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When you figure out your sales margin for your business, you need to do more than subtract the cost of the inventory from the sales price of the item. Although this simple formula can help you see if a product is good to sell, it will not show you the actual profit margins of the product. If you want to know the actual profit, or sales margin, you need to look at the big picture.
Cost #1: Paid Marketing
The first thing that you need to take into account is how much money you invested in paid marketing in order to sell your products. Your paid marketing expenses should include the money you spent on television, radio and print advertising. It should also include the money that you spend on online advertising, such as SEO services and retargeting campaigns. The money that you spend on marketing contributes to your sales and is an expense you need to account for. You don't want to spend more on advertising then you make.
Cost #2: Content Development
Next, if you run an online business, be sure to account for the cost of content development. For example, if you hire someone to work on your blog, and your blog helps drive traffic to your website and create sales, you need to account for that cost when you figure out your sales margin.
Social media is a large driver of traffic, and thus sales, in the online world. If you hire someone to manage your social media, or spend money on a subscription for free stock photos or other content that helps you build up your social media presence, you need to take into account how much you are paying for it.
Cost #3: Labor Costs
The third expense you need to account for when figuring out your sales margins is the cost of labor. The money that you pay to your employees or to independent contractors is all part of your overhead that you have to pay in order to create and drive sales.
Cost #4: Indirect Costs
Finally, don't forget about indirect costs, such as customer service, shipping costs, and return costs. You really need to look holistically and make sure that you account for all the expenses you incur in order to make your sales.
You don't have to figure out your sales margin on your own. A certified public accountant can help you figure out what your actual sales margin is. Understanding your actual sales margin can help you make better product and management choices which will drive up your margins.Share
21 January 2020