Realize Between 120% and 340%+ Markup Selling at Wholesale, Retail, or Both!

The amount of money you make importing depends on how big your purchase orders are, whether you are selling wholesale or retail, and how often in the year you can repeat the cycle. Because every small business has a different level of cash in the early stages with which to get started, we can’t predict how much profit in dollar terms you will realize in a year. But we can examine the profit margins of selling at retail vs. wholesale, and how often the cycle can be repeated given these two distribution points.

In this illustration we use an example of widgets with an offshore unit price of US$1.00 directly from the manufacturer. Because we are working through an offshore agent, our actual cost is 10 cents more to cover the agent’s commission. The imported unit price is US$1.10; this is the figure used to calculate duties when they arrive in the U.S. We elect to transport the goods by air cargo for US$1,300. The shipping, duties, customs fees and other costs paid before we can take possession at the airport add an additional 2%, or US$220.00. We now have a “landed unit cost” of US$1.25 coming in our front door.

For our importing company to be rewarded for the risk taken for warehousing, marketing and shipping the goods to the next distribution point, we will need to double our landed cost. This strategy of doubling costs in the front door is known as a ‘keystone markup’ and provides a business with a (50% cost of goods) + (50% operating and profit) ratio. Any business that takes title and possession of goods will mark up at least this much to cover the risk.

If we opt to sell at a wholesale price directly to the retailer, we will set our selling price at US$2.50. If we decide to have independent sales representatives approach their network of retailers and represent our product for us, we will add on a 10% commission for their compensation, bumping our selling price to US$2.75 to cover commissions. For this example, let’s say we will sell our goods with the assistance of sales reps. The wholesale price of our widget is now US$2.75. We paid a landed cost of US$1.25.

Wholesale Profit Margins

Selling at wholesale, we have a gross profit margin of US$1.50 or 55% (US$1.50 divided by US$2.75). Or to put another way, we realize a 120% markup on our landed cost of US$1.25 (US$1.50 gross profit divided by a landed cost of US$1.25).

A 55% profit margin, or 120% return on our offshore purchase investment, is respectable in any business. But what if we could sell to a large community of end consumers with relative ease via a website? At this point we own the goods and can sell in the market to any buyer we wish.

Retail Profit Margins

The retailer can be expected to also keystone, or double, the cost of our widget when they take title and possession until sold. The final price for the end consumer is now set at US$5.50 per unit.

If we sold our item at the full retail value of US$5.50 without the need of a sales rep, this would provide us with a gross profit of US$4.25 (US$5.50 less the landed cost of US$1.25).

Selling at retail gives us a 77% gross profit margin ($4.25 divided by $5.50), and increases our markup to 340% on our landed cost of $1.25 ($4.25 gross profit divided by a landed cost of $1.25).

Repeat the Import-to-Sale Cycle Often

In our example, it may take a year to sell through 10,000 widgets if selling with the staff of a small importing company, but you’ll realize more profit on each transaction. On the other hand, if you sell your items though sales reps on a wholesale basis, your profit for each widget sold will be smaller. However, you’ll have more people selling to retailers who will buy the items in volume, rather than one at a time.

With the ease and minimum investment it takes to set up an eCommerce site today, businesses are enjoying global exposure and sales regardless of their size or location. Traditional lines of the supply chain have become blurred. Retailers are selling direct to consumers on the web and in some segments find this more profitable than maintaining a storefront. Wholesalers sell to retailers in the traditional manner, but may establish a website and sell direct to consumers as well.

An importer having title and possession to goods obtained at offshore prices is in the enviable position of selling to whomever he chooses. If a greater margin is desired, a website will reach the broadest audience with minimal increase in staffing or overhead.

How much money can be made in importing is a matter of how much capital can be invested in the purchase order, and how quickly the cycle of import-to-sale can be repeated. There is generous room in gross margins of up to 77% to find the best sales model that fits with your business size.