The sales margin is what will largely determine the success or failure of your e-commerce venture.
Calculating and choosing the right sales margin can be a difficult exercise, especially when you’re just starting out in online sales.
Let’s take a moment to identify the elements you need to take into account in order to choose a sales margin that will ensure the sustainability of your online business.
Definition of sales margin
In simple terms, the sales margin indicates the profitability of a product and enables you to set its selling price.
It is calculated by subtracting the purchase or manufacturing price of a product from its selling price (including expenses).
The expression “charges included” is particularly important.
Calculating the sales margin depends on several factors.
If you forget to take one of them into account, your whole strategy may be called into question, leading you to lose money instead of making it.
Calculate your sales margin
To calculate a product’s sales margin, you need to start from its actual cost.
This is, of course, the price at which you bought it yourself, but not the only one.
This purchase price is only a basis.
The elements to be taken into account when calculating the total cost of a product are as follows:
- The purchase price of the product.
- VAT (if your products are purchased outside Europe).
- Any delivery charges.
- The commissions you have to pay to your online payment service providers.
- Taxes.
- Social security charges.
The calculation of the sales margin is based on the product’s… selling price.
The first thing to do is to determine the price at which you want to sell the product.
With a little experience and observation of similar products sold on other sites, you can easily get an idea of the price at which you can sell a product. 
You’ll have to start by subtracting the purchase price from the selling price, i.e. €4.
If the product comes from outside Europe, you’ll need to add VAT.
Let’s assume that the VAT rate applicable to this product is 20%, so we obtain a tax of €5.
The product delivery costs are those you have paid to your supplier.
Naturally, they must be included in the calculation.
Let’s say they represent €0.20 per item.
Your online payment provider takes a commission on each transaction.
There is usually a fixed price plus a percentage of the amount paid.
Let’s say the fixed price is €0.25 per transaction, plus 1.4% of the amount.
The commission for a €25 sale is therefore €0.60 (0.25 + 0.35).
As taxes are calculated on sales, you need to allow for around 1% of the product price, or €0.25.
Social charges, if you are a micro-entrepreneur, amount to 12.8%.
The amount of social charges for our product is therefore €3.20.
If we calculate all the charges for our product potentially sold at €25, we come to €13.25.
The sales margin corresponding to our product sold at €25 is therefore €11.75.
This means that every time you sell one of these products for €25, you’ll earn €11.75.
Adjust your sales margin
The sales margin is therefore calculated on the basis of the selling price set for the product.
But how can you be sure that this is the right price?
The only way to find out is to carry out tests.
If a product sells well at the set price, then the estimate is a good one.
If, on the other hand, it doesn’t sell, the price is too high, or the product is bad.
Lower the price a little to see if it sells better.
Once you’ve found the right price, readjust your sales margin and you’ll have found the right formula.
The difficulty is that you have to make this calculation for each of the products offered in your store, and each case is different.
You can also take a look at your competitors’ prices to see if your estimates are realistic.
As we have seen, in the end you have little control over the elements that go into calculating the sales margin.
Taxes and social charges are set by the government.
Delivery costs and payment commissions are set by your partners and suppliers.
All that’s left is the purchase price of the product.
It’s up to you to determine the prices you’re willing to pay for your products, and your sales policy: a small margin for high sales volumes, or a larger margin for lower volumes.
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