Ep 302 || Know Your Margins - Gross and Profit

[podcast_team]

This week, Kevin Reeth of Seller Ledger returns to explain the importance of recording and tracking your margins to help your business become more productive. Kayomi and Griff answer questions on configuring your Return Settings and purchasing insurance in excess of what the carriers provide.

Episode Links:
eBay Advertising Blog
eBay Return Settings
Shipping Insurance Help Pag

Recurring Links:
eBay for Business Podcast
eBay for Business Podcast Listener Survey
eBay Seller News Announcements
eBay for Business Facebook
eBay Seller Center
eBay Help
eBay Local Seller Events
Seller Hub
eBay Events

Kayomi: This week on the eBay for Business podcast
Kevin: We will pull all of that information up through the sale with a custom label SKU all the way back down into seller ledger, and we will show you your gross profit and margin by product. And the payoff there is you get to very quickly see and you can sort it by high or low, which products are making you the most money. And the plan there is, it allows you to possibly change your sourcing strategy. It gives you that information. Says these are the products. If I can go get more of these, excellent. Then go look at your worst products, right? And say how much time am I wasting?
Griff: And money.
Kevin: Right? It's sitting there. So it just makes you a little smarter about your sourcing strategy, which hopefully helps you make more money in less time with less work.
Kayomi: Kayomi Kayoshi.
Griff: And I'm Griff and this is the eBay for business podcast, your source for the inspiration and everything else you need to help you start, manage, and grow a business on the world's most powerful marketplace. This is episode three zero two. Welcome back, Kaomi.
Kayomi: Thank you, Griff. Welcome back to you too.
Griff: Your busy week, I am assuming.
Kayomi: Quite a busy week. I don't know what it is with July. First seller update and now I don't know. I think the momentum from that has just continued on work.
Griff: Aren't you helping with the eBay open this year?
Kayomi: Why, yes, I am.
Griff: I thought you might.
Kayomi: Yes, of course. Any in person activities, I think I always have my hand into because of our seller meetings program.
Griff: There's a whole production schedule coming up, so, for eBay open. EBay open this year is in September, but, of course, you know, we, prerecord a lot of the segments and pieces, and that involves a lot of, cat herding and scheduling. So it's a lot of work to get those eBay opens ready.
Kayomi: There's that. And then also, also, I know you know, Griff, but I'm going to be out of office in about a week because I'm going to Japan. And so I feel like I've done my planning for the Japan trip, but there's even more planning for, like, your job and, like, setting things up for when you're out of office. So it's, like, eBay open plus planning for when I'm out of office, which is kinda weird to think about, but that's also taking up a good chunk of time.
Griff: How long are you gonna be in Japan, Kayomi?
Kayomi: Sixteen days. I'm going to enjoy every minute.
Griff: Oh, you will. I know. Someday, I'll get to Japan, I think.
Kayomi: I'll send pictures.
Griff: Okay. Yeah. Because I really wanna go for the food, but it's also the culture as well. Big collector of all things Japanese.
Kayomi: Oh, okay. We'll have to talk.
Griff: Yeah. I bought most of them on eBay, by the way. Of course.
Kayomi: I have also bought many of things from a lot of Japanese sellers, like, in located in Japan on eBay.
Griff: There's a few Japanese sellers that for a while were offering really incredible stuff at at value prices. And my big regret is that I didn't buy enough because now after a few years, prices have gone way up. The items don't show up on eBay as much, but they do show up at high end auctions for like triple, quadruple, quintuple the price.
Kayomi: The vintage pieces, I would see Japan pricing versus our pricing here. Oh, my gosh. You were getting such a deal. But I guess they realized that maybe they could charge higher.
Griff: So Well, it it doesn't pay to keep looking back. I think we have to look forward and hope maybe deals will show up again. And the things that I'm buying, I always stumble across a deal every now and then, and it just makes me so happy. I think not only did I get a good deal, but, you know, in the future, if I want to de assess, which I often do, I know that I should have no trouble doing so. What I try to avoid talking about, because it just makes people annoyed, is how wonderful things were almost thirty years ago online when people used to give stuff away and, oh, the treasures we accumulated.
Kayomi: Okay, Griff. See, now now I'm getting annoyed because I wasn't even alive to experience this, so I had no chance. I'm extremely jealous. Yeah. This this was way before my time then.
Griff: Yeah. You know, pardon me for living then, but, yeah, it was an amazing period of time. Anyway, no need to look back. We're gonna look forward.
Kayomi: Yeah. Speaking of looking forward, Griff, who's our guest this week?
Griff: Our guest this week is returning Kevin Reeth. Kevin Reeth is, the CEO and founder of a product called Seller Ledger. And it's a bookkeeping, online bookkeeping for online sellers like eBay sellers. Kevin's coming back on the podcast to talk about something called margins, both net and gross. But before we join Kevin, what's in the news this week?
Kayomi: The big news was announced last week, and that's some major upgrades to eBay advertising. EBay advertising announced a reimagined and redesigned advertising experience. From a new advertising dashboard to a simplified portfolio, The powerful new experience will help take your business to new heights. It starts with a dedicated spot on the seller hub and advertising tab will have some major new additional features like more metrics and new recommendations to power your growth and a suite of features including recommendations, suggested campaigns, and advertising insights. To learn more, visit the eBay ads blog at ebay advertising dot com. And, also, we are hosting an ask me about series focused on ads on our community site. So if you're interested in asking any ad related questions, check our selling boards pinned post to submit your questions.
Griff: And that's at community dot ebay dot com.
Kayomi: You know it.
Griff: Yes. I do. Well, that's gonna be exciting. If you have questions, you can ask them there. And of course, not that we're begging for them, but if you have any questions at all about selling on eBay, you can also send them to podcast at ebay dot com, or you can call the, the phone number. Remember the phone number? It's eight eight eight seven two three four six three o. For a minute there, I thought I was gonna remember.
Kayomi: But you got it.
Griff: Okay. Memory intact. Now let's meet Kevin and talk about margins. And you'll be back to answer some questions. Yes.
Kayomi: I will. I'll see you there.
Griff: Our guest this week is returning to the podcast to talk about a particular topic that's important to any business.
Kevin: Reeth is the founder and operator of an online software company called Seller Ledger. It's a bookkeeping online, and it's built for sellers like you who sell on eBay. And he's come this month to talk to us about gross margin versus gross profit. Kevin, welcome back to the show.
Kevin: Thanks, Griff. It's great to be back.
Griff: This is a topic I occasionally have to try to address when these questions come in. And what's the difference between gross profit and gross margin? How are they calculated, and why are they important?
Kevin: Certainly. So gross profit is basically if you think of an individual item when you you sell it, the difference between what you sell it for and what it costs you. It's very similar to the concept of markup. So let's take an example. Let's say you have an item that you bought. You're gonna resell. You got it for six dollars and you're gonna sell it for nine dollars. That markup of three bucks is about fifty percent. It's also your gross profit. It's before taking out any other business expenses. And the reason why it's important is this profit is what's going to enable you to run your business. It's kind of where you need to make your money before you pay for everything else. So if you're not making enough gross profit on an individual item, you you're basically going to have to sell a lot of those items to make good money. Now, gross margin is basically just a representation of you take that gross profit number and you divide it by the total sales. So in the example that I gave, that three dollars of gross profit out of a nine dollars sale says you're running a gross margin of thirty three percent.
Griff: And there's no set margin that's going to work for every business.
Kevin: There isn't. And in fact, there's a lot of, well, I shouldn't say a lot. There's very limited information out there on what kind of a good gross margin is. A couple of the resources that we've been able to find basically say somewhere between thirty and forty percent as a gross margin is a pretty good number. Smaller sellers tend to be closer to that thirty percent, and larger sellers defined as doing like a million dollars a year or more have a chance of getting up closer to thirty seven to forty percent. But again, there's no perfect number because, you know, e commerce gets more competitive every year and in certain categories, you know, people get even more aggressive with their pricing. So you shouldn't get discouraged if you're having trouble meeting that number because as I mentioned earlier, you can always focus on selling more inventory and moving products faster, but it does help to be able to look kinda at your gross margin number. And in fact, there's two ways to look at it. One is you can look at it overall. Right? You can look at your total sales for the entire year. You deduct your cost of goods, which is just the cost of those items to get your gross profit and then calculate your gross margin. But then there's the notion of looking at it on a per item or per category basis, and that's some of the stuff we wanted to talk about.
Griff: Yeah. And we'll get to that in a second. One of the ways of figuring out a gross margin that works, and it's not an exact formula, is that some of it depends on velocity. So if you have a single SKU and you're selling like hotcakes or you're selling tens of, if not hundreds of items a day, then a lower gross margin can be made up by the fact that you're selling so much product so quickly.
Kevin: Oh, yeah. So, you know, for any kind of ecommerce or retail business, the two biggest drivers are your gross margin and your sales velocity, how quickly you turn your inventory over. So you're absolutely correct. If you're having trouble kinda getting the that good markup and a good gross margin on your products, when you're reselling, if you can find stuff that turns over quickly, yeah, that's a great way to go about it. And someday in the not too distant future, we will likely have something to talk about there as well.
Griff: Oh, good. Okay. So let's say I figure out my gross margin. Not hard to do. Simple math as long as I'm keeping good bookkeeping records, and we can do that with Seller Ledger. See, there's a promo for you.
Kevin: Thanks.
Griff: How do I know if it's good or bad for me?
Kevin: So, basically, it depends at the level that you wanna track. If you track at the highest level, you can kinda get that overall number. It provides some insight and you can compare to, you know, what you read from others and you can look at your bottom line. Right? Because when you add in all of your other business expenses, if you are having trouble after you pay for every other business expense, really walking away with a decent profit, it's probably telling you that your gross margin isn't as high as it needs to be. So that can be, you know, insightful, but it's not you can do things on the margins, pun not intended, you can do things on the margins, pun not intended, to change your sourcing strategy to identify those items that make you more money in less time. And that's one of the key things you can actually do if you're good at analyzing your business and you have your your records in order.
Griff: Okay. I'm intrigued because I do know from our audience input that we do have a lot of sellers who sell the type of merchandise that often becomes what we consider long tail, and it doesn't move fast enough, and it's a a source of anxiety. I put all these listings up. I'm not making the sales. And we've always said that if that's a concern, you need to look at inventory that's gonna move faster and generate stuff quicker for you. So I I guess the first step is tracking costs. So do I as a seller, do I actually have to track the cost and price of every single item I sell in order to know the information I need for figuring out gross margin?
Kevin: If you want it to be actionable, yes, you do need to do that. You can look at it overall. You can do the kind of classic cost of goods sold calculation where, you know, you count up your inventory once a year and you, you know, track your purchases and your ending balance and you can calculate that. But again, that'll tell you how you do an overall, but it's not necessarily actionable. So in order to track things, you know, at an item level, the most important thing first and foremost is when you buy something, write it down or, you know, keep a copy of your receipt, put it in a spreadsheet. You can use accounting software, but keep a record of it. And I'll talk a little bit about some some things we've done, to make that faster. The second thing you really need to do, is you've got to create unique SKUs for each item that you sell. The product descriptions, the listing descriptions, you're gonna change that over time. You're gonna play around with different ways to promote things. There has to be something that ties back to that product that says this is this one product. And then the last thing you need to do is when you're listing on eBay, use that custom label SKU field and stick that SKU in it because that's what tells eBay this is the unique identifier And as long as you have a receipt or a record somewhere of what it costs, you And as long as you have a receipt or a record somewhere of what it costs, you can figure this out. Then it becomes a question of, well, what's the fastest way to figure this out?
Griff: Okay. Gee, Kevin. What's the fastest way to figure this out?
Kevin: Well, I might recommend a product called seller ledger. But in all seriousness, the reason why we pitch it and and why we think we've made a a pretty good leap forward. First time I was on the podcast a year ago, we talked about inventory and cost of goods. And the fact that seller ledger, you could enter the cost information of your products, you know, match it up to the custom label SKU in eBay, and it comes down and it automatically updates your inventory and your cost of goods and all of that. But we've done a few things since that we think make this a lot faster because I can even tell from your question, like, do I really have to enter all of this information? It sounds suspiciously like a lot of work.
Griff: Oh, it is a lot of work. I can tell you firsthand. It is a lot.
Kevin: Historically, it very much has been. So there are, there are three things that we've added to make this much easier. The coolest, is the first thing I want to mention, which is we've actually using for all the buzzword stuff around artificial intelligence and AI. We actually have our first really good application in Seller Ledger, which is when you buy your inventory, take a picture of your receipt, upload it to seller ledger. We actually can extract the text and the price information from the receipt. The technology has gotten that good. This is not our code. Right? This is generally available artificial intelligence stuff out there, but it's pretty effective. And it's very effective at, like, finding how many items you bought, what the prices are. You'll still have to say, you know, what is the SKU, which which product it is, but right then and there. So it's the kind of thing where when you're having this debate of you buy something and, oh, do I have to store my receipt? Do I to do all this? Just take a picture right then and there, and then it's on your phone. You're good. And then if it comes down on a credit card statement, you can add it later. If you paid cash, you can add it whenever you feel like software. But, that's the first thing. So that just like it greatly reduces the typing, right? Even for people who were using spreadsheets. The second thing that we added is when you buy stuff, it's not necessarily just the items that get included in cost of goods sold. So if you get charged sales tax for an item, if there's a shipping cost to ship it to you, if there are handling fees or credit card fees, we've seen a number of different things. These are additional costs that should be allocated across your items. Well, that takes some math and figuring it out. Our software now does that automatically because we know, you know, if you upload the the receipt or if, you know, even if you type it in based on how many items you bought at what cost, we'll just allocate those other costs for you automatically. Yeah.
Griff: I currently enter those costs as so I buy one of a kind items mostly. Occasionally, I buy lots, but I use that final order number, which includes things like sales tax and shipping, and I just call that my cost. Absolutely. So that I don't have to have it broken out into different columns.
Kevin: Right. And if you're buying individual items, that works fine. But at the moment you buy two different items and there's a shared cost, Yeah. You wanna make sure and a lot of people, if it's a small number of items, they'll just throw it on one of them. Right? But we've seen it with people with large purchase orders where they can just upload it and it distributes it. And then the third thing that we added, this is a new report. If you go under our reports tab, we call it the gross profit report, where if you do this level of tracking, we will pull all of that information up through the sale with a custom label SKU all the way back down into seller ledger, and we will show you your gross profit and margin by product. And the payoff there is you get to very quickly see, and you can sort it by high or low, which products are making you the most money. And the plan there is it allows you to possibly change your sourcing strategy. It gives you that information that says, these are the products. If I can go get more of these, excellent. Then go look at your worst products. Right? And say, how much time am I wasting?
Griff: And money.
Kevin: And money. Right? It's sitting there. So it just makes you a little smarter about your sourcing strategy, which hopefully helps you make more money in less time with less work.
Griff: Myself as a seller, I have to think about it all the time, and I know other sellers go through this, is that I find something appealing. I wanna believe that, hey, I can make money on it, and I don't pay too much attention to the numbers. And later, I found out that, okay. So this was a vanity project on this particular item. And you wanna avoid vanity projects.
Kevin: Yeah. There there is a little bit of this is basically showing you a mirror, right, of this is what's actually happening. And as much as we all might like to think that, okay, everything we find is a great deal and we can make so much money, the data will show you where you're doing really well and maybe where you're not, and so hopefully that helps you just, again, change your sourcing strategy a little bit or possibly a lot, And more money, less effort sounds pretty good.
Griff: Yeah. It does. Does seller ledger, this most recent version have other features that are gonna make my life easier as a seller?
Kevin: It does. We've been we've added some additional channels. We're making it easier to kinda connect more information in, and we're working on a number of things around APIs, but we don't have big announcements on that yet.
Griff: It's a work in progress.
Kevin: It's a work in progress.
Griff: We should mention here that it's not just for eBay if you're a multi platform seller. This works for, platforms across the Internet.
Kevin: It does. It's great for multi channel sellers, but, you know, I I do like to remind people we launched with eBay. We designed it to be perfect for eBay sellers, especially with the the inventory and the the SKU field and and all of that stuff. So that whole round trip, like from buying stuff all the way to it sells and shows up in your books, it really was designed with the eBay seller in mind.
Griff: So I'm a podcast listener, Kevin, and I'm intrigued. Where do I go to learn more about Seller Ledger?
Kevin: Just go to, w w w dot sellerledger dot com. It's free to try. We give everybody thirty days to play around with it. We'll import ninety days of history from as many places as we connect to. And we don't even ask for a credit card until after thirty days, because we only want happy people paying for the software.
Griff: Yeah. That's the best kind of people to have as customers, happy ones.
Kevin: Yep.
Griff: Well, Kevin, thanks again for coming back on
Kevin: Thank you so much.
Griff: And continued success with the application. And if you wanna learn more, you just go to w w dot seller ledger dot com and check it out, free thirty day trial. And you don't have to give a credit card right away. I mean, what do you got to lose?
Kevin: Thanks, Griff.
Griff: Thanks, Kevin. Kevin Reeth is the founder and the operator of Seller Ledger. This is an online bookkeeping software that you can try for thirty days for free. Go to seller ledger dot com to learn more.
Kayomi: You've got questions.
Griff: We've got answers. Every week, we've got the answers, and we have two questions this week. Kayomi, would you like to read the first one?
Kayomi: As always, it would be my pleasure.
Griff: Oh, good.
Kayomi: This was sent to podcast at ebay dot com by seller Christina who writes, hello, eBay podcast. I have a question about returns. I'm a top rated seller and offer thirty day returns on some items. I recently got a return request and noticed that eBay automatically approved it. Is there a way to opt out of auto approved returns? Sometimes I wanna ask a buyer a question about the return, and the auto approval closes the messaging. Also, could you please give us more information about the RMA, which is returned authorization number, and how to use it? Christina. So, Christina, there is a way to opt out of auto accept for return by going to your return preferences. You'll do this by going to my eBay and then to account, selling preferences, return preferences. From there, you can either edit, delete, or create a new return rule. If you prefer to never have a return auto approved, delete the existing rule. If you prefer to have a specific criteria for auto approving a return, create a new auto approved rule and select the relevant criteria.
Griff: It's pretty self explanatory once you get there. I can put a link to that page, in the transcript, and I will for episode three zero two. But note that it's the kind of link you'll have to sign in in order to view the page because it'll be your account preferences. And, you can create different rules and then apply them. A lot of sellers will create a rule based on the amount of the transaction. So for me, for example, if I sell something for fifteen dollars, I don't want it back. It's too expensive to go through the shipping. So I just automatically approve, and I'll automatically issue a refund. Now, for all of my returns, they're automatic approval. I'm not going to negotiate a return. I will take items back for any reason, including by a remorse. So I just auto approve those. I gotta tell you what that does. When a buyer starts the return process, a lot of buyers think, this is gonna be a hassle. So they submit the return request, and then they see, oh, the return's been approved automatically, and they immediately put their mind at ease because they think, well, well, there's not going to be hassle here. I just now I just follow the instructions and ship the item back, and that's what I want for my buyers. So I have it set to automatically approve every return request that comes in. Now, Christina, you also asked about the RMA. So what an RMA option is, it's for merchants or big sellers who manage returns on their end, and they're using a proprietary system they may have created and those for managing those returns, acceptance, and then recording them. And this is known in the industry as the return authorization number. Now you don't have to have one. If you don't currently use an RMA system to manage your returns on your end, so you can just ignore this option. And if you've ever returned something to a big dealer, like, or a big seller, or a big retailer, sometimes they'll say, you know, here's transaction.
Kayomi: So, Christina, process is easy enough. Hopefully, this helps you.
Griff: Yes. I think so. Every seller has to do what works best for them, but I always tell sellers consider if you take returns, the the option for auto approving them just puts your buyer at ease. They don't they don't think, like, they're gonna have to go into some sort of negotiation in order to get it get the return approved. Anyway, our next and second and last question for this week is about ensuring a valuable item. And this was sent to podcast at ebay dot com by seller Chris who writes, one recent transaction has me asking several different questions that I hope you can help me with. I sold a violin on eBay for over four thousand dollars recently. And when I went to print the shipping label for a FedEx label, I selected to add insurance. This is the first time that I noticed that it only insured up to a maximum of a thousand dollars. I tried to update this on my app and my desktop computer to be the actual sold price of the value in, and it would not allow me to do this. I could only enter between one and a thousand dollars. Is that correct, or do I need to do something else in the future to cover the full amount of the price paid? Signed, Chris. So, Chris, there are two options for insurance on eBay when you're printing a label through the eBay system. One is the carrier insurance like USPS or FedEx. Those are limited as you discovered, with FedEx, and USPS is actually less. I believe if it's like priority, it's only a hundred bucks or something, but I think maybe you can buy a little extra. But there's another option there that you can explore in the drop down box, and it's called ship cover. Now ship cover is a third party, not directly tied to any one carrier. What ship cover provides is coverage up to five thousand dollars. So that that would have been a good option for this item. So you can learn more about ship cover by using the keywords, shipping insurance, when you search on eBay help, and there's a section on the help page for that that talks about ship cover. I've used it in the past for expensive items, and I hear from sellers who have used it and had to file a claim that it's a pretty simple and easy claims process.
Kayomi: Good. That's good to hear. I was gonna ask you if you've ever had any experience using it.
Griff: I think I shipped what was it? I sold something. I can't remember what it was, but I know it was for, like, it was close to two thousand dollars. And so I just, out of my own pocket, purchased that insurance. And it was smart. It was smart to have that. So, anyway, that's all we have for this week.
Kayomi: Yes. And if you have any questions about selling on the world's most powerful and sometimes a little overwhelming marketplace, why not ask us? You can always call in your questions at eight eight eight seven two three four six three zero. Or if you prefer, you can always email us at podcast at ebay dot com. That is podcast at ebay dot com.
Griff: And now it's time for this week's tip of the week. And the tip that we're gonna read was sent in by seller, Gail, who wrote this as her tip. When purchasing items at church, garage, or estate sales, never overlook the value of the bag your purchase has been put into. Several times, I have sold, quote, unquote, vintage, out of business retailer shop bags. This type of ephemera sells. Now, anything from defunct department stores, gone grocery stores, shuttered shoe shops. Geez. Gail, that's a tongue twister. Closed clothing stores to yesterday's yarn shop. I see what she's doing here.
Kayomi: With the alliteration. Okay. We appreciate it.
Griff: My mouth does it so much. These items can fetch between fifteen to thirty five dollars not too shabby for a free bonus. Great tip. Thanks, Gail, for sending that in.
Kayomi: That is a great tip. And something interesting, when I last time I was in Japan, do you know what's so popular over there that, like, boggled my mind?
Griff: No. What?
Kayomi: I would go into thrift stores, Trader Joe's, like like, the bags you get from Trader Joe's.
Griff: No.
Kayomi: I was seeing them for, like, twenty, twenty five dollars, and I was like, do they know what this is? Do they know that this is just a grocery store? And it's not even out of business. Like Gail mentioned, like, gone grocery stores, this is very much an existing business till this day.
Griff: There may not be Trader Joe's in Japan. That could be it.
Kayomi: I don't think there is, but the fact that they somehow made their way over there and that there's, I guess, a market for that out there lends itself to Gail's tip.
Griff: Well, when we're done here, I'm gonna go right get in my car and drive to Trader Joe's and buy a bunch of bags.
Kayomi: So You and me both.
Griff: We'll we'll be competitors. They're easy to ship. Right?
Kayomi: There we go.
Griff: And they qualify for eBay international shipping. So there's always that.
Kayomi: So great tip, Gail. And don't forget to check the episode three zero two transcript for links referenced in the episode and make it a habit to check the eBay announcement board every day to stay up to date on eBay news, launches, and changes.
Griff: Good advice. On our next episode, we'll welcome Blaine Dillard from our own eBay seller engagement team. Blaine has some expert advice to share on how you can utilize social in your selling to boost sales.
Kayomi: We'd like to, again, thank our guest this week, CEO and founder of Seller Ledger, Kevin Reeth.
Griff: And that's all for this week. Georgia Mampanis is our monthly co host and guest coordinator.
Kayomi: And I'm your weekly co host, Kayomi Kayoshi.
Griff: And I'm editor in chief, so neener neener neener, Griff. The eBay for business podcast is produced in house and distributed by Quill and co host. Kayomi, we'll see you next week.
Kayomi: See you next week, Griff.