difference between sales and profits Archives

Want to know the big difference between revenue and profits? Read this real case study.

I was doing a consultation for an online business that appeared to be very successful, in fact, they were one of the top sellers on Etsy. But the truth was, they weren’t.

I won’t say what they were really selling, but it was a very low-priced product so let’s say they were selling socks. The socks were underpriced at $3, and they were great quality, so they flew off the shelf so to speak.

The seller was making $35,000 a month in sales on average. Seems like a great business, but it wasn’t.

The seller had to make and ship out 12,000 orders a month, or roughly 387 orders a day. That’s a lot of orders and there was no way she could do that on her own. So she had to hire a staff of 8 people to make the scrunchies, fulfill orders and deal with customers.

Therefore, after she paid her staff, paid her material costs, her selling fees, her packaging and so forth, there was only $100 a month left for her, of the $35,000. True story!

My advice was simple. Raise the price by $1. That’s an extra $12,000 a month. She was terrified to do this because she thought it would lower the sales volume, but I doubted very much that going from $3 to $4 would deter customers. So I suggested, try a .50 cent increase first (that’s at least $6,000 extra a month) and monitor the conversion rate. If the conversion rate stays the same, then increase another .50 cents.

Now keep in mind, there was more to the advice than this, this price increase was just a short term solution so she could quickly make some money to pay her personal bills. The longer term issue was to find ways to reduce her costs, improve her production, and increase her overall profit margin, as $12,,000 on $35,000 is still not a great margin, but better than what she had (which was almost zero).

The morale of the story, having big sales does not always mean a successful business. You need big profits.

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