It is estimated that as many as one in five Britons are now operating small ecommerce businesses, whether as a side hustle to generate additional income or on a full-time basis due to unemployment. However, a considerable proportion of them are committing a serious error, according to one accountant.
The blunder, commonly made by those new to the commercial world, involves fixating on the volume of sales being generated rather than focusing on the actual profit being made.
“There’s a well-known saying in the business world: ‘turnover is vanity, profit is sanity, but cash is king,'” said Harvey Dhillon, founder and CEO of UK-wide accountants Zmartly. “And as a company that works with hundreds of ecommerce sellers, we regularly see too many people focused on turnover rather than profit – and that needs to change.”
Harvey argued that turnover was the most deceptive figure in small business, yet that independent online traders — particularly those just starting out or operating from their homes — placed far too much weight on it.
Harvey added: “A person generating sales of £100,000 a year on Amazon or eBay will tell you they run a six-figure business. That sounds very impressive until you look at what actually reaches their bank account, as we do each day.
“Platform fees take a slice. Advertising to stay visible takes another big slice. Then there’s shipping, returns, payment processing, the cost of the stock itself and tax on what is left.
“We regularly see sellers turning over six figures who are effectively working full-time for less than they would earn stacking shelves and they have no idea until someone shows them the real maths.”
Harvey encouraged the millions of Britons trading products online to cease monitoring sales and begin examining the margin produced by each separate product. In essence, to scrutinise the figures closely.
He said: “Looking at the products that generate the best margins, or profit, is second nature to more experienced business owners, but for people starting out or who haven’t run a business before, it’s not the case. They’re too often focused on the vanity side, but it’s the sanity side that pays the bills.
“When we speak to these people, we urge them to drop the product lines that look busy but lose money and put all their efforts behind the few products that actually pay.
“Yes, making fewer sales can feel counter-intuitive and is far less exciting than a big sales graph, but understanding that it can mean a better and more profitable business is the difference between a hobby that drains you and a business that pays you. The number that matters is not what you sold. It is what you kept.”
