How Much Money Do You Get In Monopoly?

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Profitability in e-commerce: how much can I earn with my online store? ?

 

I sometimes hear surreal things from prospects who have online store projects. A few weeks ago, one of them explained to me on the phone that he hoped to make 5,000 euros in monthly turnover after 6 months of activity, and to be able to earn a decent salary after 1 year. All this by selling cosmetic products for afros (the sector is not competitive anymore…) and by paying a webmaster who will be part of the company.

– Mmmm… of course…. (at this time, I already know that we are not going to work together). And how much do you want to invest in your project the 1st year ?

– No more than 10,000 euros, creation of the site included.

– OK… I see… (I see that you will quickly come back to reality…)

I’ve had a few like that this year.

My reaction may seem surprising for neophytes, 10,000 euros is not nothing, and yet, you just have to think a little to understand that living from your e-commerce is a long journey strewn with pitfalls, and that the objective of a salary the first year is a sweet utopia for the majority of e-merchants who start.

Gautier Girard made an excellent demonstration in his article How to calculate the break-even point of his e-commerce site , which I will allow myself to take up on a few points, and put it into perspective with other figures, and my own reflection. The objective is to provide a simple answer, understandable by all, to the following questions:

  • How to estimate the future revenues of my e-commerce site?
  • What are the (many) loads to be taken into account?
  • How much will I have left at the end of the month?

1. Estimate the revenue from your e-commerce site

Thanks to a few key indicators, it is possible to make a rough estimate of its future turnover and to deduce potential income.

 

The number of visitors

The more you have, the more potential customers you will have, it’s mathematical. But the day of the opening of the site, and the following days, the counter of visits will probably be close to 0 because your site is still invisible in search engines, unknown to the public, and will probably remain so for a long time if you do not launch marketing and communication actions (we will come back to this point later). These actions will strongly condition the speed at which your traffic will grow. Be aware that to reach 300 visits/day on a regular basis, it can take more than 1 year! The many e-merchants that I meet regularly hardly reach this figure after a year of existence, despite a few thousand euros spent on referencing, emailing, press releases, etc.

You can find testimonials and figures by reading the interviews of e-merchants on this blog. So for our future simulation, we will keep the figure of 300 visitors/day, because it is a minimum to obtain a few daily orders.

 

Conversion rate = % of visitors who place an order.

The conversion rate given by the FEVAD in 2010 is almost 2%. In other words, it takes 100 visitors to your site to generate 2 orders. In reality, it is lower among small e-merchants who are often neophytes, and do not know how to optimize this indicator.

I’ll also give you a very important figure published by the FEVAD, which, from my point of view, reflects a little more the reality of online stores that are starting up: almost 30% of e-commerce sites make less than 10 transactions per months in 2009. Yes, you read that right: less than 10 orders per month!

In the upper bracket, from 100 to 1,000 transactions/month, we reach 21% of e-commerce sites, or 3 to 30 orders per day. It’s better, but at less than 10 orders/day, there’s really nothing to worry about.

For the demonstration, we will take a conversion rate of 1.3% which makes it possible to weight the 2 statistics stated above.

 

The average basket = average turnover generated for each order.

In e-commerce, the average basket at the start of 2010 was 93 euros, again according to figures published by FEVAD. But we must put this figure into perspective, which takes into account very large e-commerce players who weigh heavily in the statistics. For the following demonstration, I will rather take an average basket of 50 euros which seems to me closer to reality for small e-merchants (here again, it is my experience that speaks). 

 

Calculation of estimated turnover

To estimate the turnover generated over 1 month on an e-commerce site, it is therefore necessary to multiply all these indicators.

Which gives:
300 visitors/day after 1 year
X conversion rate of 1.5%
X average basket of 50 euros

= 225 euros of turnover/day,

i.e. 6,750 euros in monthly turnover.

Not bad will say they are certain… Wait for the continuation…

A turnover means nothing. You have to look at what’s left after all the expenses and charges have been paid. And there are many !

 

2. Estimate the expenses of your e-commerce site

The burdens that weigh on the activity of an e-commerce site are numerous. And for good reason, selling online is not just about creating a site to display your products and wait for sales to fall. It’s a real business creation with all that entails administrative hassles, customers, logistics, techniques, marketing, etc…
Read about this Why an e-commerce site is necessarily expensive? (to succeed).

 

The margin on the products = Selling price excluding VAT – purchase price excluding VAT

An average basket of 50 euros excluding tax does not mean that you put 50 euros in your pocket. If you bought your product for 30 euros excluding VAT from your supplier, or if its manufacturing cost is 30 euros, you only really earn 20 euros on its selling price.

To complicate matters, a basket can include several products with different margins.

To keep it simple, I’ll take an average margin rate of 50%. In other words, I buy my products twice as cheaply as I sell them.

By subtracting my monthly purchase cost from my monthly turnover, I get 6,750 – 3,375 = 3,375 euros/month. The figure is immediately less dreamy.

 

The general costs of the e-merchant

In e-commerce, there are many ancillary costs:

  • Reservation of the domain name, and its variants, under several extensions.
  • Hosting of the site.
  • Legal fees for drafting T&Cs.
  • Banks commission on transactions.
  • Postage, envelopes, boxes, logistics contract. Keep in mind that many sites offer free shipping above a certain purchase amount, and you’ll probably have to come here too. This therefore cuts into your margin.
  • The occasional interventions of the webmaster who keeps the site up to date.
  • General expenses (computer, accounting software, printer, paper to edit invoices, buffer, telecommunication expenses, travel expenses, etc.)

If we add all this, we can count 15% of charges (there, I’m very nice) which reduce the previous figure.

That is 3,375 euros -15% (506 euros) = 2,869 euros.

 

Marketing and communication costs

Marketing costs can add up very quickly, depending on whether you’re in a rush to get clients or not. And for good reason, without marketing, without communication, you will not have visitors on your site = no customers.
The first cost item is optimizing your visibility in search engines (referencing). If you are not an SEO pro, you will have to call on a specialized service provider who can easily cost 4,800 euros per year (400 euros/month) for standard work. You can also add:

  • 150 euros / month of Adwords campaign,
  • then an emailing campaign for 2500 euros,
  • press releases,
  • a subscription to a management tool for marketplaces, membership management, etc.

In short, if you want to have a chance of quickly reaching 300 visitors per day, counting 1,000 euros / month in marketing and communication costs is not a luxury.

This gives us 2,869 euros – 1,000 euros = 1,869 euros.
It’s starting to not stay much there anymore…

 

Company charges and taxes: 30%

Finally, once all these costs have been deducted, you have to meet your obligations as a business manager by paying your contributions and taxes of all kinds to the State. For a SARL, income tax represents 15% of the profit below 38,120 euros. You must also deduct miscellaneous charges (URSAFF, etc.), which raise the bill to 30% on average.

Attention for those who base their hopes on the auto-entrepreneur status. Admittedly, the overall taxes are only 12%, but it is on the turnover, not on the profit, so it amounts to almost the same compared to an EURL or SARL taxed on the profit. You do not recover the VAT, no reimbursement possible, and the annual turnover ceiling is only 83,300 euros, so you will not go far.

To manage all this, you will probably need an accountant, who will save you a few hundred euros a year.

 

3. How much do you have left to live on at the end of the month?

We recap. I take the turnover already estimated, and I subtract all the charges listed. Which give :

 monoploy Monthly turnover > 6,675 euros
– Cost of purchasing goods: 50% gross margin > 3,375 euros/month
– Operating costs of an e-commerce + overheads: 15% > 506 euros/month
– Marketing costs > 1,000 euros/month
– Company expenses: 30% of net profit > 713 euros/month

= 1,308 euros/month from the 12th month of operation of your e-commerce site. 

Indeed, the 3rd 6th month, the site has not yet reached 300 visitors/day. So this number is much lower.

That calms down… 1,308 euros monthly salary after a year of hard work:

  • if you had time to do everything you had planned,
  • if you did it right,
  • if there is not a competitor who has appeared to take a bite out of your market share,
  • if you only have happy customers,
  • if the price of raw materials has not increased
  • if you have not had unforeseen expenses
  • etc…

In short, only things that do not exist in the real life of a company.

At this rate, you understand that nothing should be left to chance to maximize your chances of success, and that you need to have a substantial reserve of money, or an alternative source of income to meet your needs while you wait. the activity of the site takes off and that a solid financial base is created.

You also understand that an ecommerce project requires a minimum of preparation, and that you have to surround yourself well, so as not to waste precious time by making rookie mistakes.

Above all, you have just understood that the money will not flow freely overnight if you do not put the means into it. Before selling a lot, you have to spend a lot, both in money and in energy.

Sorry to have ruined your hopes of easy wealth… but it’s for a good cause 😉