It means PROFIT! It means money in my pocket! Net margin or net profit margin measures how much out of every dollar of sales you actually keep in earnings.
I recently read about two very successful entrepreneurs and their business: The Longaberger Basket Co. and the Pampered Chef. They mentioned “net margin” so I decided to look into that a little more.
“Net margin” is the ratio of your net profits to your revenues. Your net profit is your income (revenue) minus what you paid for your product (Cost of Goods Sold or COGS) and other operating expenses. Your “net margin” is then calculated by dividing your net profit by your revenue.
UPDATE (12/26/13): Net sales is your income (revenue) – income from both sales and shipping – MINUS any returns and/or allowances. If the good is returned by the customer, it is not considered a sale, as the customer will receive a credit or money back (refund), so it needs to be deducted from the gross sales.
We all know that revenues minus expenses equals profit. And some sellers say they won’t buy an item unless they can get 4x, 5x or even 10x what they paid. Of course, we all know that if we pay 25-cents for an item that we KNOW we can sell for $10, $20, even $30, who cares about percentages … we know we’re gonna make money!
But there are times when I wonder about an item, especially as I start looking at higher-priced items. If I buy it for $20 but can’t get 4x what I paid, is it worth it? If I can only resell it for $60 or $50, is it worth it? One seller said she bought a lot of dresses at Marshall’s clearance for $15 each. She’s been reselling them for $35 to $40. I wonder, is this something I should look into? I needed something that could quantify my risk and I started looking at “net margin”.
So, let’s compare and see what constitutes a good “net margin”. Net margins vary from company to company and from industry to industry. Walmart has made a fortune for its shareholders with a net margin of only 5%. Grocery stores/supermarkets operate on a net margin of 1%-3%. Even some of the most profitable retail-types have a net margin of 4.5% to 5.9%. Of course, these large corporations can afford these very slim profit margins because they have millions of dollars in sales.
But, really, what is a good net profit margin? Of course, the higher the better! For me, anywhere between 20% to 40% is good and 10% up to 20% is okay. Under 5% is definitely not good, but 50% and above is terrific.
In my previous Cash For Trash post, you may have noticed that I included the net margin for each sale. My net margins ranged from 40% to 75%.
Of course, I’m pretty sure not all my sales have such high net margins. But I do know that my net margin for my July sales was a nice 52%. So, Walmart, eat your heart out!
There is plenty of information on the internet to help you with your business – and you don’t have to be a business major to know how to make money. That’s the beauty of it all! BTW, I highly recommend these two books: Longaberger, An American Success Story; and The Pampered Chef, The Story Behind …
Happy thrifting and reselling!