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Lots of talk about the gross money coming in. But it seems to skim over the fact that there's a real product being exchanged. Records being sold at $3 seems lik

Lots of talk about the gross money coming in. But it seems to skim over the fact that there's a real product being exchanged. Records being sold at $3 seems like a bargain, but what was the cost of these records to begin with? Sure you made $10,000 in sales, but that's not $10,000 profit, and definitely not a ROI of 2000-3000%.

parsnips 14y ago
If he "inherited" the inventory from a firm that no longer exists, it could very well be profit. Think of how debt collection firms make money.
- s_henry_paulson 14y ago
  You can see in the ads that the inventory came from his own business, so he must have paid for them at some point.
brendanib 14y ago
It's true, this was a liquidation sale, but most of the records came from a batch of 8000 records that I bought for $2000. I was being a bit flippant with the ROI percentage, sorry about that - just trying to stress how easy the process was - I really was blown away when I kept asking people how they found out about the event, and they said they saw an ad for it on Facebook. One thing to keep in mind, as far as calculating ROI, is that if I were to continue to run the business, these are all new customers that I could continue to sell to, so the return on investment isn't purely a one-time thing - the LTV of each customer is way more than they spend in one day.
- veyron 14y ago
  A quick scan on ebay shows that you were charging less than the buy-it-now prices. One other difference is that you were advertising for an event on facebook (as opposed to an external site). Do you pay per click to the facebook page or pay per action (attend or won't attend)?
  - dlikhten 14y ago
    And excellent question there. FB event may be protected already via this.
  - brendanib 14y ago
    Great question. On Facebook you pay per click or "per mille" (CPM) - it'd be great if they added "attend" as an event parameter in the Ads API so that advertisers could optimize their ads for event attendance: https://developers.facebook.com/docs/reference/ads-api/optimizedcpm/ https://developers.facebook.com/docs/reference/ads-api/optim...
Daniel_Newby 14y ago
The ROI on the choice to use Facebook is the cost of selling $10k of records by non-Facebook means minus the cost of Facebook ads ($150). That's easily several hundred percent.
- rio517 14y ago
  But that omits the cost of the records he is selling.
  - achompas 14y ago
    Read: The ROI on the choice to use Facebook How much more did he sell by using Facebook than if he had sold without using Facebook?
  - briandear 14y ago
    Profit = Selling Price - Cost of Goods Sold. Cost of Goods Sold = original price of goods + marketing costs + labor cost + facilities costs. This isn't the precise formula, but it's close enough. It's still a good ROI, but it's definitely not scalable as this was a liquidation. You also have to calculate the tax rate on the sales as well. If you're grossing $10,000 and you spent $2000 on records, 8 hours of labor (paying yourself $15 per hour) + the cost of the facilities (let's say $100 for the day) and $150 on marketing. You'll still pay sales tax on the full $10,000. Let's say your sales tax rate is 8%, that means $800 in sales taxes. So now, you're at $9200, so now we can subtract your costs, which, according to my hypothetical approximations total $2370. If you want to exclude your labor cost, you can do that, but it'll still be taxes one way or another, depending on how you claim it. So your profit is $9200-$2370 which is $6830. For a short term capital gain (which is what this is,) the rate is approximately 25% for Federal, however you also have state capital gains taxes (it's either taxed as ordinary income or as a capital gain,) which will be about 7% (depending on the state), but that 7% is taken off the total gain of $6830. (25% + 7%) of $6830 = $4645. From the $15 per hour you get paid from your wages, you'll then get to pay social security, self-employment and medicare taxes on top of the federal income taxes. You can avoid this by not paying the salary, but you can't work for free in the eyes of the IRS.. you'll either pay the tax on the wages, or the total gets added to the profit and taxed as a capital gain. Of course, you'll get a slight home "office" deduction for using your backyard as a facility, of course that gets offset by the facilities fee you've earned (and will be taxes on.) It's cheaper though, to charge yourself the facilities fee because that comes off the capital gain, which lowers the taxes on the gain, while only nominally increasing your personal tax (due to deductions.) Let's just round the total profit at $4600. So, $150 in Facebook ads to earn $4600.. still a pretty nice ROI, but it certainly isn't $10,000. We all know the seller isn't going to go to this extreme in either paying or reporting this income to all the jurisdictions involved, but when calculating ROI or other things upon which a business is based, it's a little disingenuous to claim "making" $10,000 when in fact, that number is far less. But I get it, $10,000 makes for a nice headline.
AznHisoka 14y ago
$150 in ads = 150,000 people who accepted invitation or 150,000 people who clicked to view the ad? if it's accepting an invitation, that's a STEAL. Although not 100% of ppl will actually go, it'll be a huge %. You're basically paying for a stronger intent than simply casual interest.

parsnips 14y ago

If he "inherited" the inventory from a firm that no longer exists, it could very well be profit. Think of how debt collection firms make money.

s_henry_paulson 14y ago
You can see in the ads that the inventory came from his own business, so he must have paid for them at some point.

brendanib 14y ago

It's true, this was a liquidation sale, but most of the records came from a batch of 8000 records that I bought for $2000. I was being a bit flippant with the ROI percentage, sorry about that - just trying to stress how easy the process was - I really was blown away when I kept asking people how they found out about the event, and they said they saw an ad for it on Facebook. One thing to keep in mind, as far as calculating ROI, is that if I were to continue to run the business, these are all new customers that I could continue to sell to, so the return on investment isn't purely a one-time thing - the LTV of each customer is way more than they spend in one day.

veyron 14y ago
A quick scan on ebay shows that you were charging less than the buy-it-now prices. One other difference is that you were advertising for an event on facebook (as opposed to an external site). Do you pay per click to the facebook page or pay per action (attend or won't attend)?
- dlikhten 14y ago
  And excellent question there. FB event may be protected already via this.
- brendanib 14y ago
  Great question. On Facebook you pay per click or "per mille" (CPM) - it'd be great if they added "attend" as an event parameter in the Ads API so that advertisers could optimize their ads for event attendance: https://developers.facebook.com/docs/reference/ads-api/optimizedcpm/ https://developers.facebook.com/docs/reference/ads-api/optim...

Daniel_Newby 14y ago

The ROI on the choice to use Facebook is the cost of selling $10k of records by non-Facebook means minus the cost of Facebook ads ($150). That's easily several hundred percent.

rio517 14y ago
But that omits the cost of the records he is selling.
- achompas 14y ago
  Read: The ROI on the choice to use Facebook How much more did he sell by using Facebook than if he had sold without using Facebook?
- briandear 14y ago
  Profit = Selling Price - Cost of Goods Sold. Cost of Goods Sold = original price of goods + marketing costs + labor cost + facilities costs. This isn't the precise formula, but it's close enough. It's still a good ROI, but it's definitely not scalable as this was a liquidation. You also have to calculate the tax rate on the sales as well. If you're grossing $10,000 and you spent $2000 on records, 8 hours of labor (paying yourself $15 per hour) + the cost of the facilities (let's say $100 for the day) and $150 on marketing. You'll still pay sales tax on the full $10,000. Let's say your sales tax rate is 8%, that means $800 in sales taxes. So now, you're at $9200, so now we can subtract your costs, which, according to my hypothetical approximations total $2370. If you want to exclude your labor cost, you can do that, but it'll still be taxes one way or another, depending on how you claim it. So your profit is $9200-$2370 which is $6830. For a short term capital gain (which is what this is,) the rate is approximately 25% for Federal, however you also have state capital gains taxes (it's either taxed as ordinary income or as a capital gain,) which will be about 7% (depending on the state), but that 7% is taken off the total gain of $6830. (25% + 7%) of $6830 = $4645. From the $15 per hour you get paid from your wages, you'll then get to pay social security, self-employment and medicare taxes on top of the federal income taxes. You can avoid this by not paying the salary, but you can't work for free in the eyes of the IRS.. you'll either pay the tax on the wages, or the total gets added to the profit and taxed as a capital gain. Of course, you'll get a slight home "office" deduction for using your backyard as a facility, of course that gets offset by the facilities fee you've earned (and will be taxes on.) It's cheaper though, to charge yourself the facilities fee because that comes off the capital gain, which lowers the taxes on the gain, while only nominally increasing your personal tax (due to deductions.) Let's just round the total profit at $4600. So, $150 in Facebook ads to earn $4600.. still a pretty nice ROI, but it certainly isn't $10,000. We all know the seller isn't going to go to this extreme in either paying or reporting this income to all the jurisdictions involved, but when calculating ROI or other things upon which a business is based, it's a little disingenuous to claim "making" $10,000 when in fact, that number is far less. But I get it, $10,000 makes for a nice headline.

AznHisoka 14y ago

$150 in ads = 150,000 people who accepted invitation or 150,000 people who clicked to view the ad? if it's accepting an invitation, that's a STEAL. Although not 100% of ppl will actually go, it'll be a huge %. You're basically paying for a stronger intent than simply casual interest.