Is it possible to sell for less than you paid and still make a profit?

At first, it might seem impossible to sell something for less than you bought it for and still make a profit but if you really understand pricing and expenses, it most certainly is possible.

An example would be a book I purchased recently through Amazon.com. I found the listing for the book and then looked at the options for buying a used copy of the book. There was a copy listed for $0.01 and when I looked at the reviews of the seller (used books frequently are sold on Amazon.com through independent book stores) they were almost all positive. I went ahead with the purchase and paid the $3.99 for standard shipping for a total of $4.00 This shipping price is standard for sellers on Amazon.com so it’s not a case of them charging an exorbitant fee for shipping. I received the book five days after ordering (including the weekend) and the book was in excellent shape. When I went to the sellers web site, I found that they would buy this same book, in the same condition for $0.25 and pay for shipping to them.

The key is to look at all costs to see how they are able to do this. When they purchase books, it’s an automated system where you go to their web site, enter the ISBN number and it lets you know how much they are willing to pay for that book and also how many copies they will buy. There is a minimum of $10 they will pay so in most cases, you would be sending them multiple books. All the seller has to do is put the books in a box and print out the shipping slip and drop the box off at the post office. The shipping slip takes care of the postage and once the books arrive the company evaluates the books to make sure they are in acceptable condition and then sends payment.

When they make a sale (mainly through amazon.com), they ship the book via USPS media mail which costs them $2.74 plus the cost of the shipping material which is around $0.07 based on the quantities they are most likely buying. Including the cost of the label and ink, total shipping cost is around $2.85. They buy the book for $0.25 for a total cost of around $3.20 and make a sale for $4.

You might wonder if it’s really worth doing this for a profit of around $0.80 but then I looked and found that in the past year, they have received over 18000 reviews on amazon.com so they made at least that number of sales (and most are for more then $0.01) and I’m sure it’s many more than that because that is just the people who bought from them and then did a review and I’m sure there are many more who didn’t bother with the review.

While there are other fixed costs in this (the cost of the warehouse, the cost of the web site etc) most of these costs aren’t affected by one more book or one more sale. The key to this type of a business is for them to truly understand all costs involved in transactions in both directions and to automate as much as possible. It wouldn’t work if they had to look up the price manually and give a quote over the phone because the cost in terms of time would be too high. If the shipping labels had to be hand done, it would cost too much so the more they can automate, the less they can charge (assuming they have enough business to cover the costs of the automation in the long run)

Other examples of selling for selling an item for less than it costs would be razors. The actual razor frequently costs more to manufacture than they sell it for. However, the profit comes from selling the razor blades so they can afford to sell for less than cost knowing that future purchases will make up for the it. Another example is video games. The video game systems frequently cost more to manufacture than they are sold for but the profit comes from the software (the games) that are sold as a follow up.

The question for you is whether you truly understand the costs in your business? Can you break things down to the point where you know where your profit truly is coming from as well as where your losses are coming from?

Too many people ignore the numbers because it’s not the “glamorous” part of the business but while not glamorous, it’s vital to the success of your business

Have a great day!

Lawrence

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