There are only two ways you can make money, whether on the Internet or in the real world. The first is to sell something that someone else has produced, whether product or service; the second is to make it yourself or offer your own unique services. Either way, you need to be certain that the price you’re charging is realistic, both in terms of persuading customers to part with their cash and giving you a profit.
As an example we’ll imagine you have a fictitious bookshop. You sell books for £5 each. You get the books from your supplier at £3 each, and the £2 difference is your profit. Now, lets assume that the shop rent is £100 per month, this means that you need to sell at least 50 books each month just to cover the rent on the shop (50x£2).
You will have other expenses too like electricity for heating and lighting and these might cost £30 each per month. Each of these costs is paid for out of your profit and we haven’t even started on what you want to earn yourself yet (but we’ll assume you want £100 a week for now).
The costs for one month are then:
- Electricity £30.00
- Gas £30.00
- Rent £100.00
- Wages £400.00
So far total costs are £560 meaning you need to sell 280 books (£560 divided by £2). But those books also cost money to buy that we haven’t factored in yet (it adds another £840 on your costs). Therefore, to cover the first month you need to make £1400 and happily, selling 280 books at £5 each means that you make £1400. Congratulations, you have just broken even!
Breaking the above down even further means that you need to sell a minimum of ten books each day to cover all these costs.
That doesn’t mean it’s easier selling something you’ve made yourself. For instance if you’re making designer cushions, then you need a sewing machine, materials, thread, stuffing and embellishments at the least. You also need to know how long it takes to make one cushion, because this will tell you how many you can sell each week. Therefore, if you only make ten you will need to charge more for them than if you could make 20, or 30. These figures also determine the selling price of each cushion which, in turn, determines whether your customers can afford them.
I know you’re thinking what’s the point of that, I’m planning to make my millions on the Internet. The problem is that you still have costs to be taken into account and your stock or materials will be your biggest single outlay.