Commonly
price received for a product is broken down into parts. And selling price less overhead and costs is net profit. No matter how you choose to do math, profit on each sale made early in month can be considered as a step toward covering costs for whole of it. Sales made once all costs have been covered, are clearly sales you want. For profit per sale can now be considered net. And excepting taxes, these are bucks you can tuck into your pocket come end of month.
Where The Real Bucks Are Made
Sales totals, net, and so forth, are a continuum in real world. That is, as volume rises over a given interval, net increases. And conversely.
But to make a point, assume you are selling wigits in an offline shop at $100 that cost you $50. Also assume your overhead is $47 per wigit, provided you sell 100 each day. Your net is $3. per wigit.
On a day you sell 110 wigits while holding expenses constant, extra ten sold cost you only $50 each, your wholesale cost. And your net is now $50 instead of $3. These additional ten sales put an extra $500 into your pocket.
Again, this example in unrealistic, for there are no such clearly defined points. But hopefully it is clear that with fixed costs, there is a point above which sales cost you only that of inventory itself. And it is these sales that generate most significant profits.
Volume Also Dictates Profits Online
The same holds online. You have fixed costs such as hosting. Phone costs vary month to month, but tend to hover within a range. If you are buying products, you have inventory costs. As in example above, more targeted traffic you can draw over a month, better your chance of covering overhead and reaching high profit zone where only cost of inventory needs to be covered.
Targeted Traffic Is Precious
A CR (Conversion Ratio) of 2% is considered good by many. That is, if 1 in 50 visitors buy, you're doing fine. However, such models must be used only as guidelines. A gross check on how you are doing month to month.
Such thinking can be misleading. For one, such numbers can not tell you anything about potential value of a particular visitor. Even if another 50 hits brings an additional sale, there is no way to determine whether it will come from first of these visitors, from one in middle, or from last one.
Further any set of 50 may produce 10 sales, while next 950 produce none. The CR remains 2%. There is absolutely no way to determine which visitor will be a buyer. The best approach is to place a high value on each and every visitor. And assume each and every one will buy.
Closing Doors In The Face Of Your Visitors
Suppose that in hypothetical offline shop described above, doors had been closed an hour early and extra ten sales were lost as a consequence. It would mean in that example an opportunity was missed to pocket an extra $500.
