A common mistake many of my clients make when setting up an online business is that its about the math. When one of my clients started out, they said “my business was like a hobby for me – so I didn’t pay as much attention to the math as I should have”
As a result, They ended up in a niche that had good demand but not enough revenue potential to make it worthwhile. The products they was trying to sell were very cheap, and had to sell way more than the demand predicted to be able to make decent money.
Business math works very simply. To see how profitable your business can be, use this formula:
Profit = Demand * (Revenue – Expenses)
To break this down, let’s assume that altogether, there are 20,000 people that are searching for your product.
Assuming that you can put yourself in front of even half of those people, that’s 10,000 potential buyers. If you convert at the average of between 1-2%, that’s 100-200 sales.
If your average order value is £100, and you have a net profit margin of 30%, your profit will be anything between £3000-6000.
Of course, these are really rough estimates, and the actual numbers may be greater or less. But whatever you get into, if you’ve done the math, you know what you are in for.
It can take two stores to learn the math lesson properly, because even though the second store had a very high average order value, the margins were so thin that there was barely making any money after factoring in costs.
If you need any help with the math, you could always hand it over to your accountant. Just to be on the safe side.