Success in any retail or reselling business, no matter how big or how small, rests on its profit margin. Large companies are always working to improve their profits by managing inventory and prices, along with controlling operating expenses. 

But small businesses, like individual LEGO resellers, need to focus on those elements, too – maybe even more so. Your LEGO profit margin is the key measure of success!

Still, it’s easy to understand why LEGO investors, surrounded by buckets of bricks and incoming orders, might not have too much time to think about the small details that affect profit margin. Fortunately, there are a few simple steps that can make a difference, especially if you incorporate them into your long-term workflow.

Here, Wolf Of Bricks will take a closer look at LEGO profit margin and explore some ways LEGO investors can improve theirs. 

What Is Profit Margin?

Profit margin is a measurement of how much of your sales have become profit. It’s expressed as a percentage. A simple calculation for profit margin is dividing your overall profit – which is revenue minus expenses – by your revenue.

For example, if your LEGO business earned $40,000 last year and you spent $10,000 in operational costs, your net LEGO profit margin was $30,000. Divide $30,000 by $40,000 and you come up with 0.75, which means that your profit margin was 75%.

What makes a good profit margin depends on the industry a given business is in. LEGO resellers have to balance several factors: obtaining new sets, shipping costs, third-party fees like Amazon’s, and more. As with any new business, it may take a few months of activity to turn any profit.

That’s why it’s a good idea to implement some measures in your LEGO business from the start. But anytime you can start these ideas, it’s never too late. Here are some areas that you can improve to see a bigger profit margin. 

Cut Down on Shipping Costs

Shipping costs can add up over a long time. We’re not just talking about the fees that shipping companies charge to handle and transport your order. We’re also talking about packaging supplies, bubble wrap, mailers, tape, and so forth. 

These costs don’t seem like a big deal when you’re sending out a package or two, but at the end of the year, they’re likely to make up a big chunk of your annual expenses.

However, shipping cost is one of the easiest areas of expense to address when you’re trying to boost your profit margin. 

If you use a major carrier like USPS, UPS, or FedEx to send your LEGOs out, you may be able to score some free boxes or envelopes. You may be able to find a list of supplies they offer for free at their respective websites.

Some local businesses may need to unload some of their shipping supplies for cheap or free, especially if they’re in a city. It’s always worth hitting a local marketplace site, or even Craigslist or Facebook Marketplace, to find boxes, tape, and other shipping supplies from businesses that need to make room. Feel free to check out local groups on Reddit or NextDoor, as well.

If you have the space, consider buying certain shipping supplies in bulk from warehouse retailers or via mail order. These items are almost always sold at a per-item discount. If you expect that you’re going to have a lot of sales in the distant future, this can be particularly effective in keeping costs under control. 

Speed Up Your Fulfillment Process

LEGO resellers must consider their time as valuable because it is. Time has a lot to do with LEGO profit margin, especially if you’re selling a high volume. The quicker you can turn around orders, the lower your operating costs will be.

Take a look at your turnaround process for LEGO orders. How much of it can be automated or templated? Are there any steps that you can scale back or cut out altogether? Can you auto-fill invoices? Do you have a database of your customers that can help you automatically create shipping labels? Is your inventory organized so it’s easy to find and reach?

Cleaning up your fulfillment routine so it’s faster results in more orders being filled, which leads to more profit. It’s one of the most powerful ways to boost your LEGO profit margin. 

Manage Your Inventory

When retail businesses get overstocked on certain items, they usually try to mark them down to get whatever revenue they can. LEGO resellers don’t have that luxury. If nobody’s buying a certain piece or set, it’s not practical for a LEGO investor to set up a flash sale at bargain prices.

Guard against overstocking if you can. Keep your inventory levels at a point where you know you can move them without too much overselling. Look for firm product retirement dates so you can predict demand and buy sets accordingly.

This is one instance where the 3x rule comes into play. LEGO resellers who work on a part-out basis (buying full sets to resell their individual pieces) should buy new sets only when the price drops to one-third of its estimated part-out value. Since the purchase of new sets is likely the biggest operating cost you have, this can go a long way toward improving your profit margin. 

Increase Your Prices

This step is perhaps the most obvious of all: Simply make your product more expensive. But it may be a little trickier with the LEGO community. Hardcore LEGO-heads are very savvy about how much certain sets are worth and won’t go too much higher than the agreed-upon price for a certain part or series.

If you have LEGO sets in a variety of conditions, consider raising the prices a bit on mint-condition or exceptionally good sets. You might have an opportunity to “upsell” customers from a set in merely acceptable condition to one that’s a little more premium. But do so in a way that wouldn’t look suspicious or dishonest to the LEGO community.

To learn more about how to get the most from your LEGO reselling business, keep up with the latest news on Wolf Of Bricks.