first post as I thought you were working out that charging the lower price means a lower gap between what it costs and what you get.

In terms of whether raising from $13.50 to $14.00 will affect sales, I would try raising to $13.95. Everyone (incl. buyers) does know that it's virtually $14.00, but the two will create different impressions despite that.

I can't really answer re: percentages, but for what it's worth, my eBay / PayPal fees are currently running at 12-14% on average, (or in other words, I get 86-88% of revenue after eBay and PayPal fees), but my costs are very different.

Re: Calculating profit

egglesdtp — Tue, 28 Jul 2015 06:45:31 GMT

@digital*ghost wrote:
Ah, ok, I misunderstood your first post as I thought you were working out that charging the lower price means a lower gap between what it costs and what you get.

In terms of whether rasing from $13.50 to $14.00 will affect sales, I would try raising to $13.95. Everyone (incl. buyers) does know that it's virtually $14.00, but the two will create different impressions despite that.

I can't really answer re: perccentages, but for what it's worth, my eBay / PayPal fees are currently running at 12-14% on average, (or in other words, I get 86-88% of revenue after eBay and PayPal fees), but my costs are very different.
That was me who confused the issue as I had worked out the wrong figures. I think you are right raising postage to $13.95 as it doesn't sound as much as $14.00.

I wish my fees worked out to be 12-14%.

Re: Calculating profit

davewil1964 — Tue, 28 Jul 2015 11:48:55 GMT

If you buy eBay satchels and use eBay labels, you would pay a max of $12.05 (plus FVF).

As you are selling personal items and not counting purchase price, your percentage profit is infinity.

You're correct about the accounting skills, but.

Re: Calculating profit

clarry100 — Wed, 29 Jul 2015 01:00:30 GMT

To track profit/loss for tax purposes I have created an Excel spreadsheet with multiple tabs (worksheets) across the bottom.

The worksheets in the various tabs keep track of our total sales (gross income) and then all the various expenses incurred in running the business. Things like fees, postage, stock purchases, allowable household expenses (pro-rated per floor usage space) phone/internet (pro-rated), assetts costs and various other bits n pieces related to the day to day running of the business.

I have put a few graphs here and there so we can see trends on some of the elements.

There is a main summary sheet up front where all the various tab sheet data is rolled up to a summary page, this what our tax accountant needs each tax year.

I went and spoke with my tax accountant about what kind of records to keep and how/if it might be an allowable expense. Works very well for me and is qiuite simple to maintain.

Re: Calculating profit

egglesdtp — Wed, 29 Jul 2015 08:06:00 GMT

Clarry - I don't sell anywhere near enough to have to worry about declaring my hobby income for tax purposes. And as I don't run this as a busoness, I do not count allowable household expenses (pro-rated per floor usage space) phone/internet (pro-rated), assetts costs and various other bits n pieces related to the day to day running of the business.

But I so dislike the ebay grab at a fee on postage, particularly when my postage costs are so close to my item price, that I decided to work out the tipping point between what I charge for postage vs what I actually pay plus the postage FVF. This is not taking into account the Paypal fee, as this varies with item price.

I discovered that if I charge $8.75 or more for a 500g satchel, and $14.25 or more for a 3kg satchel, I break even. That is the ebay FVF on postage is covered by my postage charge. If I also had to cover the component of the Paypal fee on postage (now there's an example of double dipping) I would have to add around half of the 56 cents I pay on a $10 item. This means charging $9.00 for a 500g satchel (which is what I currently charge) and $14.50 for a 3kg satchel (which is $1 more than my current charge).

Re: Calculating profit

lyndal1838 — Wed, 29 Jul 2015 09:04:20 GMT

You would have a hard time convincing the ATO that all those clothes are your own that you are selling...in all different sizes.

I think you would be deemed to be running a business. In any case, you should be declaring all income to the ATO even if you have no tax liability.

Re: Calculating profit

clarry100 — Wed, 29 Jul 2015 10:03:47 GMT

Well you may call it a "hobby" but I suspect that the ATO may disagree with you on that one.

If you are audited they will ask you to show just cause as to why they should consider it a hobby rather than a business. It will be up to you to prove its a hobby as opposed to them prove its a business.

Remember if you buy items (or make them) and then resell them with the intent of making a profit then its a business. If it looks like a duck, walks like a duck and quacks like a duck....

If you are selling off old stuff from your shed or your old clothes then its clearly a hobby.

If your gross sales are over the notional $20K per annum (currently) then ebay are obliged to report your sales to the ATO, so they will know about it.

And if you also have a regular 9-5 type job then all income derived from the "hobby" is reportable as income "from any other source". eg bank interest is reportable income. The ATO know about it because the banks are obliged to report it to them from dollar 1. So why do we declare our $50 bank interest earned this tax year? Why would you not declare your $5,000 from sale of clothing this year?

As technology improves the ATO are getting better at data matching so its only a matter of time before they catch up with tax avoidance (non reporting of income). If you believe that you will not be subject to having to pay any tax then its far better to declare the income in the long term and pay no tax. It's then above board and on the table, no worries at all.

I would strongly urge you to speak with a good tax accountant about this. I believe you may be skating on thin ice, so to speak.

Take care they because are ruthless if you get caught.

Re: Calculating profit

egglesdtp — Wed, 29 Jul 2015 14:50:37 GMT

Well Lyndal - over the last few years or so, I have been all those different sizes (from 12 to 18), plus there are a few from my daughters. I have never purchased clothes specifically to sell. But now I am retired, I don't have any need for the bulging wardrobe, since I now live in jeans..

Re: Calculating profit

egglesdtp — Wed, 29 Jul 2015 15:05:04 GMT

Clarry - I have only ever exceeded $2000 profit per annum twice in the years I have been selling on ebay - and one of those years was when I sold a lot of furniture. So I am nowhere near the $20K, (or even $5K in my best ever year). I don't buy items (or make them) specifically to sell on ebay. They are all from my personal possessions, or from my daughters. Now I am retired, I have no furrther need for many of the items in my wardronbe. When I was working, I was a prolific buyer of clothes. But to set your mind at rest, when I get my tax return done in the next month or so, I will mention my fantastic earnings from ebay to the accountant.

Re: Calculating profit

clarry100 — Wed, 29 Jul 2015 19:33:08 GMT

OK. Well explained in those terms I would have to concede that you should be OK as a hobby seller. But I think you will do well to have a chat about it with your tax accountant. Just so you know up front the kind of questions an ato auditor might ask. Be armed with prior knowledge if/when required. Good luck to you in your retirement.