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It’s hard what we sometimes go through as business people. Time and money invested can be big. Rewards we get in return can be small. And the reasons this happens? Well, there can be many. But here’s a thought. What if some business people get it wrong even before they start? What if some people’s problems aren’t caused by anything they do whilst actually in business? What if the genesis of the problem was prelaunch? Because they just don’t see the signs.
If you’re starting a small e-commerce business, the direct cost of the product will ideally be 30%(ish). Exceptionally, you might get away with 50%(ish). But lower is better so that your gross profit is between 50% and 70%.
And if you think you deserve, say, £50,000 as your salary by the end of year two or three. Then you know your turnover has to be £200,000 to £250,000 to allow that. Because the cost of those sales will be (say) £80,000, running costs may be £30,000, you’ll hold maybe £15,000 of stock and then there’s tax.
And because most things in business take longer than you think, and cost more than you think, you’ll need to push your turnover target up to around £250,000 or maybe more to make sense of all this.
These figures are ‘the signs’. There are some rules of the game that just are what they are. And they help you to make decisions. Because the fantasy business we’re exploring here will need you to invest £20,000 to £30,000 in startup costs. So is it worth it?
Well, if you keep going for a few years, build the brand and the turnover and the figures are something like the ones we look at here then yes, it probably is.
The Value of Back-of-the-envelope Discussion
The reason we at Harlands have taken the time to pen this is to show that there is value in back-of-the-envelope discussion. And it’s not that hard. Well, not if you speak to those that know it’s not. Those with the right experience and expertise. And whilst we are not looking to define every e-commerce business with this fantasy scenario, there is merit in looking at
numbers like this as a start point. Before you make the move.
You can even extrapolate how many products you’ll be popping in envelopes. Because if your turnover target is indeed £250,000. And your average transaction value is £100. Then each year you are posting 2,500 parcels, each month you are posting 208 parcels, each week that’s about 50 parcels so each day that’s 7 parcels. Is 7 sales a day realistic? Is your stockholding figure right for that level of sales? And can you actually resource the packaging up and posting of what you sell at that level for 7 days a week? Or do you need a part-salaried person to help you?
Neither you nor Harlands can predict exactly what’s going to happen in anyone’s future. No one can. But we do recognise the signs. So take the time to address these rough sums and considerations well before you invest a single penny in your venture. It is surprising how many people do not.
As we raised at the beginning. What if some business people get things wrong even before they start? What if some people’s problems aren’t caused by anything they do whilst actually in business? What if the genesis of the problems faced was prelaunch? Because they just don’t see the signs.
Chat to the right people, at the right time. You can save yourself a whole load of pain further down the line.