Want to better understand the health of you reselling business?
This post will go over key business terms and stats that can help you something something next level.
This knowledge and understanding enabled me to turn a hobby into a six figure a year business!
As resellers, we love certain topics: sourcing strategies, BOLO brands, and cute packaging tips. But what’s just as necessary (but way less sexy) is having a very solid, basic understanding of our numbers.
How many of us can honestly say that we know our numbers inside and out? Probably not many of us. Many of us probably don’t even know what numbers I’m talking about. Well, no worries because that’s what we’re tackling today: the basic terminology and math that every reseller should know.
And after reading this, I want you to feel EMPOWERED AF. Because we are bad ass bosses and we CAN DO THIS.
This post will be the first in a series because, let’s face it, there are hundreds of useful terms and equations that would be useful to know. But today we are building the foundation with the most fundamental terms and equations. And the thing is, we totally got this. Don’t get spaghetti brain. Let’s GO! This isn’t rocket science. You got this!!
Reseller Business Math & Terminology (PART ONE)
When I was in 5th grade, I told my dad I wanted to be an entrepreneur. He asked me this basic question: What is the difference between revenue and profit? I had no earthly idea. So let’s start there.
Revenue and Profit
Revenue: Total amount of income generated by the sale of goods and services by a company (i.e. all the money coming in).
Profit: Total amount of income that remains after deducting all costs, expenses, fees, & debts (i.e. the money you’re actually making after paying the bills, also called the bottom line) Side note: Did you know that large tech companies like Spotify are often “unprofitable”? Why? Because they spend all their revenue and more (aka debt) into growth.
So now, let’s take a look at the costs involved with making money.
COGS aka Cost of Goods Sold
You’ve probably heard this one: COGS: Acronym for Cost of Goods Sold. These are the costs attributable to the product that you have sold (i.e. how much you paid for an item + any other costs involved with the item)
Now is a good time to point out the difference between Gross Profit and Net Profit.
Gross Profit vs Net Profit
Gross Profit = Revenue – COGS
Net Profit = Revenue – COGS – Operating Expenses – Other Expenses – Tax
When you hear resellers saying they made $x on an item, they are usually referring to their gross profit. They typically leave out costs like mileage, utilities, labor, taxes, etc. As a reseller, it is incredibly useful to understand your Gross Profit Margin (which is often just called your margin).
Gross Profit Margin = (Revenue−Cost of Goods Sold) / Revenue x 100 Note: Poshmark fees are often included in Cost of Goods Sold because they are directly tied to the sale of that product. So if you purchase an item for $3 and sell it for $25 with a 20% Poshmark fee, here’s the gross profit margin: ($25 – $5 – $3) / $25 x 100 = 68%
Sometimes people confuse margin & markup because they are very similar.
Margin vs Markup
Markup = (Revenue−Cost of goods sold) / Cost of Good Sold x 100
So using this same example, the markup would be 212%. ($25 – $5 – $3) / $8 x 100 = 212%
When you hear people complaining that Gucci tee shirts have a 10000000% markup, this is what they are referring to. Markup numbers are bigger. Margin numbers are 100 or below.
Sell Through Rate
As an online retailer, this terms that is going to help you a lot. It basically tells you how much inventory is selling versus how much inventory you have. You can use this number over any given period (day, week, month, year, etc). You can compare the sell through rate of a lot of things such as dresses versus skirts or March versus April. It’s not a perfect number since it only accounts for the inventory at the beginning of the period and not for the variations of inventory added during the period. But it’s definitely helpful nonetheless.
Sell Through Rate = Sales / Beginning Inventory x 100
So, let’s say you started the month of April with 527 items. You sold 150. Sell Through Rate = 150 / 527 * 100 = 28.5%
YOU DID IT!!! You got all the way through & enhanced your business acumen. You ROCK. These are the terms and equations that are absolutely paramount in understanding the well being of your business. But of course, there are many others. So let me know in the comments below or DM me with any terms or equations you’d like me to cover in the part 2!
With Love & Gratitude Always,