While this may sound like a mundane and secondary element of importing you would be wrong to think so. Anything that can eat into your profits should always be at the forefront of your mind.
There are a lot of things to take into consideration when importing an item from China but the most important one of all is the Margin. Every little thing that appears in the chain of your product going from the factory to your end customer affects your margin and at the end of the day you want this to remain as high as possible.
There are obviously a lot of goods to work with from here in China but sometimes no matter how tempting the item may be the maths will tell you that the margin is just a no go. More often than not the shipping cost can be the biggest stumbling block and I’m not just talking about international freight costs. With many UK sellers now offering free postage you sometimes have to be really smart to be able to compete and sometimes even smarter to realise there is little point in trying to compete at all. If there is no margin it’s often better to just walk away.
What I will talk about today is a small and simple niche market item that required a little extra thinking and some Blue Peter tools to make the margin work for my customer.
This particular item is a high volume but low margin item. It costs about 8 GBP and sells for only 15 GBP but with one seller on eBay alone selling over 40 units per day some careful planning makes it into quite a profitable item to work with.
There are two issues here that must be addressed in order to succeed with this product. The customer demand changes very quickly meaning each particular version has a shelf life of perhaps 3 months. This takes shipping by sea out of the equation as by the time its been on a boat for 30 days your already missing out on over 30% of your sales window. This means that it must go by air and thus your margin is going to feel the pinch. The second is that customers do not want to pay much if anything for postage in this niche, meaning that once the stock has arrived from China we have to get this item shipped within the UK by the cheapest means possible.
Time to get creative on how this item can have its “Costs of sale” squeezed right down. I refer to the costs of sale as all the little costs you have in order to eventually make a sale. These can be things like shipping the goods from China, sales fees, packaging materials required, staff costs to pack the item and postage to the end customer.
This post will detail how I have worked to best minimise these costs of sale to have the least impact on this products margin.
Firstly lets look at the air shipment details. This particular shipment is a pretty good order size meaning that we already got a nice purchase price for each unit from the factory. The volumetric size of each item coupled with high unit numbers means that the air freight cost will inevitably be high. This essentially means we have to reduce each unit size by as much as possible or it will just cost too much. With some disassembly requested at the factory and some tight packaging we have successfully reduced the volume so each unit will take up as little room as possible. They don’t weigh too much so the overall volume was our enemy and with that reduced I can fit about 190 units in each box.
Secondly we have to look at the Domestic postage costs. This item is intend for sale within the UK and currently within this niche free postage must be offered in order to compete.
This is a bit of a pain on low margin items as that postage price is going to disappear right off your bottom line. There is no point beating yourself up over it though, the fact is that if you want the sales you need to compete on the same playing field. If this item can be sent with Royal Mail as a large letter then we can still make it work so that’s what we have to do.
With this in mind the package must play to Royal Mails rules and be under there stipulated dimensions which currently are Length: 353mm max, Width: 250mm max, Thickness: 25mm max. Using a very crude home made size guide I can see that by taking a grey postage sack folded in half this is possible and by tightly compressing each product we get them below the 25mm stipulation.
The cartons I ordered for shipment from China were specified to fit these dimensions of 4 stacks of these products so it’s all as tight as can be. In addition to this removing some unrequired packaging from each unit gets the item well below the 250g cut off point meaning that we can ship this item First Class to a UK customer for 1.20 GBP instead of a potential 2.70 GBP. Believe me on an item like this that saving is great – in fact going on the sales achieved its pretty much a saving of 60 GBP per day!
As a bit of a sweetener we decided to save costs further by getting each individual item packaged for re shipment in the UK while it’s still in China. This allows us to purchase cheaper shipping materials such as postage bags and tape here while utilising lower price staffing costs to pack each item.
What this means is that with a simple product labeling system, a-la marker pen, all the UK staff need to do when the stock arrives in the UK is remove the individual packets from the cartons and ship to the end customers when required using the product cod SKU’s for reference. Pretty simple but also pretty neat as its saving time and money.
With the products packed and boxed into cartons these goods will be ready for redistribution to each individual UK customer in around 7 days.
All in all this simple exercise has increased the margin of this product by around 2.10 GBP per unit (a potential saving of 84 GBP per day) meaning it can now undercut its competition, increase its sales and still have a great bottom line.
We have also saved staffing costs at the UK end and allowed them to speed up distribution to the end customer by sending them pre-packed. None of this is rocket science but they are some nice little tricks.
What little tricks do you guys use to increase your margins?