Crunching numbers - is your potential product really profitable?
Getting a grip of the real costs and profits for your first private label product can be tricky at the research stage, but have no fear, this article should help you take into account everything you’ll need to know to get the full picture.
I’ll go ahead and presume you have some potential products you have shortlisted or have some supplier quotes ready to go.
Also, if you want another deep look into calculating product costs, you can check out this link
What you’ll need:
Cost quotes from suppliers or a rough idea of unit costs
IF possible, product dimensions and weight.
Remember the rule of $20
Why sellers advise selling for $15 or more, or $20 in my case, is because, after shipping, FBA fees, custom unit costs, ppc spending and all the other little costs, you will be left with very little profit if you are selling for less that 20 bucks. If you can shift 50-60 units a day, then of course you can roll with a smaller margin, but, more new sellers won’t be doing that kind of volume right out of the gate.
Step one: At a glance margin evaluation + FBA fees
You should have a target margin in mind, say 10 bucks profit per unit and, depending on how your research goes, be ready to settle for a smaller margin, or new product.
First up, check your potential product on Alibaba right away (or something close enough), I’ll use a tire pressure gauge here, a fairly popular PL item:
As you can see, this guy on page one is selling for just under $20 and the Alibaba cost (pictured right) we’ll round to $3. (FYI, the extra info you can see on that screenshot for the Amazon listing comes from a free Chrome plugin called AMZ seller browser).
So, we minus 3 bucks from our $20 sale price and have $17. Now we factor in FBA. The FBA fee generally runs at about a third of the product, although if your product is heavier or over-sized, expect it to be more.
For a more precise estimate, you can use Amazon’s FBA calculator here. Also, the Pro Version of Jungle Scout also shows the fee preview which makes life much easier.
You can also Profit Guru's very detailed free calculator too ->
But in this case, we’ll presume it’s about $5, so 17-5, brings us to $12. After delivery and any customisation, that $10 profit doesn't look likely, but hey, at high volume, maybe $8 profit wouldn’t be so bad? You decide.
As a quick glance, this looks decent, although you’ll have to take into account what the majority of the competition are selling for.
Here’s another tyre pressure example. This one is sold by Amazon and, as you can see, most new sellers could never sell for this little.
Step 2: Logs and customization
It’s always good to have at least a logo somewhere on your item, just for the sake of protecting your listing from hijackers. A year ago, I would have said just roll out something generic, but now, with the competition, this is one way to protect your listing.
BUT, those logos, design costs aside, cost extra per unit to apply to the product. If you want custom packaging (which can definitely add to perceived value, although most suppliers will have an MOQ for custom packaging) it will cost more again. Same goes for changing sizes of products, or anything that involves making a new mold.
Using the first tire pressure gauge in the example, you can see it’s the same one as the Alibaba listing, just with their logo on it. So, we’ll add on another dollar for the logo per unit (and we’d maybe add another on for packaging).
So we’re down to about $10-11
Main thing to keep in mind: for every modification you make, you will be adding costs.
Step three: delivery
For many, delivery is what will make or break your profitability. When you ship by sea, you will cut your delivery bill drastically, but, for most new sellers, shipping by sea is pretty daunting and comes with its own sets of logistics.
So most use air courier, like FedEx, DHL. Much faster, but more expensive. The cost will also depend on what kind of rates your supplier gets with the big logistics players, but, as a quick idea, check out http://www.freighteo.com/ - that will give you an idea of the delivery costs.
I usually find delivery on 150-200 light-ish, small units to end up around the $500 mark. If you can get $4-ish per kg, that's great, expect about $5-6 though and remember that it will be more around Chinese New Year in Feb.
Anyhow, for this example, using Freighteo an example of 300 units, I added some rough dimensions (I don’t know their box size or weight, so I took an educated guess).
Here’s the results:
We’ll use the higher cost in our theoretical calculation since, let’s be honest, things rarely end up as cheap as we’d like!
So, at $4 a pop (the unit cost + theoretical logo cost) and 300 units, we’d have a cost of $1200, plus $950 for delivery. So, in total, out 300 units would run at around $2150.
The rough unit cost would actually be $7.17 (and this doesn’t include prep and shipper fee or customs tax that might be applied).
Let’s take the $7.17 and add $5 for the FBA fees and we get something closer to $12, leaving us about $8 profit if we can sell for $20. Also remember, this is before tax , PPC and other hidden costs.
Generally, if the competition looks beatable and the sales depth is there, this would be a good product (although this is an example product and a super saturated one at that).
Thinking long term: more volume = More profit
These theoretical figures are just for when you are starting out. If you can generate solid sales, you can increase your order and get a better per unit price, then as you scale up, switch to sea shipping which will boost your profit again. With a decent order size and sea shipping, you could probably be making $12 or more profit on this theoretical product.
Let’s take a quick look at my first product:
Base unit cost: $1.50
Unit with logo and made to a different size: $2.50
Basic packaging: free
Selling two per box = unit cost of $5.00
Final unit cost: $750 for 300
Air courier delivery for 300 units (2 per box means = 150 units) $500
New total: $1250
With this in mind, the actual unit cost is closer to $8.30 (1250/150 units).
Then I paid $115 for a prep and shipper and $109 for import duty, so the ultimate total was $1474 so pretty much final unit cost of $9.80. My final sale price on that product was £13.99.
That’s it. This is all the information you need to get a good idea of your product costs and margins before diving in with a product. Oh, and if you’re hungry for more information on all things product cost, I broke down all the costs for my first product and launch here - this post looks at the total costs of everything from launch, logo design and getting the product to Amazon.