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View Full Version : Profit Margin (Is it worth all the effort?)


rtjward
27-01-2003, 08:42 AM
This is sort of on the same lines as the thread that Shamrocker started below regarding margins and what people set theirs at. I am in the process of getting an export business up-and-running (exporting British food-stuffs) and should be getting my first order in within the next few weeks. When deciding on how much margin I wanted, I obviously didn't want to price myself out of the market and wanted to win a deal, whilst at the same time I wanted to make money. The potential customer who has informed me he is just drawing up an order to give to me has said that he cannot get my products cheaper anywhere else and in fact I am quite a lot cheaper! I actually thought the prices would be slightly on the heavy side after having a chat with my girlfriends parents who have been in the export business for over 30 years.

However, now that I have had time to think over exactly how much work would be involved and the margin that I'm after, I would have to have sales of a v.large amount to be earning a profit equal to my current salary (I'm currently working full-time whilst setting up the business). I am therefore wondering whether it is all worth while?! Do I need to start increasing my prices? If so I'm a little wary that I then won't win business. If I'm asking for about the right amount of margin (which is 10%) then I would ask the question, how do you make money exporting food? Unless you are exporting vast amounts. I have done quite a bit of research and I know that margins on food are not particularly high.

Any thoughts/ideas/advice would be appreciated.

Russell.

DavidHa
27-01-2003, 09:49 AM
Hi Russell,

Depends what type of food you're exporting, and to where your exports are destined.

If you've not done any market research into your competitors do this now, give them a call and get a quote. You know the costs, do the math and work out what they're making. Take into consideration the size of company with whom you are dealing and what their costs of sale are likely to be.

You can probably get caught up with scientific measures, but it all boils down to what the buyer will pay for, what's the value add you're offering.

If the products you're exporting are perishable and your service guarantees fresh delivery, value. If the goods are restricted and the import of such goods requires paperwork to be completed, value. If the availability or lead times of the products are limited and you can speed up or bypass this, value.

When you've identified your value add, put a price on it (covering both your costs and your profit expectations) and remember...

"true value is never discountable."

...the customers who are worth doing business with will know this and be willing to pay the price.


Have a great week.



David

Louise Coldwell
27-01-2003, 11:29 AM
Hi Russell

regarding profits etc i am a bit like yourself.

I have stuck to quoting customers on a very small profit margin,as i can then save them money at the same time,however i knew from the start that by pricing so low i would need quite a few customers to be able to bring out a large amount of profit.

Slowly but surely getting there as i think its just a case of being patient and trying to build up your customer base.

In my first couple of months i thought where and how am i going to make money but now my customer base has grown i'm starting to see the benefits as i'm sure you will.

Anyway good luck with this one and speak soon

Lou
Glide Logistics

rtjward
28-01-2003, 08:09 AM
David:

Thanks for your comments. In terms of what food I'm exporting, I am initially targeting the ever growing expat market so I'm exporting famous British brands i.e. Heinz/McVities/Cadbury's/Robinsons/Ambrosia, needless to say what each one manufactures! With regards to researching my competition, this is a lot more difficult than you might expect, made even more difficult due to the nature of my business. To be honest, not that many people are actually exporting British foods, well that's not exactly true because more food manufacturers here in the UK are now exporting than ever before, however what I meant was that not many people export a wide range of British foods like myself. An importer can come to me and buy a vast range of different branded products which I source from one single supplier to keep the prices low. If an importer has to go to a number of different suppliers then he would without question be paying more for his/her products than from myself. It would also be very unlikely that he/she could negotiate small quantities from the likes of big brand names like Heinz/McVities et al. I suppose you could say that is part of my "value add". So, back to my competitors, I have been told by my potential customer in San Francisco that he has struggled finding somone who can supply him with the products he requires, there just doesn't seem to be many people out there who supply a range of products. My only immediate competitor/s to my mind is that of my supplier who is a wholesaler, I know that they do export but are literally only just playing at it and will not deal with slightly smaller customers like myself. It is certainly a very good and valid question about competitors but actually trying to get answers to the obvious questions like who they are? and what they charge? just isn't that easy.


Louise:

Thanks for describing your experiences a little. At least I now know that it isn't only myself that is in this situation. Have you since increased your prices or stuck with the same prices but increased your customer base? It is still a concern to me that to bring in a profit equal to my current full-time salary I would have to have sales of what I would consider a large amount! I suppose I may have to suck-it-and-see. One thing that my girlfriends father always says to me is that once you get started, you just don't know what opportunities will open up, and they do! He also says if you want to make something happen you just have to think it and have a clear vision of it in your mind.
I'd be interested in hearing more about your business and how you got started? I would have thought that logistics/haulage is quite an edxpensive business to get into.

Thanks again both of you.

Russell.

DavidHa
29-01-2003, 08:49 AM
Hi Russell,

So you supply traditional british produce to traditionally british people throughtout the world.

Sound's like a great idea.

Do you operate a list less or cost plus model when pricing your goods?


David

rtjward
29-01-2003, 11:57 AM
Hi David,

Yes, I target the expatriate market but also the ever growing overseas market for demand for famous British (branded) foods, Heinz/McVities/Robisons/Ambrosia etc.

The expat market is growing all the time and you would be surprised how little British food is available to them, obviously depending on which country we're talking about.

Excuse my ignorance but I'm not sure what you mean by "list less or cost plus model", I may well know it by some other term, but this does not ring any bells.

What line of business are you in?

Russell.

DavidHa
29-01-2003, 12:08 PM
Hi Russell,

List Less is the current retail price less a discount based on order value. This price less your buy price is then your profit.

Cost plus is your buy price marked up to include your costs and profit margin.


I run a marketing consultancy for IT resellers, distributors and vendors across the UK, but have also had success in Europe and the US.

Your idea has a degree of nostalgia and reminiscence to it which paints the picture of the olden type convenience stores of the late 1800's.

You could always set up associations with your customers to send back national foods from the country of residence, to sell back into the UK for expats from those countries too.


David

rtjward
29-01-2003, 12:30 PM
David

Now I understand what you mean. I was sort of thinking on these lines.

A list less basis is not really the best way for me to operate and it's far easier for me to operate on a cost plus basis.

Your right regarding the Associations idea, it's just a case of the size of the market here in the UK for foreign foods which obviously depends on which country we're talking about. It is an idead that I had considered i.e. importing. Not just importing food either but anything that would appear to have a marlet here in the UK.

"Your idea has a degree of nostalgia and reminiscence to it which paints the picture of the olden type convenience stores of the late 1800's." You'll have to fill me in on this I don't think I'm quite on the same lines as you.

How do you market IT resellers, distributors and vendors then?

Russell.

DavidHa
29-01-2003, 01:49 PM
Russell,

It paints images of the old Bovril ad's, black fronted georgian shops with gold lettering and an old wooden counter inside...

...maybe I've had too much caffiene!


I market them to specific sectors or horizontals, I also do a bit of work for other non-IT companies and am currently negotiating my first book which I hope to get published in the next two years.

This weekend I'm off to climb Kilimanjaro to help complete one of the chapters. Don't ask why, I've been asking myself recently after 6 months of training.

I'll keep my eye out for expats whilst I'm out there.

Importing foriegn foods and goods must have a market both for immigrants and british nationals. Obviously Deli's are having their day at the moment with the various imported cured meats, breads and preserves, but if you look at areas like coffee, there is a rapid decline in the availability of true Aribica beans as the market has been flooded with Robusta from Brazil and Vietnam and it's even claimed that the big importers are now mixing Aribica and Robusta to reduce both cost and price.

Lots of opportunity.


David

rtjward
29-01-2003, 04:07 PM
David,

Ironically the first product that I'd considered importing was Coffee! Believe it or believe it not! However I thought that the market had been flooded to be honest and thought I should devote my time to getting my exporting sorted out.

You seem to be very knowledgable about this David, I'm intrigued where you have picked this up from? Press? Contacts? There does indeed seem to be opportunities and I would be interested in hearing more. I can certainly track down suppliers of coffee as I have tracked down suppliers for other products and also had help finding buyers for products through the same means.

Regards

Russell.

DavidHa
29-01-2003, 04:37 PM
Russell,

I have a number of passions in life, strangely coffee is one of them. I have a number of contacts also.

The question is at what level do you enter the market, broker or purveyor?

The market has good and bad points, the coffee market is at its lowest for some time with the cost per kilo less than an eigth of it's price two years ago, yet the street price of coffee has continued to rise with connoisseur brands such as Blue Mountain still retailing at around 17 for 500g.

The downside is that growers are earning less and are ill equipped to grow and maintain expensive crops, therefore resorting to growing Robusta, a lower quality grade, and using underhand methods to remove the flavour and pass it off as something else (usually soaking the beans in butter or fish oil).

The opportunity is to find the places in the world where farmers can afford to grow Aribica and working with them to export it over here through a proper fair trade programme (not the ones you see today - these pay the same price per kilo for Robusta and Aribica so the majority of farmers choose to grow Robusta as they make more profit!).

Another area I'll be exploring on my trip to Kilimanjaro (which is surrounded by coffee plantations).

Opportunity?

David