How Much Profits Should A Business Make?

[All Seeing Eye]

I've come across a nice little idea for a business which I think will succeed in my area as there isn't one like it around here. It will involve selling womens clothes (really exceptional ones) but i'm not sure how much profit you'd need to make on an item in order for this type of business to succeed.
I've worked out that for every sale I make I will make 50% profit on each item. Is 50% a good enough profit for the business to succeed? or would I need to make a higher percentage profit on each item?

 

[Small White Car]

Well, the question doesn't make much sense as you've asked it. Profits need to cover expenses. The percentage is pretty meaningless, really. It's the total amount of profit that really matters.

What are your expenses going to be? You have fixed costs (salary, phone bill) that don't change, and per-unit costs (material, labor time) that change based on the number of units you make.

You need to make some kind of guess of how many you'll likely sell and build in enough cost cover both of those things. So for example, lets say 100 units is a good 'safe' guess.

Price them so that the price is (per-unit cost) + (1/100 fixed cost).

Then, once you've sold 100, you'll break even and with sale 101, you'll start making money.

If you've built your salary into the fixed costs, however, you'll still be ok even if you only sell exactly 100.

For this kind of thing it's a bit of a guessing game. You may have to do a bit of guessing and hope for the best. Remember, you don't have to limit yourself to a certain price! (Unless you think it will hurt sales, that is.) If everyone is willing to pay $100, there's no reason to charge $80 just because you're trying to hit a certain profit. If you can become popular, just charge what people are willing to pay, even if it's higher than your estimate for what you "need" to charge.

In my old business I saw almost the same service from competitors go from $1,000 to $4,000. The main difference was the skill level of the person doing the work. People were willing to pay more for better work. If your clothes are good, charge more than the clothes that are similar but aren't good. That should be your goal...not a certain percentage.

 

[teya]

I've come across a nice little idea for a business which I think will succeed in my area as there isn't one like it around here. It will involve selling womens clothes (really exceptional ones) but i'm not sure how much profit you'd need to make on an item in order for this type of business to succeed.
I've worked out that for every sale I make I will make 50% profit on each item. Is 50% a good enough profit for the business to succeed? or would I need to make a higher percentage profit on each item?

In women's retail, the standard markup is wholesale x 2 or 3, higher the higher end you go.

If you're looking at high end (designer) women's clothing, do consider the economy. Even the women who can afford to buy $5K and up dresses aren't doing so these days. It's not a climate for ostentatious consumption.

 

[All Seeing Eye]

I've come across a nice little idea for a business which I think will succeed in my area as there isn't one like it around here. It will involve selling womens clothes (really exceptional ones) but i'm not sure how much profit you'd need to make on an item in order for this type of business to succeed.
I've worked out that for every sale I make I will make 50% profit on each item. Is 50% a good enough profit for the business to succeed? or would I need to make a higher percentage profit on each item?

In women's retail, the standard markup is wholesale x 2 or 3, higher the higher end you go.

If you're looking at high end (designer) women's clothing, do consider the economy. Even the women who can afford to buy $5K and up dresses aren't doing so these days. It's not a climate for ostentatious consumption.

I wouldn't call them "designer" but they're quite unique designs compared to what you can get around here. I'm not looking at pricing high at all and the price range is well within what people pay around here for the ordinary clothing up for sale. That's why I think I could be onto something here because why would people pay the same price for ordinary plane clothing when they can get really great looking clothes at the same price.
If I price them to be competitive with other women's clothes shops I'd be looking at 50% profit.

Also with Summer not far off these types of designs IMO would fly off the shelf.

 

[Plecostomus]

I price machined parts that I make at home in such a way that it covers the cost of the material and chemicals plus 10%... take those two costs and add 10% to the total. Then at the end of the month I add everything up, subtract the electric bill and that's my profit.

Last month I made about $3,500 after I paid the electric bill... Electric runs me around $250-300 when I run machines.

Pricing is tricky. You want to make money but you don't want to drive potential customers away.

Problem arises when profit is the sole motivating factor. When you hear a big company with $10 billion in profits bitching they have to raise prices something smells. PROFIT is what you have left after you pay your bills. $10 billion EXTRA after paying your bills means you could stand to lower your prices a bit, you greedy fucks.

Sorry, that's off topic but it's a sore point with me. We could make $10 million in profit making the product here or $30 million if we have a Chinese dude make it. We're talking EXTRA MONEY above and beyond covering all your basic wants and needs. That extra 20 million in your pocket is because you are just greedy.

Anyway, other people with a better grasp of business mechanics will be along shortly. This is just my noisy opinion.

 

[All Seeing Eye]

This is just my noisy opinion.

and I agree with it 5000%

 

[Scout101]

The veggie boutique didn't pan out? Thought that one was "can't miss"?

If you're so sure this will work, DO IT. Buy a bunch of them, sell them online, ebay, whatever. Once you've made a profit, report back...

 

[LaxScrutiny]

Well, the question doesn't make much sense as you've asked it. Profits need to cover expenses. The percentage is pretty meaningless, really. It's the total amount of profit that really matters...

You got that wrong. Profit is what's left over after expenses.

The basic way to look at it, you are investing, say, $100k in stock, as well as renting a space, basic fixtures for the store, advertizing, utilities, etc for the length of time to sell off your original inventory, say 6 months. So for that length of time, how much would you earn in interest if you just left the money in a GIC?

If you aren't exceeding that amount, it is a bad investment, short term at least, because you are also putting in your own time and labour, which you aren't really getting paid for unless you make more than you would on interest. Let's not even start talking about staff and accounting costs....

But also keep in mind, you put a larger investment in start up, and more personal time and labour, and as you go along people learn about your store and business peaks a bit later. So the initial set up may be a small loss, or break even, or only a small profit, but as you go along it becomes more worthwhile.

Long term, hopefully your business takes off and becomes attractive enough that you can find a buyer and eventually walk away with large payout, not just for your stock, but for your initial idea.

 

[All Seeing Eye]

The veggie boutique didn't pan out? Thought that one was "can't miss"?

It would work out if I wanted to do that but it will be a lot harder to start a British produce shop and restaurant than it will be to open a women's clothes shop. To start the British produce shop would mean i'd need a lot of money and would require a huge bank loan, the women's clothes shop can be achieved by a minimal amount of money.

If you're so sure this will work, DO IT. Buy a bunch of them, sell them online, ebay, whatever. Once you've made a profit, report back...

Won't work selling them online, it will work however with a shop in town and hundreds of people walking past it every day, especially on Saturdays.
Why should I go online and try competing with the world when all I need to do is compete with local businesses?

 

[Scout101]

Because the associated costs with the internet are zero? Because, just like your last aborted idea, opening up a shop in town involves a lot of money. Rent, utilities, transportation, advertising, a staff, etc. Doing it online doesn't even have to involve you wearing pants, and all those extra expenses don't exist, so you can get by on a much smaller margin. That you don't think anyone would buy your stuff online must mean that either the items aren't unique, or that the pricing won't be great. If neither of those is true, get half a dozen of them, sell them online, and see what kind of profit you make, and go from there...

 

[All Seeing Eye]

Because the associated costs with the internet are zero? Because, just like your last aborted idea, opening up a shop in town involves a lot of money. Rent, utilities, transportation, advertising, a staff, etc. Doing it online doesn't even have to involve you wearing pants, and all those extra expenses don't exist, so you can get by on a much smaller margin. That you don't think anyone would buy your stuff online must mean that either the items aren't unique, or that the pricing won't be great. If neither of those is true, get half a dozen of them, sell them online, and see what kind of profit you make, and go from there...

I said the items are unique for my area. That is why an actual proper physical shop would rake money in whereas an online shop wont. Yes there'll be Rent & utilities but that's not a problem if my profits are enough to cover them. The only staff i'll need is myself and perhaps my wife or another family member.
Selling online is futile and the only way not to incur high expenses is to do it on ebay and on ebay i'm competing against thousands of people and thousands of online shops. Then there's the problem of even getting people to be aware of my online shop or online items, if I had a physical shop hundreds of people would be walking by each day and seeing what's on offer, I could get someone to stand in the middle of town handing leaflets out to potential customers making them aware of the shops location.

Selling online is pointless and more trouble then it's worth. My items would sell good online if I knew people would actually come across them, i've put many good items on ebay before and they get about 1 to 2 views a day if that. Also continually putting them up for sale and having to arse about with time limits and continually having to re-admit the items if they don't sell is time wasteing.

Opening a shop in the middle of town is far more profitable than pillocking about online.

 

[Plecostomus]

I don't know how things work in your country/state/town but over here the land has to be "zoned" for certain uses.

If it's a housing tract it's zoned "residential" and you can't build a factory or open a store.

If it's Industrial or Commercial you can't build houses there but you can build factories and shops.

My home is on a piece of land the town zoned "Business Transitional" so I can operate my workshop here. It's sort of a loophole in the zoning laws so people can operate small businesses at home.


Would it be possible to set up a room in your home to be your shop? That'll save on your overhead and you can continue to ann-- I MEAN AMUSE us all day.

 

[CaptJimboJones]

Yes there'll be Rent & utilities but that's not a problem if my profits are enough to cover them.

Well, if your business generates even one dollar of profit, by definition you've covered your costs. Perhaps you've confused "profit" with "revenue?"

 

[teya]

I said the items are unique for my area. That is why an actual proper physical shop would rake money in whereas an online shop wont.

I really suggest more research into women's clothing and the rag trade.

The clothes I make would be extremely unique where my mom lives--no one else sells anything like them there--yet they wouldn't sell. Not only are they priced above what the market would bear (being made entirely by hand), but they're also not the style of the women there.

I would really suggest writing out a business plan and researching this more thoroughly.

 

[Scout101]

He's more of a "bad ideas" guy, he'll never do anything beyond mentioning this here on the BBS, so don't worry too much about it.

 

[Holdfast]

I've come across a nice little idea for a business which I think will succeed in my area as there isn't one like it around here. It will involve selling womens clothes (really exceptional ones) but i'm not sure how much profit you'd need to make on an item in order for this type of business to succeed.

I sell discounted high quality men's clothing from well-known designers as a little part-time hobby. I'd guess you're planning on sourcing your items from similar locations/routes as I source mine.

My advice, based on the men's market:

- you have to know your product range extremely well. Clothes buyers, esp. discount buyers, ask a LOT of questions.
- make sure you provide attentive, accurate customer service.
- selling online is a lot easier & more cost-effective than having a B&M location. Yeah, yeah, you think otherwise. Fine, good luck to you, dude.
- teya is correct with her standard markup on wholesale of 200%-300%, and that it escalates based on brand. Most of my items had an original markup of 800%-1000%, though my own mark-up is much less of course, since I lack the cachet/inventory of Bergdorf!
- the current economy HAS affected this market. People expect a discount of 80% on original full retail. If your items are unique and your marketing is good, you'll do better than that, but don't expect items to fly out the door if any link in the chain is weak.

 

[JoeZhang]

Unless you have some form of established brand or thousands of pounds for promotional activities plus thousands of pounds to obtain the right fittings for a boutique (because that's what your shop would be) then trying to sell high-ticket items out of a bricks and mortar store is a recipe for losing thousands of pounds, especially in this economy.

One of the big things for a start-up is to stick to what you know -Plecostomus has stuck to what he knows and that seems to be working. My expertise is information systems, that's what my businesses are about, that works. I don't see anything here that suggests you know another about clothes beyond this idea that you think the designs you are going to sell are "unique"?

The only staff i'll need is myself and perhaps my wife or another family member.

No perhaps about it - Women will feel completely uncomfortable in a women's clothes shop run and manned by a single male.... Your presence would actively cost you sales.

 

[Kommander]

1: Sell clothing
2: ???
3: Profit

 

[JoeZhang]

1: Sell clothing
2: ???
3: Profit

It's actually (and this is still a dumbed down version)

1) Work out the four Ps - Product, Price, Promotion, Place

2) Hope that you got the numbers right, the right area, the promotion right, the general economic doesn't tank, competition in the area isn't too tight tight

3) In a couple of years - profit.