Postage question - How are they doing it?

[chrisholgate]

I'm trying to get my head around something and, try as I may, I can't.

With the new Royal Mail postal rates coming in to effect I've been looking around at what competitors charge and have seen a proliferation of sellers on the likes of Amazon selling heavy products for next to nothing.

For example, a search for a popular network lead such as '10m Ethernet Cable' will yield a result of dozens upon dozens of sellers that will send you one for £1.70 odd delivered. They're not one offs that they're getting rid of at a loss; these are the bread and butter products for these sellers.

5% of that will go straight to Amazon, leaving us with £1.62 to play with. The product itself will cost around a quid + VAT or so but in order to take 'fantastic buying power' out of the equation let's assume they're paying 50p including VAT for this 10 metre long cable.

A 10m Ethernet cable weighs around 300g and is well over Royal Mail 'large letter' size. Standard 2nd class mail would cost £2.20 to send and even Royal Mail 2nd Class Contract Packet Post is £1.63. Obviously there are the downstream access companies but we've phoned around and even for shipping 1,000 items a day have been given a figure no where near where they would need to be to make this work.

Even if they got given the product for nothing I don't see how you could sell at £1.62. This isn't even beginning to take in to account the cost of the envelope, labour etc. I would put it down to a one off company selling at a loss accidentally but there's dozens of them all selling thousands of the buggers.

Please someone, tell me the answer; how do you charge a total of £1.62 for an item (including the cost of the product) and then send it out as a packet sized consignment weighing 300g and make anything other than a loss? It's making me a little crazy thinking about it!

 

[Talay]

I guess they get it for next to nothing, it is crap quality and therefore very light and they are paying nowhere near full advertised rates for their postage.

 

[chrisholgate]

That would be my immediate thought but even if it were the thinnest cable and they were getting it free of charge I still can't imagine that you'd be able to make the figures work.

I think my question is more along the lines of 'how are they possibly posting things out so cheaply, does anybody know a method of sending a 200g - 300g packet for less than £1.62'.

It's been making my head hurt too much so I've just bought one to see what turns up. If it arrives by Royal Mail rather than by a downstream provider I'll be even more confused....

 

[Talay]

That would be my immediate thought but even if it were the thinnest cable and they were getting it free of charge I still can't imagine that you'd be able to make the figures work.

I think my question is more along the lines of 'how are they possibly posting things out so cheaply, does anybody know a method of sending a 200g - 300g packet for less than £1.62'.

It's been making my head hurt too much so I've just bought one to see what turns up. If it arrives by Royal Mail rather than by a downstream provider I'll be even more confused....

A few weeks ago I clicked through to a free £5 paypal offer and as I wanted some Cat5 cable, I used it on Ebay. I picked 3 x 20m cables for around £1.60 each.

The cables are truly poor. You can compress the walls of the cable as if they were carrier bags from Sainsburys and I guess if you had sharp nails, you could pierce them just as easily.

So why buy them ? because they were free and I could test whether cheap cables actually do the same job as Belkins at 10 times the price. On HDMI cables it matters not who makes them.

They were cheaply packaged, just a glorified carrier bag. I didn't notice the carrier I'm sorry but they did arrive quickly, perhaps within 48 hours.

 

[lesliedocherty]

i think some people haven't clicked onto the higher postal charges yet, and over the next few weeks when they realise, prices will start to go up.

someone was selling a tin of humbrol paint on ebay for £1.99 delivered, postage at cheapest option is £1.60, he changed his listing last night, and now charges £1.75 for postage.

others will follow (i hope)

 

[Miss DR]

I think there is no magic answer other than they don't often understand all their costs.
In a conversation with an accountant not so long ago they told me the amount of these bedroom business's (although they're not always that) that actually delude themselves theyre making money, when all they're doing is creating turnover and when their accounts are done they've made a loss.

In some cases genuine companies will put out loss leaders just to attract a new customer base. However the trouble with this is that these super price sensitive customers will always shop on price and are very hard to retain.

HTH

 

[paretowasright]

I have an idiot competitor on Amazon who is still selling small packet items that cost at least £1 for £2.50 inc postage so making a loss of £1+ per item after fee's and another muppet on e-bay still charging £1.15 for EU postage (small packets) which is minimum £2.50 as of the 30th....turnover is vanity profit is sanity eh

 

[j600com]

Sometimes it can be customer acquisition, paying sub £2 to acquire a customer who can then be re-marketed to is often good value. It's not for every sector, but some have much high acquisition costs than £2 a customer.

 

[paretowasright]

Sometimes it can be customer acquisition, paying sub £2 to acquire a customer who can then be re-marketed to is often good value. It's not for every sector, but some have much high acquisition costs than £2 a customer.

Agreed but not on Amazon its purely a box shifting exercise.

 

[j600com]

Depends what you put in the box I know it's against their terms but the majority of items I get from Amazon (that are not fulfilled by Amazon) have discount vouchers/promo materials in the box.

 

[Esk247]

As other have mentioned. Just check their prices in a week or so and see what happens.

A lot of our competitors still haven't updated their prices even though it is costing them 30p per unit more on a £2.99 item. They won't check prices until the following month in a lot of cases.

 

[MSFB]

i see a lot of these types of scenario questions on forums. there are ways to get products a lot cheaper than what you might imagine. there are also ways of posting a lot cheaper... ive sent things as large letters that other sellers would never dream of.

 

[paretowasright]

i see a lot of these types of scenario questions on forums. there are ways to get products a lot cheaper than what you might imagine. there are also ways of posting a lot cheaper... ive sent things as large letters that other sellers would never dream of.

Thats fine until the day Royal Mail revenue protection check your mail and close your account due to non compliance. They trust account holders to play by the rules regarding weights and sizes so really depends how much of a chancer you are....live by the sword....

 

[Chris34]

There are a lot of people who sell items online at a loss and don't realise it in my opinion.

I think what a lot of people do is sell online aswell as having a regular full time job which pays them a reasonable wage. I think all the money isn't accounted for and gets mixed into their wages at the bank and they don't realise that their job is actually funding the business and covering the losses.

They are fortunate enough, not to actually go poor enough to realise that they are trading at a loss but they are also stupid enough to never make it in business.

I also think there are some who deep down know they are trading at a loss but don't want to stop trading because they like all the attention they get when they are seen turning up at post offices with bag fulls of parcels to send out. I suppose it's a bit like materialism.

Obviously there are those that chase turnover and when you do this as long as the business is growing you don't realise it is trading at a loss. It's when it stops growing (the turnover) that they run into trouble and wonder why they have no money left in their account. Easily done.

That's my theory anyway.


Chris.

 

[Talay]

There are a lot of people who sell items online at a loss and don't realise it in my opinion.

I think what a lot of people do is sell online aswell as having a regular full time job which pays them a reasonable wage. I think all the money isn't accounted for and gets mixed into their wages at the bank and they don't realise that their job is actually funding the business and covering the losses.

They are fortunate enough, not to actually go poor enough to realise that they are trading at a loss but they are also stupid enough to never make it in business.

I also think there are some who deep down know they are trading at a loss but don't want to stop trading because they like all the attention they get when they are seen turning up at post offices with bag fulls of parcels to send out. I suppose it's a bit like materialism.

Obviously there are those that chase turnover and when you do this as long as the business is growing you don't realise it is trading at a loss. It's when it stops growing (the turnover) that they run into trouble and wonder why they have no money left in their account. Easily done.

That's my theory anyway.


Chris.

Very insightful post and I believe a great deal of truth in there.

Tell impressionable people who ask that you make £100k plus as an accountant and they couldn't care less. Tell the same impressionable people that you are a cutting edge entrepreneur with a 7459 ebay feedback Powerball (?) score who ships truck loads of boxes each day and they are fawning all over you, asking to bask in your success.The fact that you are deluded and making no money is immaterial, as you are "living the life" in an almost hippy ideal free love (free post more like) way.

There are always plenty of converts to the spiral altar of race to the bottom in price comparison terms. If you look around carefully enough, there are even people out there offering arbitrage possibilities.

 

[profscooter]

I've thought this for some time now, selling on EBay and Paypal has such a low barrier to entry that anyone who needs some extra cash in these hard times heads that way to see if they can make their fortune. Doesn't factor all the costs in, sells stuff way too cheaply and/or provides little or no customer service, takes sales away from those of us that run "proper" stores, and doesn't actually make any profit of their own. Result is that customers are always having to buy from a new seller each time as the one they bought from last time has stopped trading.

 

[MSFB]

i think in this situation with multiple large established sellers selling at apparently unsustainable prices, that they simply know something we and the OP don't, rather than they are all losing money and not realising it.

 

[TCCuk]

When they buy there items from there supplier they buy them in bulk so they get them for next to nothing anyway, they then sign up to something like royal mail customer collection, its normally regular customers that pay for this and makes it alot cheaper, it means you can send thousands of letters for really cheap.

 

[geoffb]

Funnily enough I was working out profit on an ebay seller

I needed a new tap, so went to ebay
there is a seller selling about 20 taps per day

the price is £1 + £1.89 P&P Express delivery

so

£2.89 -
ebay fee = £0.09
Paypal (micropayments) = £0.19
VAT = £0.54p
Postage 1st class Packet = £1.60 (franking machine price maybe cheaper?)

leaves a total of £0.47
out of this they need to take the price of the item, bag, label, wages, and if they make a profit loose 21% of it in corp tax ???

lots of effort for not much profit

 

[SellerExpress Ltd]

It looks like the sellers selling at around £2 are using FBA. So would FBA pick, pack and post rates be more relevant than general postage rates for profit calculation?

 

[geoffb]

As the above poster said though - the real problems come when people are selling their prices so cheaply, that it brings everyone else down.

I understand that its not all about the price, but having the cheapest, with good feedback makes legitimate businesses struggle to sell.
They get rid of one, and along comes another

 

[Talay]

It looks like the sellers selling at around £2 are using FBA. So would FBA pick, pack and post rates be more relevant than general postage rates for profit calculation?

But wouldn't you have to also include Amazon fees including storage etc. For ebay retailers, they cannot be using FBA, but regular shipping etc. doesn't make it a viable business model (which some are not obviously).

 

[garden4less]

Turnover is vanity, profit is sanity!

There are a large number of retailers that have such a vast product range that they cannot keep track of prices easily. We have 6,000 lines and if we have the wrong cost price on the system then we could easily sell at a loss and we pay less attention to the small items than the larger items.

However we have a number of systems in place so this doesn't happen and if it happens once it shouldn't happen again.

We know that a number of our smaller competitor sell items at a loss and have no idea that they are doing it, it is a pain but it's nothing new and as on online retailer we just have to deal with it.

 

[SellerExpress Ltd]

But wouldn't you have to also include Amazon fees including storage etc. For ebay retailers, they cannot be using FBA, but regular shipping etc. doesn't make it a viable business model (which some are not obviously).

If Amazon fees for storage are included in comparison, you would also have to include your staff costs, warehouse rent and other overheads in comparison.

IMHO these sellers are aiming for high turnover with low margin. Not everyone's cup of tea, but works for some.

 

[TheGeekestLink]

i think in this situation with multiple large established sellers selling at apparently unsustainable prices, that they simply know something we and the OP don't, rather than they are all losing money and not realising it.

Agreed. I've gone free shipping and cut my prices to compete with others in the market and while I'm making a profit, I'm not making much of a profit.

But my competitors are turning over huge amounts of stock. So the question is: do you keep low prices and have low sales or raise your prices.

This is a question for which I just don't have the answer. I've kept my prices at a reasonable level for 3 years and I get by, but that's just not nearly enough.

Now I've gone super competitive I'm seeing a lot more business but I know when the year end comes my profits will have dwindled into the ether.

So, how do they do it?

As the above poster said though - the real problems come when people are selling their prices so cheaply, that it brings everyone else down.

I understand that its not all about the price, but having the cheapest, with good feedback makes legitimate businesses struggle to sell.
They get rid of one, and along comes another

This is the problem. I know there's a few of my competitors that sell at less than I can buy, yet they appear to be doing incredibly well on the surface. Do they use those ultra cheap products as loss leaders to get custom?

Selling products at a massively reduced discount devalues the brand in my opinion...

 

[garden4less]

Don't be fooled into thinking that they are doing well, we compete against a number of companies that lose money each year. In fact one made a profit the other year for the first time and they were celebrating, they then lost money again the following year. The reason they can do this is that they are part of either a much larger group which is supporting it or it has investors that can't face losing all the money that they have invested so keep pumping money into the business with the hope that things will magically changed just because they have a multi million pound turnover. Its like holding onto shares that have dropped in the hope that they come back up again but they just keep going down and then you buy more because they are so cheap but they still go down. They just cannot let go.

One group we compete against lost £3.2 million in the period ending 2011, but they are still trading.

 

[TheGeekestLink]

Don't be fooled into thinking that they are doing well, we compete against a number of companies that lose money each year. In fact one made a profit the other year for the first time and they were celebrating, they then lost money again the following year. The reason they can do this is that they are part of either a much larger group which is supporting it or it has investors that can't face losing all the money that they have invested so keep pumping money into the business with the hope that things will magically changed just because they have a multi million pound turnover. Its like holding onto shares that have dropped in the hope that they come back up again but they just keep going down and then you buy more because they are so cheap but they still go down. They just cannot let go.

One group we compete against lost £3.2 million in the period ending 2011, but they are still trading.

So, what's the answer? Raise my prices again? If I do that, I only sell out when everywhere else has sold out...

Very difficult with companies prepared to sell for nothing AND adding shipping in with the price.

Thanks for all your help. This is an issue for which I can't find an answer so I know I'd desperately appreciate any advice.

 

[Miss DR]

There are many companies that have the facade of success but when the chips are down are nowt more then busy fools.

Some may argue this democratic pricing structure is beneficial to the consumer...
On the whole when i've bought cheap i've had relatively poor service though.

 

[Talay]

If the product is homogeneous and it is being sold through an aggregator website then price will win out most times. Differentiating service such as John Lewis offering "free" 5 year warranties on all televisions is a service people want so badly that they will purchase from John Lewis at a higher price than a competitor is offering.

 

[wormcity]

The main point is that if you lower your prices - you have to work twice as hard for the same profit.

Some people will be happy to spend hours, packing and labeling for £2 per day
another person with higher prices can spend half the time and concentrate on other aspects of their business.

If its a low priced product, then you will need to work out your profit to the penny.
On some of the items that we sell, we aren't the cheapest - but I refuse to sell items at a loss, because thats what every one else has priced them as.

I know a lot of sellers see the trade price they paid, then add £0.60p to the price forgetting totally about fees, and not actually realising that they have only made £0.02 on that sale.

Then if the product goes astray in the post, or the person returns it, there goes the profit for the next month.

 

[johnnysheffield]

A great thread, it's kind of comforting to know that many are in the same boat with competitors selling at a loss or prepared to make only minimal margins.

Like others have said I'm not prepared to sell any item at a loss, we concentrate on adding value by supplying good quality items backed with genuine guarantees and hopefully great service and advice where required. I could drop prices and be twice as busy but I'm not going to, we'll concentrate on marketing instead.

I'd like to scream from the roofs that their is no such thing as free delivery. The amount of calls we get where people order goods then expect you to waiver delivery charges is unbelievable I have to politely explain that it isn't free for us to send a bathroom suite on a pallet the length of the country and the risks in sending glass are too great to overlook. Don't get me wrong we have products listed as Free Delivery where the cost is actually built into the price - with certain products this increases sales even though the overall price is the same.

Cheers

 

[MSFB]

when i had free shipping it was all dandy, now i made it 1.99 and took 2 quid off the product price, to save on ebay fees, i get messages every day asking to combine shipping and moaning about how expensive it is.

i wish customers would just realise its £12 per item whichever way you want to look at it and get over it.