Thursday, April 21, 2011
Part 2 :The Heartsy Deal - The Math
I know a lot of people dread working with numbers but if you are going to consider offering a promotion on Heartsy you really have to spend some time doing the math to ensure that you come out ahead of the game and don't end up losing money.
Realize that the discounts offered on Heartsy are fairly substantial - Jacaranda Designs was 62%. I offered a $19 coupon for $50 worth of goods.
Some of your buyers will purchase products that total more than the coupon value. However, many will purchase goods totaling less than the coupon value. During my promotion, I would say approximately 50% of my customers purchased more than the $50 coupon value.
When figuring out your financials ahead of time, assume that buyers will NOT purchase more than the coupon value. This is the worst case scenario.
Following are the points you have to consider:
1. Wholesale discounts.
Heartsy are generally a little more than wholesale discounts. The first thing to figure out is whether you are generally able to afford to give wholesale discounts on your Etsy merchandise. I price Jacaranda Designs jewelry so that I am able to offer wholesale prices to customers buying in bulk. I think my prices are fair and reflect the cost of the materials and time taken to produce them.
If your products are priced at a level where you cannot generally afford to offer customers wholesale discounts, then you may find that you will lose money on a Heartsy promotion and it may not be worthwhile for you.
If you are able to offer wholesale discounts, then read on...
2. Etsy Fees
Etsy fees are 3% of the selling price of a product. NOTE: Etsy take a percentage of the price the item is listed for and sold for in your shop. They do not know that a buyer has purchased the item using a coupon worth much less. If you sell a $50 item, your Etsy fees will be 3% of $50 ($1.50), not 3% of the cost of the $19 coupon.
3. Paypal Fees
You will be paying Paypal fees on the money transferred from Heartsy to your account. When you send out the invoices to customers who have purchased over the coupon value, and they pay you, Paypal will take a portion of those payments too. I rounded out that expense to 3% of payments received. This is 3% of the $19 value plus 3% of any dollar amount spent above $50.
If a buyer purchases a coupon that entitles them to say $50 worth of goods from your shop, the coupon can include the shipping so effectively you're giving a discount on the shipping in addition to the cost of the item(s).
For example, a customer with a $19 coupon worth $50 could purchase a $40 necklace plus shipping of $3.50. The total of $43.50 falls within the $50 value so the customer is not paying extra for the shipping. You now need to pay the shipping out of the $19.
5. Heartsy Fees
There currently are NONE - YAY!
So taking into account the above costs here is an example:
Amount paid per coupon: $19
Etsy fees per coupon: $1.50
Paypal fees per coupon: $0.57
Shipping per coupon: $3.50
Left over per coupon: $13.43
From the $13.43 deduct the cost of making your product. This will obviously vary for everyone.
This is a very basic approach but it will give you an idea of what to expect.
I hope it helps you out. Next week I will be writing about efficiency processing your Heartsy orders and staying on top of everyone.
To read Part 1 of my Heartsy experience, click here.
Happy Easter everyone!