Minimum profit per sale: how to set a profit floor that protects margin on cheap eBay items

Why do cheap items need a minimum profit per sale?

A minimum profit per sale is the smallest amount of money, in pounds or dollars, that you accept from any single eBay order after every cost is paid. It sits under your normal markup as a floor. If the markup would earn less than the floor, the price goes up until the floor is met.

Cheap items need this more than anything else in your shop. A percentage markup works well on a £60 item, where 20% is £12 of profit. On a £4 item the same 20% is 80p, and that 80p has to absorb things that do not shrink with the price: the per-order fee, a refund now and then, the odd item that never arrives, and the time it takes you to handle the order.

A floor is the simplest way to stop those small sales quietly losing money. It also tells you which products are not worth listing at all: if the floor pushes the price far above what buyers pay, the product does not fit your shop.

What costs does a profit floor have to cover?

Before you choose a number, list every cost of one sale. Some are a percentage of the sale, some are fixed per order, and some are averages you spread across all orders.

On eBay UK, the fees for business sellers include a final value fee that varies by category and is worked out on the total amount of the sale, which includes the item price, postage and any applicable taxes. There is also a per-order fee of £0.30 for orders of £10 or less and £0.40 for orders over £10, and a regulatory operating fee of 0.35% of the total sale. The page notes that its fees are shown excluding VAT.

On eBay.com, eBay's seller fees page says the final value fee ranges from 2.5% to 15.3% depending on the category, calculated on the total amount of the sale including shipping and sales tax, plus a per-order fee of $0.30 for orders of $10 or less and $0.40 for orders over $10.

The per-order fee is the cost that hurts cheap items most. On a £5 sale, a 30p fee is 6% of the whole order before any other fee is counted.

How do you calculate a price from a minimum profit per sale?

The trick is to gross up the price so the percentage fees are paid on the final price, not on your cost. The formula is:

Price = (item cost + fixed fees + profit) / (1 minus the total of the percentage fees)

You run it twice: once with your normal percentage profit, once with your floor. You list at whichever price is higher.

A worked example

Example, with hypothetical numbers: suppose an item costs you £4.00 delivered. For the arithmetic, assume a final value fee of 13% (a hypothetical rate; check the real rate for your category on eBay's fee page), the 0.35% regulatory operating fee and a 2% ad rate. Together that is 15.35%. The per-order fee is £0.30 because the order will be under £10.

1. With a 20% markup: profit is £0.80. Price = (4.00 + 0.30 + 0.80) / 0.8465 = £6.03.
2. With a £2 floor: Price = (4.00 + 0.30 + 2.00) / 0.8465 = £7.45 (rounded up).
3. Check: at £7.45 the percentage fees are about £1.14. Take that, the 30p per-order fee and the £4.00 cost away from £7.45 and about £2.01 is left.

The floor wins here, so the listing goes up at £7.45. On a £40 item, 20% is £8, far above a £2 floor, so the floor would make no difference. That is exactly how a floor should behave: it only acts where the percentage is too thin.

Watch the per-order fee boundary. If your price crosses £10 or $10, the per-order fee rises from 30 to 40, so rerun the sum at the new fee.

How do you choose the right floor for your shop?

There is no correct figure for everyone. A good floor comes from your own numbers, not from a rule of thumb. Work through these questions.

• What does a bad order cost you? Look back at refunds, returns you paid postage for and parcels that never arrived. Divide the total loss by the number of orders in the same period. That average must be covered by the floor, or every good sale subsidises the bad ones less than you think.
• How long does one order take you? If you spend ten minutes on each order, including messages and buying from your supplier, decide what those ten minutes are worth to you.
• How much does your ad rate vary? If you raise ad rates in busy months, the floor should still hold at the highest rate you use.
• Which marketplace and currency? Set a floor per marketplace. A $2 floor and a £2 floor are different amounts, and fee rules differ between eBay.com and eBay.co.uk.

Start with a figure you can defend from those numbers, run it for a month, then look at which listings sold and which stopped selling. If the floor priced a whole group of products out of the market, that is useful information about those products, not a reason to drop the floor.

Percentage profit, fixed profit or both?

Some sellers use only a fixed profit, for example £3 on everything. That protects cheap items but underprices expensive ones, where the risk and the money tied up in a refund are larger. Others use only a percentage, which underprices cheap items. Using both, with the floor as a minimum, covers both ends.

Our comparison of percentage vs fixed markup goes further into the trade-off, and the guide to your break-even price on eBay shows how to find the price where profit is exactly zero.

What goes wrong with profit floors?

A floor is simple, but a few mistakes undo it.

• Leaving out the per-order fee. It is easy to forget because it is not a percentage. On cheap items it can be the largest single fee.
• Ignoring the ad fee. eBay charges a Promoted Listings general campaign fee as a percentage of the total sale, including postage and taxes, at the rate in effect when the item sells. If you raise the rate later, old prices may fall below your floor.
• Applying the floor before fees. A '£2 profit' added to cost and then charged fees on is not £2 after fees. Always gross up.
• Rounding down. If you use .99 endings, round up to the next ending, not down, or the floor is broken by a few pence on every sale.
• Not repricing when the cost moves. A floor set once at listing time is only right while the supplier price stays the same. When the cost rises, the price must follow.

Repricing software can apply the floor for you on every change. Dropizon's pricing formula, for example, includes a minimum profit floor alongside a percentage or fixed markup, with eBay fees grossed up into the price, so each new supplier price is checked against the floor before it reaches eBay.

What to do next

1. List every cost of one sale using the table above, with the real fee rate for your main category.
2. Work out your average cost of a bad order from the last few months of records.
3. Pick a floor per marketplace that covers that average plus a profit you are happy with.
4. Recalculate your ten cheapest listings with the grossed-up formula and the floor.
5. Raise any that fall short, and end the ones where the floor pushes the price well above what buyers pay.
6. Recheck the floor whenever eBay changes its fees or you change your ad rate.