Profits come after all the costs are deducted from the Sales revenues. The largest deduction is generally the one called Cost of Goods Sold, or COGS. Everything that is directly attached to a sale can be considered a COGS component.
In our online retail business, what we pay for the physical goods we sell, and the shipping to get them to us make up our COGS. Later, when we sell an item, we also charge for shipping & handling, and the actual cost of shipping is COGS.
It only makes sense that we can increase profits if we can get a bit more in sales revenue for an item. It is less obvious, but paying that same bit less for an item will gain the same profits while remaining price-competitive.
Wal-Mart, derided by many for being a community buster, “profits” by keeping their COGS under strict control. They do everything they can to keep that acquisition cost as low as possible.
What are some ways you can keep your acquisition costs low, lower, lowest?
- Don’t pay retail.
- Ask for a bigger discount.
- Pay on time for Invoice discounts.
- Ask for another discount.
- Buy at quantity discounts.
- Sell it all.
From Real Life
My wife, Sandi, & I have been successfully selling online for about 5 years. Mostly on eBay, but our non-eBay store pays for the rent. We specialize in Craft Tools, Blank Journals, and Boxed Greeting Cards.
We make good buys from closeout vendors at a Las Vegas trade show called the ASD Marketweek shows.We have one product we’ve been buying directly from the Manufacturer for the past 5 years. We went this year to negotiate a 25% price reduction due to the age of the product.
When we arrived, another customer was going through the merchandise and making offers – and mostly getting approval from the vendor. The customer picked up our product, and we gasped… (He was making offers for the whole stock of each product. We wouldn’t get ANY!) He made an offer of less than half our price, but then decided he couldn’t use as many as were available. He eventually concluded business.
It was our turn, and we began with our #1 product. We offered the same price he had. She accepted! How many? Gee… how about 200? OK. YIPPEE!
She had a newer version, and said we could have it for just a dollar more. How many? 219. OK, we’ll take them…
What a great Buy!
As we left, however, the enormity of this particular buy began to work its way through our practical side.
WHAT WERE WE THINKING!
We don’t have anyplace to store them. We will need to up our entire marketing effort to move them.
Man… WHAT were we thinking???
Well, we are thinking profits. We can continue to sell these at their original price and make plenty of profit. But, they sell slowly. So, we can lower the price, sell more, and still make more profit than before.
THAT’s the purpose of making a great buy.
Buying Right is the key to Profits. Keep those initial costs low.