What does it cost to sell online? Eventually, the first thing is the cost of your products, producing your jewelry, which is all-important. Let us take, for example, digital products where you basically have no cost of the product itself in terms of materials. For jewelry, that the fact that we are selling online plays a crucial role. What is the difference between selling online and offline?
In an offline scenario, you have to produce the jewelry before you sell it, which means that you have to invest in all the materials. Diamond or fine jewelry can be rather expensive, and at the end, you will find yourself having quite an upmarket store. When it comes to online selling the key difference lies in the fact that we receive the money or the obligation from our customer to buy the product before it is even produced. How does it happen? Basically, what we sell online is photos and videos. Information. Whether we have the completed piece of jewelry or we are at the stage of production, once we have the model of the jewelry, we can start selling it. How do we use it while providing a good service? We simply solve it with longer shipping and handling time.
Meaning, if I do not have a ready jewelry piece in front of me, I can assure the potential customers that it will be shipped in a few weeks period (or whatever time is needed for each order to be dispatched, as quickly as possible). This way I will be able to increase my stock without setting money aside. Thus, selling online saves us a lot on stock.
Next comes shipping of your jewelry. When we start selling online internationally, the shipping increases. Normally the shipping costs are better to be covered by us, the sellers. We do not expect our worldwide buyers to pay for shipping. It will make the purchase much easier for the clients, and certain marketplaces also require that we show the final price to our client. So, one of the very important expenditures we will have is the shipping price.
When calculating costs, our top-priority goal is to lower shipping expenses as it plays a very important role. Especially if we say that we want to use expedited and fast shipping like FedEx, UPS, DHL, etc. These prices appear to be very high compared to your jewelry, especially with fashion jewelry. Not with the $5000 jewelry but with $200 or $500 item. here we have to think twice how to lower these costs. Naturally when you send your jewelry that is between $15 and $50, no one would expect you to send it with a fast delivery company. It is normal to use Ecopost, some economy international shipping, so that these items will arrive in 3 to 4 weeks. But on the other hand, by adding expedited jewelry for your jewelry you become competitive with the local manufacturers worldwide.
Marketplaces and associated fees
The next component of your selling cost is the marketplaces itself. This is an important component as some marketplaces charge you 20% to 25% of the final selling price. Each marketplace has it’s own structure. Normally, there are two components:
- The selling fees. This means if I sell $100 item on eBay I will pay 9% of this and $9 will go to eBay. On Etsy it is 3.5%, Amazon will charge 20% without FBA, which stands for Fulfillment by Amazon. So these costs are quite high and the first one is the final fee. But this is a good part because it means that we have already sold this item. Normally, these are not the things that are to be considered because every seller on this marketplace will pay the same rate. Which means that we can simply include these expenses when we calculate the price and everyone will be doing the same thing. As you can see, it does not necessarily mean that we are in trouble compared to everyone else.
- Insertion fees. These are more important. These can be fees for handling your storefront, fees for placing your item on the marketplace, promotions… These things must be taken into account, as you pay them before you sell your jewelry.
Once we enter an additional marketplace, exactly as if we open an additional sales channel, it does not matter whether it is online or offline, we will have to formulate and allocate a budget in order to have this marketplace or channel work for you.
In the beginning, it might be selling your jewelry even below your cost, at dumping prices so that you will actually create the initial flow of deals into your store. Marketplaces create a social proof and highlight the distinction between experienced and inexperienced sellers. To show that you are an experienced seller and you know how to work in this specific marketplace you will have to create the initial sales history, and this history comes at a cost.
This is the jewelry that you produce in quantities and sell at a minimal revenue or break-even so that you simply cover your production, shipping, and handling costs. All these things have to be done and this is a budget you have to allocate.
All this together makes your marketplaces selling costs. Remember that the final fees are less critical as everyone on the same marketplace pays the same. And the insertion fees and all the promotional fees do play a role. Take into account paying for promoted items or making any discounts, because the specific marketplaces require you to sell some part of your jewelry at discout. For example, the eBay best practices is putting 30-60% of your items on the different kind of sales and discounts varying from 5% to 60%.
Clearing fees and returns
The next point is clearing fees, meaning that your payment processing. If we speak about Paypal, it is more than 3% at the beginning, especially speaking of international sellers. And this is not all, it is also the conversion fee and the different merchant account fees that you pay. So the clearing fee is the next expense and here the good solution would be checking in the beginning to make sure what chain of lowering these fees. Not is the always is it good to start with Paypal.com if you are in some country that does not allow you to receive US dollars in your account. If you are in UK or in an Asian country, you will have to choose some local Paypal. First of all, local Paypal cost less. They simply have better rates than Paypal.com. The second thing is to check if you can receive money in the specific currency that you accept.
For example, Paypal.com does not allow you to receive money in Israel in dollars, which means the conversion will be very expensive. The thing is, in addition to opening the account I should consider what my main target country will be to make sure that I have the same currencies in my account as I am planning to receive the money from, so I do not pay the conversion fees. There are many services like Payoneer, World First, that provide different kinds of solutions to optimize this chain.
Another thing that people often forget to take into account is return fees. The normal requirement of almost every marketplace would be that you handle the return. You can forget about marketplaces, it is just a question of good customer services that you know to price your product correctly so that you know the percentage of the returned items. Whether it is 2% or 5%, once you have this problem, you will never require your client to pay for it. Because it adds a lot to your trustworthiness, your image and how the customer sees the potential problems or things to solve once he pays and buys from you. It is also worth taking into account your normal return rate to add it later to your price.
Logistics and manpower
Logistics is one of the three main ingredients of successful selling online, together with customer service and technology. Improving the logistic fees is not only about shipping carriers that you use. It is also about the shipping insurance and the fulfillment centers that you use, as all these structure is very important for your successful e-commerce. It is not only about the product; it also means arranging the complete deal flow with your buyer.
And now we come to a very interesting cost ingredient, which is very hard and yet very important to understand. Behind all the components that we speak of (customer service, logistics, and the technology) stand real people. So it is very important to calculate the manpower costs.
Even if it is your time, and you are in the US and the minimum wage rate is $7.25 an hour. Probably you are not a student who works for this money, but is nevertheless crucial to take this time into account. Optimizing this time will save a lot of money, and most probably outsourcing the correct work to the correct people will help a lot. From our experience of working with hundreds dozens of jewelry stores online – we would never recommend having less than a half-time job position for eCommerce. And this makes manpower the most heaviest expense in the whole operation.
The final component is the technology. The goal of investing in the good technology and tools is saving your time. Especially taking into account that 90% of our time goes to maintaining the existing structure and only 10% of our time in every business goes to development of the new business. Even if we free another 10% from our time by using technology and even if we say only 10% of our time – we bring our business to absolutely different place.
We often hear “Oh, this program is very expensive for me.” It is clear that paying a few hundred dollars for the technology feels heavy burden. But manpower costs and technology costs go hand in hand. Calculate carefully who is involved in your online operation. If you already have a person working part-time on your eCommerce, technology can optimize the most heaviest paragraph in your expenses. If optimized properly they can bring a solid comparative advantages towards other sellers.
There are many lines in your expenses sheet. The most important thing is to concentrate on things that you can influence. It does not matter how much you pay the specific marketplace – all sellers are in the same position. We shouldn’t choose Etsy over eBay because the first one takes only 3.5% and the second one takes 9.25%. Concentrate on things that you configure, and especially manpower – the parameter that most business owner ignore. Good automation will save a lot of time and also improve the quality of your work. Which is probably the most important thing for the stable jewelry eCommerce business.