How Much Can You Expect Net Profit At The End Of The Year?

Your business is already underway and seems to be going from strength to strength. There are good sales; customers seem satisfied, the merchandise flows, but you don’t know how much you expect of net profit at the end of the year? So, this article interests you a lot. You must read it because it has no waste.

Profits are the main incentive in the business world, and obtaining the highest possible profitability is the ultimate goal of every business person. But the benefits are closely linked to other variables, such as costs and expenses; the art of managing seeks to harmonize between them.

The utility of a company is a financial indicator used to measure whether said undertaking; it generates sufficient benefits that give it sustainability or, on the contrary, it is producing losses; in other words, it is the profit obtained by your investment.

In the business and business environment, and more specifically, for convenience established in the generally accepted accounting principles, a differentiation is made in the concept of utility. That distinction is as follows:

  • Gross profit; It is the mathematical difference, between income and cost of sale, in a company. Does not include fixed, financial, or tax payments.
  • Net Income; it is calculated, taking the operating profit, and all non-operating income and expenses are added and subtracted. Which is the same, you take all the income and subtract all the expenses.

Net profit at the end of the year

The net profit is the figure resulting from adding all the income and subtracting the expenses incurred during a fiscal year, twelve months, or a calendar year and is calculated at the end of this period. That is why there is talk of net profit at the end of the year. It represents the sum of money that will be distributed among the partners.

Now, how much money should you wait? That depends on many factors and circumstances, how effective your company has been, during the financial year that has just ended, and to which economic sector you dedicate yourself. Here are some examples.

Retail clothing stores

The gross profit margins in the clothing manufacturing industry are calculated at 48.46%, but when operating expenses are added; As rental advertising and others, the net profit margin is reduced to 8%. In such a way that if your company is in the field, managing between 7 and 12% is reasonable.

Equipment manufacturing

The equipment manufacturing industry stands at 31.98%, but because this sector demands enormous capital expenditures, its profit margin stands at just 6%.

Telecommunication

The gross profit for the telecommunications sector is around 86.51%, but its net profit stands at 11% because it requires many general and operating expenses.

Economy of scale

Another aspect to consider is the economy of scale. Large stores, for example, can afford to have a percentage of profit; Relatively low due to the volume of sales they handle, but a small business could not survive with the same margin.

Why should you use dropshipping?

Dropshipping is a method widely used by starting entrepreneurs. Investing in stocks and storage space is a major financial hurdle for many entrepreneurs and with this form the risk is quite low. Anyone who negotiates well with the supplier can thus earn money relatively quickly in a simple manner. 

Still, dropshipping is not necessarily the goose that lays the golden eggs. It is obvious to start a web store with well-known and popular products, such as laptops or designer clothes.

Competition

The disadvantage of this is that various other web shops also have deals with these suppliers, also offer these products and this leads to a price war, whereby the sales price is leading. After all, you are not offering a unique product. If someone goes below your price, you are almost forced to drop in price. As a result, your margin keeps getting lower. 

It is therefore important that as a web shop owner you do not offer obvious products. This ultimately ensures the highest margins and you offer clear added value compared to the competition with unique products . 

Unique products

The starters story of Thomas Deters of Azalp is a good example in this respect. It offers ‘affordable luxury for home and garden’, including saunas. These are too large to have in stock – and especially if you are just starting out, you do not have this financial and logistical space – so he used dropshopping.

He was a pioneer from the start, offered unique products, had high margins and could clearly distinguish himself. 

What agreements do you make with suppliers?

Because you are largely dependent on the supplier with dropshipping, it is important that you record agreements  and build a good relationship with the supplier. You have to be able to trust that the producer sends the products to the customers as agreed, because you are the one who is charged for it.

If you promise to deliver within 24 hours and the producer only does this after 48 hours, you are the point of contact for the customer, who after all purchased the product in your webshop. 

Establishing long-term cooperation

Therefore, physically visit the supplier to build up a business relationship. Then you have seen for yourself how the logistics process works. If you receive questions from the customer about this, you can also answer them.

You also enter into a (long-term) collaboration and it helps if you have physically met each other. Short lines are important: if a product is sold out, for example, you must know this immediately and mention it in your webshop .

The last thing you want as a webshop is no selling, this is at the expense of your reliability. 

What are the benefits of dropshipping?

A webshop entrepreneur who uses dropshipping does not have to deal with the logistics process. You do not have to manage stock, you do not have to send parcels, so you have more time for the actual business .

Marketing

Time that you  can invest in  marketing , for example, to give your webshop even more brand awareness. Because most web shops use well-known products for dropshipping and the competition is fierce, you have to score well on findability. Therefore invest time in SEO and marketing. Make sure you get as much traffic (read: customers) to your website as possible. 

Service

At the same time, you have more time for customer service to take the service level of your company to a higher level. In today’s internet era, service is one of the most important pillars of your company.

You want to avoid a negative review, it will do your webshop absolutely no good. Satisfied customers are your best marketing tool. Word of mouth and recommendations via social media are worth gold. No advertisement can beat that.