Before starting a web store each entrepreneur must calculate their possible future profit. Let us review how a web store profitability calculation is performed with the help of a simple formula.
How To Calculate Your Ecommerce Profits
Naturally, this factor mostly depends on a web store peculiarity, target audience, owner’s approach. But basically, a simple calculation can be done with the help of this formula:
Profit = V*C*CH – T – CO – ORG – AD
Evidently, ‘profit’ stands for the actual profit of a web store, but what do the other parameters mean?
V is the volume of visits your store gets. This parameter is extremely important. Ideally, it is considered that about 80% of the store visitors should make orders, but in fact, this number rarely exceeds 40%. You need to use a monthly visits value. In order to make the preliminary calculation, you should first analyze the market and evaluate the number of visits on your competitors’ sites.
C stands for conversion. Of course, not all users who visit your site buy something. This parameter is less stable, so we recommend taking into account 4-\0% of the target audience.
CH stands for the average check. You need to count the average sum of one order here. The value is counted in the same way as any other average parameter: take the sum of the products’ cost and divide it by 2. Of course, this value should better be counted when the store already exists. But in the beginning, you may take the average cost of the cheapest products in your store.
T stands to tax. In any case, you will need to register your profit and then regularly pay taxes. The information about tax rates can be verified with the corresponding departments of your city or country.
CO are expenses for product acquisitions. Almost all types of work with suppliers include the original expenses to buy the products, and the better optimized they are the more efficient your business will be.
ORG – these are organizational expenses. They include salaries of consultants, managers, administrators, transport and public services, warehouse rent if necessary.
AD is for ad costs. It is almost impossible to promote a commercial site without a proper advertising company. You need to consider the most logical advertising system, its cost, general price for links from other sites. It also includes payment to the advertisement system (a separate percent of the general advertisement price).
Generally, the formula to calculate your store profitability is very simple. But it requires attention and prudence. The most difficult thing is to count it for the theoretical store, as you cannot precisely evaluate the volume of visits, purchases, and expenses, but still, it is possible. If you experience any difficulties, you may consult with GoMage specialists by email or by leaving a comment to this article.
