It is a great start if you’ve managed to build an online store and attract shoppers in to start buying. But are you really clear on the financial set-up of your online business?
The bigger the business, the more likely you will need access to someone with financial expertise. But even if you are just starting, you do need to understand the basics of income and costs for your store. This forms the basis of your Profit and Loss (P & L) which is a vital business measurement tool.
Starting at the top of the P&L, your income is generated by the volume of units multiplied by the selling price per unit plus any additional price that the shopper pays e.g. to cover delivery.
From that income though, there are a lot of costs that have to be paid.
Firstly, it’s likely you’ll be using a payment gateway who will take 1% to 3% to process the transaction securely. Then you have to make sure you cover the cost of the item itself (the ‘cost of goods’). Then there are any shipping and handling costs. This can include for example the packaging cost of the box that the item is shipped in. All these costs add up to your operational cost of doing business and are seen as variable costs. They vary in direct relation to the sale.