It is important that every Tradebank client identify and understand your true cost of doing business by trading. Once you determine your actual investment in the products or services you sell, you are able to determine the actual cost of your trade dollars, recognize the purchasing power they provide and make wise purchasing decisions.
STEP 1 — Know Your Cost of Goods
Every business that sells a product has an acquisition cost for the goods they sell. The acquisition cost; otherwise referred to as your cost of goods, refers to the actual replacement cost of the product that is sold. If you provide a service, you have no real cost of goods related to your time. For those who say, time is money, remember, no matter how much you charge, you are only able to collect your fees when you are performing your service for someone. It doesn’t matter if you charge $10 an hour or $300 an hour, until you have customers your fees are a moot point.
The Retail Selling Price of Your Product $100
Tradebank Brokerage Fee is 12% when you spend the T$100 your fees are $12
Your Wholesale Cost of Goods is $50
The Total Cost of Your Trade Dollar $62
That means for every $100 in trade purchases you make your investment is only $62.
STEP 2 — Your Gross Profit Margin
Once you know your acquisition cost, you can figure out your gross profit margin. For instance, if you sell vacuum cleaners, how much do you pay your supplier for each unit you have for sale? When you pay your supplier $50 for the vacuum and sell it for $100, your gross profit margin is 50%, or $50. Your gross profit margin means that for every dollar generated in sales, your company has $50 left to cover basic operating costs and profits. Remember, we are talking about gross profit margins, not net profit margins.
STEP 3 — Gross Profit Margin = Wholesale Purchasing Power
One of the best reasons to trade is to conserve your cash and turn the new trade revenue acquired into a purchasing discount.
STEP 4 — Making Wise Buying Decisions
Once you have figured the cost of your trade dollars based on your own business model, you can evaluate your purchasing opportunities based on price versus cost. For example, the business owner who sells vacuums wants to purchase an office chair. Compare these two scenarios for the same chair:
Cash Price at Target: Retail Price $199 Sale Price: $179
Tradebank Client’s Trade Price $199
Consider PRICE versus ACTUAL COST
Paying cash at Target costs $179 out of his cash flow. Paying with trade dollars at retail price from a Tradebank client costs him $123.38* (*see step one).