You're Setting Product Margin WRONG! Do This Or FAIL
ฝัง
- เผยแพร่เมื่อ 13 ม.ค. 2025
- Setting product margin for your online store is one of the most important things you'll do for your business. If you understand the reasons why you need the right margin, you'll put in the work to learn how to do it. In this video, I'll share with you three reasons setting product margin high is critical to the success of your business. Then I'll share with you how I set my margins and grew a company using 15k to a 9-figure business that IPO'd and is now worth over a billion dollars!
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My name is Spencer. I've been an ecommerce entrepreneur since 2008. I co-founded Solo Stove - an ecommerce company that we bootstrapped with $15K and grew into a public company (NYSE:DTC). I now spend my time helping other entrepreneurs learn to start their own ecommerce businesses.
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Don't forget to like and subscribe! Questions about margin? Leave a comment.
Great video, I did most of what you laid out here in early 2020, and now I'm very close to quitting my job.
WHAT?!?! Tell me more!!!
You should be teaching Business in top schools you're such a natural and so pedagogical, I'm about to exit a mid 7 figure FBA business with my partner but I love relearning the basic fundamentals of any business through your videos, your channel is gonna blow up, we were here early :D
Well I had to look up what pedagogical meant so I definitely can’t be an English teacher! 😂 Thanks for the kind words and encouragement. I’d love to hear (and maybe share?) your story as well. 7-figure FBA business is no joke! Shoot me an email (email in video description)
Awesome video Spencer :) A while ago I realised that 2x ing sales OR raising prices by 12% would have the same exact effect on profit! We raised prices by 12% and our volume actually increased! We realised that with the lower prices people saw us as a "value" brand (not good). I have been consuming books on this topic lately and it seems that the greatest way a customer perceives value is your price. I am now obsessed by trying to find more ways to add value to our customers so we can raise the price. When we raised our prices we now had enough money to start scaling ads and hired our first engineer for product design. Great topic and video :)
Way to go! Thanks for sharing
Spenser great content for sure. Your delivery is passionate and authentic. I’m a new 7 figure FBA seller and I got beat up with ppc, rising production costs due to material increases and massive shipping and warehouse increases. I have found maintaining a 70% land cost gross profit is near impossible now. I’d love to talk deeper about it.
Hang in there! Running a business is a series of problems you need to solve. It’s a puzzle. Take time to lift your head and reassess your direction. Remember your goals and think long term. You can do it!
Insisting that high profit margins are non-negotiable hit me like a ton of bricks. Message received. Fire content so far, keep it up!
Thanks the the encouragement! It means a lot 😄
Solo Stove was trending on google. I was introduced to it less than an hour ago. Now I am here on your channel to learn more about you and learn from you. You have done a fantastic job. I do have a question.
Does the landed cost include cost per acquisition or is it only COGS?
COGS
This guy is SMART. I just found his videos, and everything I've seen is right on. Thank you for sharing your knowledge with us, newbies. I don't want to be a WALMART!
Amazing content. I’ve just started my journey in this field and getting so much value. Thank you heaps! 🎉
Great to hear!
Thanks for this video. It would be great to see a video on how you would think about estimating / forecasting product sales volume pre-launch, especially as a seller looks to balance that forecast against the risk of inventory storage costs and MOQ requirements from manufacturers. Extra love if you can do it for the RTD beverage category :)
I just spoke to someone about this today. Good topic idea! Thanks 🙏
Epic video🎉please make more on the numbers and math🎉
Would love a video on figuring out How much time takes a prospect to turn a customer and what are some customer journey optimizations and best practices to maintain a profit🎉
New favorite channel 🔥 awesome content bro. Keep up the great work!
Appreciate it!! Thanks for watching 🙏
Healthy margins are so important yet overlooked, finding a 70%+ margin product requires being intentional about it, since most products don't fall into that category.
Wouldn't it be a good idea to also add the cost of shipping to the end-consumer into the equation? Since this cost is fixed and not impacted by other areas (i.e marketing and operational expenses) I thought it may be a good idea to add it when thinking about margins, meaning we'll look at landed cost + shipping to end-consumer.
If that's the case, how would you set the margin requirement including the shipping fee? I would assume a minimum of around 55% as opposed to 70%.
I've always like keeping shipping (to the customer) costs out since that's usually a level playing field and everyone has those costs. Marketplace costs will differ from DTC costs. Wholesale vs DTC as well. Every business will be drastically different. Some will have minimal costs, some will be shipping bulky items that cost a lot. So I always think about margin before shipping. But think through it however it makes sense for your business. The principle is the same... higher margins are what you want to aim for.
@@SpencerJan Didn't think of it this way, though the question that we ask is wether we should go for that product and have enough margin, so it doesn't really matter what other competitors' costs are for answering this question.
I believe that with 70%+ margin you should be good unless it's a product that is being shipped in a certain form to the 3PL, and then transforms and gets more bulky before being shipped to the customer, think something like a huge teddy bear that's being shipped from China as the skin only, and gets filled up in the 3PL...but then again it's an exception.
Thanks for the response!
I just tried to email you to thank you for mentoring me and I found that you moved on! Yay!!! Congatulations! Your channel is awesome and I can't wait to watching all your videos, because I know how well your advice works. I'm knocking it out of the park now! I'd love to catch you up on all that happened if you are interested. I'd love to help you build this channel. So I'm going to share your channel like CRAZY!
Hi Julie! Glad you found me and thanks for sharing my channel with others. Feel free to leave comments here and I'll be sure to reply.
Coming Back to this as I'm about to get into a start-up Shopify to get off Amazon- you reference gross margin but isn't looking at Gross margin a bit narrow?
Product A:
COGS 10$
FulfIll: 50$
Sale price: 100$
Gross Margin: 90%
Net Margin: 40%
Product B:
Cogs: 10$
Fulfillment: 20$
Sale Price: 100$
Gross Margin: 80%
Net Margin: 70%
Shouldn't net margin be more important since in the ecom world since fulfillment is almost like a COGS?
Could you explain why you look at gross and don't take other variables into account? I.e fashion has very high margins but they need returns may destroy them
Also when it comes to growing wouldn't ROI and lead time play a factor as well?
faster lead time = faster turns less inventory on hand
High ROI + faster turns = doubling money faster
and at the end of the day not having to take loans would essentially be predicated on growth outpacing ROI?
Gross margins is a starting point and not a silver bullet. I don't put fulfillment into COGS. You should definitely consider all other factors and every business case will have its nuances so don't think a certain formula equates to certain success....it's the principle of having a higher gross margin (than most) that I wanted you to be thinking of. Work through your numbers and all the other costs and use all the data to help you make a decision. I've seen and talked with a lot of ecom sellers and I find that most are selling at margins that are too low. It looks like you're thinking through a lot of the necessary pieces of the puzzle, keep going!!!
When did you started Solo Stove? And when did you sold it to the PE ?
We started 11 years ago then started passing the torch on a couple years ago.
Posted a link to this because my pottery friends need to know this!
Great!
This channel is so underrated
Thanks, glad you like it
Sounds great but how do you find products or categories with high enough demand that are not too saturated? Differentiation might only be a temporary isolating mechanism until competition catches up. Downward pressure on prices is always going to be an issue if that is the case, thus turning the strategy into higher volume sales.
Differentiation that is not easily replicable is the holy grail you should be chasing after. This isn't easy to do. But this is good because if it's hard to do, it's that much more difficult to replicate. There are two areas you can consider. 1. a product that's different, has strong IP (patents) and enough money in the bank to hire lawyers to enforce it or 2. BRAND. Brand is what most should be focusing on. Brand is what will separate the strong from the weak. Build a reason WHY people should buy from you and that will be very difficult for competition to replicate. Consider your own shopping habits and reflect on WHY you buy brand name items instead of generic items that cost less. It's less about "finding" a product or category as it is "CREATING" reasons for customers to want to buy what you're selling. I hope this helps! Great question!
@@SpencerJan Brand building is something that I think about all the time, especially when I try to break down and analyze a brand that I admire. I think having certain trademarks or patents that have some kind of technical edge are also necessary. I dont think it can be one or the other but a combination of both things you mentioned. The technical or visual differentiator is what draws customers in, the branding is what keeps them there.
I think you’ve got it. Ideally you can do both but if you can’t, branding goes a long way and you have a fair shot at doing that well.
Agree you must have at least keystone markups
Hi Spenser, how would you adjust the margin if you are selling on amazon?
The simple answer is to increase value through two ways. One: increase brand value. This usually means building your brand off of Amazon where you have all the opportunities you needed to grow brand value. Then when people want to buy your brand on Amazon, they’re searching for you…. Not discovering you on Amazon. Two: make a better product. It needs to be different and unique. More often than not, Amazon sellers are just “private label” sellers which means there’s a lot of people selling the exact or near exact same products.
Hi Spencer,
Little background - I sell roughly between 60k USD monthly on amazon with 30% net margin after ads returns everything. I Am totally with you when it comes to high margin products specifically on Amazon.
I am thinking of making the jump to start a "real" brand since Amazon is almost impossible and I feel limited by the rules.
Hada few questions
1) When it comes to finding a high-margin product off amazon, how did you know you could sell your product for more? I assume you looked at similar competing products and just designed something x times better?
2) When it comes to what you built it seems you built a category (if I'm wrong please just avoid)- For the 99% of people who will either fail or just not be able to compete in that area what else would you suggest?
Congrats on killer numbers!!! I think growing off of amazon is the right move. To answer your questions,
1. there are two parts to being able to demand high margins - how good your brand is and how good/unique your product is. Improve on both of these areas to demand high margins. It's not about "finding" a product...it's about BUILDING the brand and BUILDING a unique product.
2. you don't need to create a new category (although it doesn't hurt). Just focus on the point i just mentioned in #1. Build a better mousetrap and make a product unique and build a brand that matters. Watch my video on brand/product dev here to better understand how this works th-cam.com/video/eNid70QAKgA/w-d-xo.html
@@SpencerJan Thanks and sorry for the terrible grammar - didn't proofread. Was in a rush!
Thanks for your reply
1) The one thing Amazon has done to me is focus on singular products. Need to break this way of thinking . Will focus on building a BRAND that is high value as well as high value products.
2) Will do - appreciate this.
3) Pretty cool to be able to interact with you while the channel is still small. Really appreciate it.
Thanks a lot have a good night!
@@SpencerJan Spencer, could you talk about margins to aim for as a business as a whole?
I don't focus too much on "margins for the business as a whole" because those can change dramatically depending on how aggressively you reinvest back into your business. I hope that helps.
Spencer Thank you for all the great information and advices on importing and running a successful business. I have a question if I am bringing in dumpster from China that the landing cost is very high at $8,000 each should the margin still be 70 to 90 percent or can I use a lower margin?
Each business will have its nuances. My guess is that a giant dumpster won't have super high margins but the principle remains the same. For an online DTC brand, high margins is what you want to aim for. I just don't think a dumpster with an 8k landed cost falls into the category of an online DTC brand 😂
Hola Spencer 👋🏼I was thinking about 30-50% profit margin is good. This video is eye-opener for me. Since we've only one product (eco-friendly toothbrush) do you think good and branded packaging will increase the perceived value of the product? I'm also thinking of comparing the price with pizza price...
If you’re selling DTC, packaging won’t help to increase value. Customers don’t (need to) see the packaging when they buy online. Watch my video on packaging. 30% is way too low! Even if you sell well at 30% gross margins, you’ll constantly need more cash to grow.
@@SpencerJan Thanks for your fresh perspective, I'll check the video. I'm thinking to play around "every toothbrush you buy, removes 1kg of plastic from the ocean" let's see if that works to increase the perceived value of the product. For the profit margin, I'll revisit my unit economics. Again thanks for your valuable feedback. Also nice YT Banner update.
@@okabhinv8150 Sounds great! Keep going!
Why don't you make videos anymore? Thanks for your help
Dudes the frickin goat. About to start my eccomerce business with most of my knowledge coming from this channel😂
Does gross profit margin includes amazon fees? Or just product cost + shipping?
No, I don't include amazon fees or shipping.
Spencer, thank you for this information. Discovered you through my friend Adams video.
I have a question regarding margins.
You mention to only go with products that are 70-90% profit margin (gross margin I assume)
As an example, an item sold for $50 you’d need to make $35-$45. Lets just take $35 for this example.
$50 - $35 (profit) - $13 approx amazon fees including storage and shipping) = $2
How are you sourcing an item for $2 “landed” when its selling for $50.
After sourcing various products I find this to be impossible.
Can you please give me a better example so that I can understand the math behind the 70-90%?
So when I say gross margin, it’s before your Amazon seller fees if you sell on Amazon. So in your $50 example. $35 is gross profit. If you have Amazon seller fees of $13, then you’re left with 35-13=22 bucks in profit. The cost of goods is $50-35=$15. So you’re sourcing a product of $15, not $2. Hope that helps.
@@SpencerJan Yes, that makes sense. Your pretty much looking at a 44%-64% Gross margin including Amazon fees. Thanks for your response!
@@samuelhenig58 you’re welcome