Monday, 29 June 2015

So you want to sell toys? Part 1 - Numbers

Something I've been asked a lot recently is how do you set up a business selling toys. Is it profitable, where to buy from and what are some tips and tricks? So let's tackle the easiest bit first by looking at the numbers involved.


It's important
to research any market before you enter it as a business and the mistake most people make is that they don't do research. You need to know who your competitors are, where you can get stock from, how much the profit is on the goods you'll sell, do you need importation licenses if you're buying from abroad, is there room for another seller and why should people buy from you, what are you going to call yourself and is the website available for it?

Tofu King: good name for a business in theory but spacing is important!

What's in a Name?
The best ones are taken. If they aren't then it's probably for a very good reason. A number of years ago I was looking at going in to a partnership on a tattoo studio and as there would only be tattooing and no piercing, dermal implants or laser removal I thought that the name 'Just Ink' would be perfect...until someone pointed out that as a website address it'd be justink which could be read as Ju Stink. Likewise see Tofu King's packaging above.

When naming Masterforce, a friend came up with the most amazing name you could possibly hope for and better still, the website was available! However a cease and desist from Hasbro would definitely be on the cards if the business took off as they aren't going to be happy with someone infringing on their intellectual property. Your name should be fairly original, don't use a character name, ideally you don't want to have to hyphenate the name for a web address: would not be a good idea for example and keep it simple. Why simple? You may be able to spell a long complicated word, others may not and also people may be unfamiliar with the word. When I ran it seemed pretty simple to me but then anyone who wasn't into Transformers would hear "Sky ward" or ask what a skywarp is.

"What do you mean they haven't heard of me?"

When it comes to starting up the costs are pretty big. When I started Masterforce I very quickly realised that a lot of money doesn't look like a lot of stock on a website. Despite a pretty big investment, the site looked absolutely bare and the launch had to be delayed while more stock was bought in to fill it up (a problem also affecting a new site I'm working on).

Pop Vinyl figures - relatively cheap but multiples add up.

So let's consider stock levels as even the cheapest item still adds up. The cost of a Pop vinyl figure for example is £6.50 or thereabouts plus VAT and shipping which is pretty cheap but if you want to have, say 20 different Pop figures on your site then if you find a wholesaler who sells individually it'll cost you £130 plus VAT. VAT is always the killer because £130 doesn't sound too bad but £156 isn't as much of a deal. If you are buying from a supplier who sells only in case quantities (as most do) then you will have to buy 6 of each character, so now you're buying 20 different characters at 6 of each which is 120 figures. 120 x £6.50 is £780 plus VAT or £836 including VAT. 

Most websites display 20 items on a page, so you've spent £836 on one page of Pop vinyl figures.

Transformers are worse.

When Warbotron launched they had a very large minimum order quantity per figure. So ask yourself, which would you prefer?


Without giving away confidential details your money would have bought you either the minmum quantity of Heavy Noisy or a brand new Lexus IS 250.

Profit Margin/Markup
The universal way of working out the selling price for an item is cost price x 2.4. Why 2.4? Because you want to double your money (the 2) and you have to take VAT into consideration at 20% (the .4). So if you buy an item for £10 you would need to sell it for £24 in order to pay the VAT man and make double your money.

Except toys don't work that way. 

Would you pay £27.99?

Combiner Wars deluxe figures work out at £27.99 each if you use that formula. Star Wars black figures (normally £22.99) would be £38.40! Worse still Apollyon from X-Transbots would have cost £203.99.

Toys work on a tiny margin where you earn about £3 profit on a deluxe figure and £5 on a Star Wars black figure. That's in a perfect world though. What happens when you get a Star Wars case which has 3 good characters and one that no one wants? Likewise Transformers. Generations Skids is expensive and not easy to find, why? Because he came even packed as 2x Skids 2x Waspinator 2 x Dreadwing and 2x Goldfire. Everyone wanted Skids, quite a few people wanted Waspinator, no one really wanted the other two. 

This is where shelfwarmers are created. In order to meet demand for Skids you need to order a lot of cases but then you get stuck with an army of Dreadwings and Goldfires that you have to reduce to try and get your money back out of them. It doesn't take a genius to work out that selling half a case at cost price or less to get rid of them doesn't make you megabucks, especially when the other half is only making you £3 a figure.

Sorry, did I say £3 a figure, I meant £2.50 because the government taxes your profit.

In short you need to sell a lot of toys and not make any mis-steps because the small profit margins mean that one bad choice will result in you losing profit from perhaps 5 or 6 figures that were profitable. Also bigger stores sell cheaper and trying to compete will erode all profit.

Let us never speak of this figure and the money it lost me.

Let's keep this one short - your shop is as good as your supplier. Combiner Wars Wave 3 sold amazingly well for Masterforce but Wave 4 has sold next to nothing despite containing some good characters. Why? Because our stock arrived late. We use the biggest distributor in the US for Hasbro products but they have become increasingly unreliable. Our Frozen dolls ordered in September 2014 which would arrive in December 2014 right in time for Christmas currently have an estimated shipping date of September 2015. Imagine that order was for Age of Extinction toys and the loss would be huge. Biggest isn't always best, reliability is.

A number of Asian suppliers and manufacturers only accept bank transfers which means you are literally sending cash to a stranger on the other side of the world without any sort of guarantee other than their word. I don't think I need to explain how much of a minefield that is. The ones who accept Paypal will usually charge between 4 and 5% as a handling fee, which is understandable but is another expense eating your profit.

So let's leave it there for now and in part 2 we'll look at the process of actually selling.