If you want to sell products in China, Tmall store would be a good choice. Before your start,you have to know what’s your cost. Except the deposit and technical service fee you have to pay to Tmall, there are other costs you should know. For example, your product’s ex work price RMB 20 and you sold it on Tmall store with a triple price RMB 60, however, you still lose money. Why?
The cost is not only including the product’s cost but also the cost incurred during the whole sale’s process. So, basically, the cost includes 6 parts below:
- Product cost ( for example RMB 20)
- Package cost(Inner packing, outer packing, label, after-sales service card, consumption of packing materials, for example RMB 5).
- Logistic cost(storage, express, for example 12 RMB). You may think that it’s not shipping free why express cost. Well, it’s one-off payment for customer no matter including express or not. They need to pay it with express cost in the end. So express cost is fixed cost too.
- Tmall sales point mode, on average 4%, for example, the sales price is RMB 60, then the cost is RMB 2.4.
- Tax, on average 8%. Tmall account use company’s bank account not personal account, you have to pay the tax, 4.8 RMB.
- Photography and produce cost, especially for FMCG(Fast moving consumer Goods). You may also need a model,PS and others, at least 3%, so it should be 1.8 RMB.
So, the total cost is 45.4 RMB, accounting for 75.7% of the total sales price 60RMB. This is fixed cost, impossible to lower it, only higher. So, a product with ex work price RMB 20, sold price on Tmall is RMB 60, with fixed cost 75%, is the balance 25%(RMB15) your gross profit?I’m afraid it’s not.
Except the fixed cost above, we also have variable cost, mainly in three parts:
- labor cost: you have to hire a team to run your Tmall store, at least 6 people(operator, designer, customer service, warehouse keeper). Since Tmall store is operated by a company, you have to pay insurances for them too. The cost will be 7500 RMB per person in Hangzhou at least(not sure how much it costs in your country, but you should know the amount), so total 45k RMB in one month. Based on the triple sales price, if your monthly turn over is 500K, the label cost is 9%. In reality, it’s already pretty good if you can control it within 15%.
- Advertising cost:promotion cost, fee to buy traffic. This is essential cost,basically it costs at least 12-15% of sales price. Quite normal if it’s up to 20%.So, mathematical time. Sales price is RMB 60, we need to sell 8333 pcs in order to get 500K RMB turnover, which means 277 pcs per day. If Tmall’s conversion rate is 2%, we need to attract 13850 UV per day. Assume that we can use advertise to attract 20% of total UV, then the amount is 2770 UV. Normally we use “Zhitongche(直通车）”, “Diamond booth(钻石展位）,”promotion tools such as Juhuasuan(聚划算）to get traffic. Assume 1 RMB per one UV, which is much higher in reality, you need to spend 2770 RMB per day. So 83100 rmb per month. Accounting for 16% total turn over.
- You need to capital chain and storage for business.
How much fund and storage do you need to prepare for your business?
Continue, assume that monthly sales is 500 K RMB, and yearly sales would be 6 million RMB.
So, in season, assume we sold 80% of our storage:
1st season: 600k sales, need fund 360 K, 70K storage cost;
2nd season: 1 million sales, need fund 600K,120k storage cost;
3rd season: 1.4 million sales, need fund 840K, 160K storage cost;
4th season: 3million sales, need fund 1.8 million, 360K storage cost;
So, you need 2-2.5 millions fund to run a business for sales of 6 millions.
In traditional business it’s not a good business if the ROI is less than 15%. With fixed cost and variable cost, there is no money left for you. Wait a moment, we forget to count the capital chain and storage we need to cover. So, finally, it’s a bad investment.
To be honest, this is the mode for most of Tmall sellers, busy and no money.
What can we do to avoid it? To make money on Tmall platform?
- per customer transaction, if per customer transaction is higher than 100 RMB, and one bill rate is higher than 1.5(one package has several products), logistic and package cost will be at least 10% lower. However, high per customer transaction will lower conversion rate.
- conversion rate, if conversion rate is higher than 3&, the advertising cost will fall more than a third.
- customer retention. The key point is Brand. Products’ quality and user experiences. In this case, products’ cost, photography and produce, package cost will raise. It’s not easy to develop a brand.