dpesko

Member
Joined
Oct 8, 2020
Messages
3
Hi all, I buy broken cellphones off of ebay, fix them and then sell them for a higher profit. I was looking at my business spreadsheet of income and expenses.

I know I should be selling the devices at a 45% markup or more. However, looking at expenses and gross income, it is only around a hundred dollar difference. (Expenses: $1,242, Gross income: $1,345)

My method is to make sure that I shopped for the devices as cheap as I could, and parts, then would add the parts to repair the device and the cost of the device together, then check the retail price that was currently trending and make sure it was at least 45% margin to the parts plus cost of buying the device before choosing to buy the device to make it worthwhile to make a profit selling it.

However, looking at the difference between the expenses and gross income of only $100, should I be calculating a 45% markup separately for the cost of parts and 45% markup for the device and then add them up to get a better number between the expenses and gross income? Or am I freaking out about nothing and this difference between expenses and gross income is normal as long as gross income is above expenses?
 

Julia Sta Romana

Top Contributor
Joined
May 2, 2017
Messages
423
Without seeing you books, it seems to me you may have neglected to account for other expenses. Did you include utilities, rent, transportation and shipping costs in your costing? You also didn't mention here your accounting for tax and labor expenses.
 

dpesko

Member
Joined
Oct 8, 2020
Messages
3
Considering I'm 17, and have graduated High School already, I don't think I have to pay taxes at this point. I do not have any rent to pay at this moment. All I am concerned with is the reason I only have $100 between expenses and income. I guess my question is, is it ok to only have $100 between expenses and income as long as the gross income is larger than expenses? I can try to lower expenses, but I do have to buy parts for the devices to repair them...
Without seeing you books, it seems to me you may have neglected to account for other expenses. Did you include utilities, rent, transportation and shipping costs in your costing? You also didn't mention here your accounting for tax and labor expenses.
 

Julia Sta Romana

Top Contributor
Joined
May 2, 2017
Messages
423
Considering I'm 17, and have graduated High School already, I don't think I have to pay taxes at this point. I do not have any rent to pay at this moment. All I am concerned with is the reason I only have $100 between expenses and income. I guess my question is, is it ok to only have $100 between expenses and income as long as the gross income is larger than expenses? I can try to lower expenses, but I do have to buy parts for the devices to repair them...
For the most part, yes, it's okay. But I strongly encourage you to start accounting for taxes and utilities even if you aren't paying for them yet. Take a look at everything that you're doing for your business, even your "free" activities like word of mouth marketing, rent and taxes.

Because even if it looks like you're making a healthy profit, if you don't account for all your expenses it's easy to underestimate your cost. What looks like a $100 profit might not be enough to pay for all your business expenses once you start paying for them yourself in the future.
 

Bathory

Member
Joined
Oct 22, 2020
Messages
4
Formula for markup rate is Gross Profit/(divide) by total COGS (cost of goods sold). At this point, nothing to do with taxes. You are dealing with cost accounting and in your case taxes or utilities not direct cost. Make sure your formula pulls number not from revenue but from gross profit. (Revenue - COGS).

It might be per your description you are calculating Profitability rate, and it looks like 7.6%. It is not too bad unless you have higher goal. As you can see there is a difference with markup rate. Just make sure you include only "COST", basically exclude all your overhead what does not relate to direct cost.

I am agreed with djbaxter you need accurate expenses calculation for taxes and to keep differences between expenses and cost might benefit you on tax return as well.
 
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