Question re: e-commerce sales targets

[ls0709]

Hi all,

I'm currently in the processing of working out whether I can set up an online window blind retailer. I work in the industry for a family friend and my father who run a physical showroom and I have decided to look into the viability of us going online.

I have worked out my profits per blinds and worked out what I believe will be our entire first year marketing cost including a hefty PPC budget which will see us compete with the top competitors for those high positions on Google. I'm from a marketing background (agency side) so will plan on running some of the marketing myself and outsourcing the PPC management and a few other bits.

My question is how do I work backwards from my first year costs and find out how many sales I need to make in order to break even and make a profit? How many sales day do we base the figures on etc?

I worked out the average profit from my product list then divided my cost figure by this number. I then divided that number by the number of sales day (which I plucked out of the year at 365 days, minus 2 months of no sales and bank holidays). However, if I am basing this on the single average profit per blind this means that I am basing my sales figures on 1 window blind sale per transaction.

I have to admit I am not too clued up at understanding how much my average transaction would be, nor how I would work this out entirely and I'm thinking this is where my figures are skewed as I am using singular average profit.

Can anyone offer any advice on what I am doing wrong and how to work this out to a business n00b.

Thanks in advance.

 

[Banksbroo]

Model on a spreadsheet.

Start with building a simple scenario, say a single product range, and model on worst case basis eg. single unit sales.

I'll knock up a quick spreadsheet for my own amusement and see if I can sumarise later.

 

[antropy]

I have decided to look into the viability of us going online.

What options are you looking at so far?

 

[ls0709]

What options are you looking at so far?

Full Magento e-commerce site marketing it myself via PPC, social media, PR etc.

 

[ls0709]

Model on a spreadsheet.

Start with building a simple scenario, say a single product range, and model on worst case basis eg. single unit sales.

I'll knock up a quick spreadsheet for my own amusement and see if I can sumarise later.

Ah okay, I think I'm with you.

I could potentially go through previous orders from residential suppliers of the physical company I work with to create those scenarios, would that work to give a fairly accurate idea and then average those out?

Would you have a recommendation for how many scenarios to create for the average?

 

[antropy]

Full Magento e-commerce site marketing it myself via PPC, social media, PR etc.

Any reason you've decided to go for Magento rather than say OpenCart or Prestashop?

 

[ls0709]

Any reason you've decided to go for Magento rather than say OpenCart or Prestashop?

Just because I believe from past experience it offers the most flexibility with potential for expansion. We could end up with a high amount of SKUs from various suppliers so want a really stable back end too. I'm not a pro in this field though just speaking from my agency days as to what we would have usually recommend/used.

In terms of cost of building on the magento platform, the website build is going to be outsourced but managed in the UK so cost isn't an issue.

 

[antropy]

Just speaking from my agency days as to what we would have usually recommend/used.

It is a relatively complex system but if you know it well then that makes sense as long as you can get it on a decent server.

In terms of cost of building on the magento platform, the website build is going to be outsourced but managed in the UK so cost isn't an issue.

It sounds like the only development you'll need is for a decent custom theme?

 

[ls0709]

It is a relatively complex system but if you know it well then that makes sense as long as you can get it on a decent server.


It sounds like the only development you'll need is for a decent custom theme?

Yep, going full custom with the theme, the designer and developers have worked together for a couple of years now so it should all run smoothly in that regard.

 

[Donna77]

Hi, I'm not sure if this will help - but if you google 'break even calculator' you'll find some interactive ones on business advice websites,which do exactly what you're looking for. However, you will definitely need to estimate your average 'basket', rather than work on a per blind basis, otherwise your visitor/conversion rates will be skewed. In the physical showroom, what's the average order value? Do people generally buy for a room or a whole house? Adjust for any difference in behaviour that you anticipate by online shoppers. Although having a physical showroom address on your site should inspire confidence and if it has been going years then customers know they can benefit from experienced sales advisors/fitters. So the average spend may be very similar.

All projections are just a best guess at the beginning and you can quickly adjust them once trading online starts and review your marketing spend accordingly.
Good luck.

 

[Pish_Pash]

Personally, while I think what you're doing is admirable, you could go gaga (or be very misled) at the results...ok, so you know approximately what your costs are going to be (& your profit per sale) but the fly in the cardonnay here is what if your sales assumptions are wrong?

In my opinion the way to approach this is have a good gut instinct that you can move some product & if the outlay/annual cost doesn't make your toes curl, just slip your Nike T Shirt on & "Just do it". You'll likely know in the first few months whether what you're doing is viable with good potential or to press the abort button before costs get away on you.

I think if I'd calculated what my costs were & then worked out whether I could cover them with sales, then I would have run away ...which would have been a shame, because if you're getting it right, the sales gradually start snowballing & the costs are less of a worry.

 

[ls0709]

Personally, while I think what you're doing is admirable, you could go gaga (or be very misled) at the results...ok, so you know approximately what your costs are going to be (& your profit per sale) but the fly in the cardonnay here is what if your sales assumptions are wrong?

In my opinion the way to approach this is have a good gut instinct that you can move some product & if the outlay/annual cost doesn't make your toes curl, just slip your Nike T Shirt on & "Just do it". You'll likely know in the first few months whether what you're doing is viable with good potential or to press the abort button before costs get away on you.

I think if I'd calculated what my costs were & then worked out whether I could cover them with sales, then I would have run away ...which would have been a shame, because if you're getting it right, the sales gradually start snowballing & the costs are less of a worry.

Hi Pish Pash,

Thanks for the input and nice comments on the work I'm doing/trying to do. I can completely understand what you're saying and on one hand I agree, how can I estimate my sales in today's online market? Things get picked up and put down quicker than ever before and it could be a huge miss or a massive hit but it feels strange that I'd not do anything at all and just sort of hope the sales come in.

One small issue is that my investment isn't my own and so I need something to show the potential investor in the business, now I could downsize their initial investment by up to half if we go with the see what happens mentality which could work well.

 

[ls0709]

Personally, while I think what you're doing is admirable, you could go gaga (or be very misled) at the results...ok, so you know approximately what your costs are going to be (& your profit per sale) but the fly in the cardonnay here is what if your sales assumptions are wrong?

In my opinion the way to approach this is have a good gut instinct that you can move some product & if the outlay/annual cost doesn't make your toes curl, just slip your Nike T Shirt on & "Just do it". You'll likely know in the first few months whether what you're doing is viable with good potential or to press the abort button before costs get away on you.

I think if I'd calculated what my costs were & then worked out whether I could cover them with sales, then I would have run away ...which would have been a shame, because if you're getting it right, the sales gradually start snowballing & the costs are less of a worry.

I'm taking it you're a fan of lean start ups Pish Pash?

 

[Breaking Good]

It's a tricky thing to do as it's pretty much impossible predicting how much you'll make. I never made any projections when I started my business simply because I knew it was impossible to measure.

I get what you mean though re the investor. It sounds like your biggest sales driver will be PPC? I would take your annual PPC budget (let's say it's 10k for talking sake). I'd then look at the profits you expect to make for each product (for talking sake let's say you think you'll make on average £100 profit from each transaction)

Id Google what an average conversion rate for PPC in your industry is. I don't know how reliable that information would be but let's say it's 1%. And let's say from Google keywords tool you work out generally your cost per click is £1.

For 10k annual spend, you will get 10,000 clicks. 1% conversion on these clicks = 100 sales. With each sale worth £100 on ave. Your annual profit is 100 x 100 = 10k. So you'd breakeven in this scenario. Id put that all into a spreadsheet and play around with the figures to see what you need to make Adwords worthwhile

Of course that's just Adwords but as Adwords is probably your main marketing expense, you can work out a base level of how many conversions you need etc. Of course this doesn't include sales through social media, repeat customers and all that kinda stuff. So if you work out your Adwords spend is going to be profitable then it's a decent start!

i know that's quite basic and you've maybe already thought of that. But if PPC/Adwords is going to be your main sales driver then it's probably the best way to approach the "how many sales will I make" question and then all other avenues can be "extra". You can then show your investor that under(hopefully) pessimistic assumptions you will make x amount of profit with your PPC budget. And all other avenues will raise additional profit

 

[Pish_Pash]

I'm taking it you're a fan of lean start ups Pish Pash?

You'd be right on the money there....a Y1 loss is abject failure in my books...it means your costs were too high & your sales were too low - neither is acceptable! I've read of many starting up business's & then 'larging it' with all the stuff associated with success...nice car & quips like "I'll put it on the business" ....such a stance will surely take you down in short order.

To give you an example...I wrestle on the floor with Post Office clerks every day as they try & charge me for a small parcel rate vs. a large letter (a difference of about £1.30) ...fight for every penny! In a limited company of one (you, the sole shareholder) ...it's your dosh!

(ok, I might have got carried away with the words there ...but you get the picture)

 

[ls0709]

You'd be right on the money there....a Y1 loss is abject failure in my books...it means your costs were too high & your sales were too low - neither is acceptable! I've read of many starting up business's & then 'larging it' with all the stuff associated with success...nice car & quips like "I'll put it on the business" ....such a stance will surely take you down in short order.

To give you an example...I wrestle on the floor with Post Office clerks every day as they try & charge me for a small parcel rate vs. a large letter (a difference of about £1.30) ...fight for every penny! In a limited company of one (you, the sole shareholder) ...it's your dosh!

(ok, I might have got carried away with the words there ...but you get the picture)

Hahaha... as someone that used to import and sell online I completely understand the fights with the post office staff thing. They're some of the hardest faced sales people I've met.

 

[ls0709]

It's a tricky thing to do as it's pretty much impossible predicting how much you'll make. I never made any projections when I started my business simply because I knew it was impossible to measure.

I get what you mean though re the investor. It sounds like your biggest sales driver will be PPC? I would take your annual PPC budget (let's say it's 10k for talking sake). I'd then look at the profits you expect to make for each product (for talking sake let's say you think you'll make on average £100 profit from each transaction)

Id Google what an average conversion rate for PPC in your industry is. I don't know how reliable that information would be but let's say it's 1%. And let's say from Google keywords tool you work out generally your cost per click is £1.

For 10k annual spend, you will get 10,000 clicks. 1% conversion on these clicks = 100 sales. With each sale worth £100 on ave. Your annual profit is 100 x 100 = 10k. So you'd breakeven in this scenario. Id put that all into a spreadsheet and play around with the figures to see what you need to make Adwords worthwhile

Of course that's just Adwords but as Adwords is probably your main marketing expense, you can work out a base level of how many conversions you need etc. Of course this doesn't include sales through social media, repeat customers and all that kinda stuff. So if you work out your Adwords spend is going to be profitable then it's a decent start!

i know that's quite basic and you've maybe already thought of that. But if PPC/Adwords is going to be your main sales driver then it's probably the best way to approach the "how many sales will I make" question and then all other avenues can be "extra". You can then show your investor that under(hopefully) pessimistic assumptions you will make x amount of profit with your PPC budget. And all other avenues will raise additional profit

Hey Breaking Good,

Thanks for your input, all makes perfect sense. I'd already looked into my PPC costs per click but hadn't individually targeted them like this as I'd got wrapped up in an overall income/expenditure thing. Will definitely go over these in this way as you're right I imagine the bulk of my custom is going to be PPC.

 

[maddymarketing12]

Can I Ask why PPC? Although PPC is coming back I think PPV would work better ... Have you started your site? What other plans did you have on the marketing side? Re-targeting methods?

Looking forward to hearing your plans!

 

[ls0709]

Can I Ask why PPC? Although PPC is coming back I think PPV would work better ... Have you started your site? What other plans did you have on the marketing side? Re-targeting methods?

Looking forward to hearing your plans!

I felt ppc would be the easiest way to drive people to site via Google, SEO really isn't an option.

Never heard of PPV marketing if I'm being honest so will look I to that.

In terms of other marketing I'm looking at social media, pr, blogging and content writing and a heap of traditional marketing.

I'm not sure I can make ppc profitable as my search terms are expensive and margins low.

 

[Faevilangel]

ppv is more commonly known as pay per views which is based on the number of website loads while your ad is active, you buy ads per views e.g. 10,000 views, there are a number of ad providers that do this.