February 21, 2011

WHEN WILL YOUR STORE START TO TURN A PROFIT?



This blog post was inspired by a post in a team forum (Etsy Entrepreneurs Team). One team member today had a thought of when she can expect to start to quit her day job and be able to run her shop full time. And then I had a question that came up..."When can we expect to turn a profit?"

It takes an average of 3-5 years for a physical store to turn a profit. There is a lot of costs associated with start-up costs. Equipments purchases, materials costs, and inventory costs.
I have a lot of items in my shop, so I have to hold a good quantities of inventory on hand. That means, my inventory cost is pretty high. My start up cost is pretty high too because I had to buy in materials and equipments to start my shop.

In the beginning, these are my start up costs:
  • I bought a brand new camera to take good pictures with.
  • I bought a brand new apple computer to run my shop with because my PC keeps getting viruses and crashing.
  • I bought new lighting for pictures taking.
  • I bought new equipments and tools to hand make my crafts.
  • I had to have enough samples to start a shop.
  • Office supplies
  • packaging materials
etc...

Advantages of having an online shop:
  • No monthly rent (saves thousands $$$)
  • tax write off (everything above)
  • No landlord that you have to answer to
  • No employees to pay yet (in the beginning)
  • You are your own boss
  • Doing what you love (priceless)

When can I expect to earn a profit?
Here is a simple way to measure how long it will take you to make a profit:
(Start up cost + inventory cost) divide by your average monthly profit (subtract your costs from the total sales)= the number of months it will take you to break-even...and then after that, you will start to turn a profit. **but this is an estimate because it does not take into consideration marketing costs (relisting fees, etc...)
But it should give you an idea.

It is faster to turn a profit with an online store than it is if you have a physical store. But that is not always the case. Some online shops rents out warehouses to house their inventory; but most of the smaller shop owners use their house or an extra spare bedroom to house their craft business.

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