PART THREE: ESTIMATING VOLUME
To understand the volume at which you will be operating is essential to predicting factors such as potential cost, revenue, and time spent. Of course, we'd all love to sell as many products as humanly possible. But can you? The answer is no. At least not in the beginning, that is.
When you are selling and shipping products, there are thresholds to what you can handle at every level of the scaling process. This can explain why there are constantly limited quantities on the newest and hottest products.
Shipping out of a small space (home, garage, small office, etc.) is the most common way to start any shipping operation. Little overhead and lack of relating costs can help direct funds into product testing and trials as well as customer outreach on a grassroots level.
Once you hit a scalable formula, then you can grow. It's recommended to know about variable cost models in detail.
Basic Operating Costs-
Here are a few costs / assets needed for a minimal shipping operation.
- Work Space (temporary or permanent)
- Tape/ Various Packing Supplies (bubble wrap)
- Shipping Labels
- Label Printer
- Computer/ Laptop
Again, these are the minimums. Aside from the cost of products, you can start a small shipping operation for a couple hundred dollars.
This minimum cost model can help you discover the right product and market in a way that you can experience trial and error at a minimum costs.
Now that you have some traffic and sales to analyze, it's a great time to evaluate and predict where you are able to go from here.
Here's a few pointers:
- Customer conversion rate
- Average order value
- Rate of return customer
- Average order margin
- Total refunds (damaged goods, returned items)
Can you continue and steadily turn a profit? Are your customers happy? At what volume of sales do you see a return large enough to scale up? When you scale up, is the reduction in profit percentage outweighed by total net profit?
Example: at 50% profit you see $50/ day. When you scale, the subsequent costs knock your percentage down to 25%, but now you see $100/ day.