Bookkeeping for Poshmark can make your head spin, especially if you’re not a numbers person, luckily, this post contains (almost) everything you need to know.
Poshmark and the entire second-hand clothing market is growing rapidly. With that, comes market saturation, and an increasing importance to understand what’s making you money, and what isn’t. It seems to me that many sellers, especially newer sellers, tend to view bookkeeping as a way to keep numbers straight for tax purposes. While knowing your numbers is great (and necessary) come tax time, keeping track of, and actually reviewing your data will give you invaluable insight into your business.
Warning: this is a long post, but contains TONS of valuable information
First let’s get a couple of common questions out of the way.
Do I need to be bookkeeping?
The simple answer to this is, if you plan to continue selling long-term, then yes. If you’re only selling stuff from your personal closet as a way to clear-out and make some of your money back, then you can ditch the bookkeeping. However, if you are a hobby seller, part-time seller, full-time seller, or in other words, hope to be turning a profit on any your sales, then yes, you should be bookkeeping.
Do I need to pay taxes on my Poshmark earnings?
I would like to stress here, that i am NOT a CPA or any sort of financial expert. Everything I talk about will simply be what i have learned over the years. If you are concerned about taxes, you should consult a CPA or another financial expert.
From what i understand, if you are selling your own items, and not turning a profit you do not need to pay taxes. However, the second you flip an item for profit you legally need to report that income. (I will not be discussing sales tax here, as i myself am still not clear on exactly how that works, and it varies drastically from state to state). Any profits that you make from selling on Poshmark are subject to income tax, and therefore need to be reported. Whether or not you chose to report is none of my business, but legally you are obligated to. This post is not about taxes though, i’s about bookkeeping (woot!).
What numbers should I be tracking?
While there are a million numbers you could be tracking and calculating, there are a few that I feel are most important, and provide the greatest amount of insight.
Cost of Goods
This one seems like a no-brainer, but i didn’t start keeping track of this until i had 200+ items, because i was getting stuff for so cheap i didn’t think it mattered. Keeping track of how much you paid for each item is extremely important. This number helps you determine pricing, allows you to decide whether or not to accept an offer, and helps you determine things such as actual profits, and profit margins. It also helps you determine how much you paid for your inventory as a whole, a number you need for tax purposes.
There are two different ways you can determine cost of goods. The most common way, being exactly what you paid for the item. If you paid $4.99 for this shirt, your COG is $4.99 (duh). The other way is using the average COG for your total trip. This can be great if you shopping at the goodwill outlet (bins), or using coupons that take a total off your purchase (25% off, or $10 off, etc.). It’s also very helpful if your buying large amounts of inventory at a time.
I use average COG a majority of the time, simply because it’s easier to input into a spreadsheet, and i almost always use percentage and dollar off coupons. You can determine your average COG for a particular trip simply by dividing the total you spent, by the number of items you bought. For example, if i spent $100, and bought 25 items, i would divide 100 by 25 and get $4 as an average cost for each item.
When to use Average COG
I use average COG for most of my inventory, however if i’m paying up for something, or doing retail arbitrage, i will use exact COG. I highly recommend using exact COG if you’re paying up, that way you know whether or not your making your money back (and profiting). If you buy 25 items from goodwill and they all range from roughly $3-$7, then an average won’t hurt. However, if i paid $20 for a pair of marked up Hunter boots, then i don’t want that number to skew my average COG, and i don’t want to think that i only paid $5 for them.
In this case, if i paid $120 for 25 items, but paid $20 for the Hunter boots, you remove the Hunter boots from the cost and the number of items. So i paid $20 for the boots, and would then divide $100 by 24 to get an average COG of $4.17 for the rest of my items.
I prefer to use average COG for the simplicity and ease of it, and because my COG tends to be relatively low, i almost always at least double my money, even if it was a bad buy. If your COG varies greatly, or tends to be higher, or if you’re seeing lots of losses then you may need to switch to tracking exact COG. Ultimately, whichever way you decide to track COG is up to you, but you should 100% be tracking it.
Sold Price, and Earnings After Fees
This is another relatively obvious one, and again very important. However, it needs to be done correctly. If you’re selling on Poshmark, then you know that they take a fee with each sale. This is a flat rate of $2.95 for anything under $15, and 20% for anything $15 and over. That means if you sell something for $25, your earnings will only be $20, and if you paid $5, your profit is $15 (still great margins). It’s important to keep this fee in mind when deciding if the item is worth picking up, and deciding how to price it.
It’s also important to track you true earnings if you send offers with discounted shipping. If you’re offering discounted shipping then you’re eating that cost. Using the previous example, a $25 sale with $4.99 shipping, means poshmark takes their 20%, and then the $1.80 shipping discount. This makes your earnings $18.20, if you paid $5, you’re profit is $13.20.
If you’re tracking your COG and your true earnings, you can learn valuable things about your sale patterns.
For example, i recently discovered that i wasn’t making much money on most of the Anthropologie tops i was picking up. When i first started selling, Anthropologie was a quick seller, and usually sold for a lot. But recently i realized that Anthropologie tops were sitting in my closet and not moving, so i decided to look at my numbers. Over the past 4 months, Anthropologie tops were taking an average of 39 days to sell, and were selling with an average earnings of only $13.60 after fees and shipping discounts. This was a huge shock to me. My average cost on these Anthropologie tops was $4.80. That means i was averaging less than $9 profit, which really isn’t worth my time.
If you’re a small seller or a new seller and easily get discouraged by people posting their numbers on social media, you shouldn’t be. Most of the time when someone says “OMG i had a $1000 sales weekend”, that’s usually before fees and COG, that $1000 sales weekend could easily be only $300-$400 in profit, that’s why it’s important to track your numbers, and understand that $1000 in sales does not mean you made $1000.
What can you do with this information?
While this shocking discovery was a bit painful, i was able to adjust my sourcing accordingly. Now I look up comps on specific styles that i find while sourcing, and i’m able to make an informed decision from there. Unless i can get them from $1-$2, i will only pick them up if comps are over $30.
Tracking these numbers and being able to figure out things like this can help you maximize your profits. Nobody wants to be consistently paying up for things that end up sitting forever and selling for minimal profits.
Date Purchased, Date Listed, Date Sold
Everybody loves a quick flip, but the truth is that most items don’t sell within a few days, or even weeks of listing. Keeping track of these numbers gives you insight into which items sell fast and which items sell slow, and allows you to make decisions about COG depending on how long you’re willing to hold the item. It can also help you decide when it’s time to price drop and send offers. If you know jeans usually take 30 days to sell for you, but it’s been 45 days on a particular pair, then maybe it’s time to price drop. If you know Lululemon tank tops usually take 35 days to sell, but it’s only been 20 and you’re considering a price drop, maybe you’d wait longer before doing so.
Date Purchased – Date Listed
Not everybody needs to keep track of this, and i personally don’t, but if you’re a death-pile person then i highly recommend it. I tracked this number for a few months about half way through my reselling journey, and it really whooped me into shape in terms of having a death pile. There’s nothing like seeing that you’ve been holding these NWT, super trendy, Rag & Bone jeans for 3 MONTHS before finally getting around to listing. And then seeing them sell for $120 in 4 days (yes, this really happened).
If you don’t hold a death-pile, and your thrift-to-list time is relatively quick, then tracking this number may not be important. But if you do keep a death pile, or you’re trying to bring more efficiency into your process, then tracking this time can be valuable.
Date listed – Date Sold
This is the important one. Knowing how long it takes certain items to sell, can help you make important investment decisions. Do you really want to pay $10 for those jeans that are only going to bring you $28 after fees and only after you’ve held them for 3 months? Maybe, maybe not. Are you willing to pay $10 for that Lululemon Vinyasa Scarf that’s only going to bring you $20 after fees, but will sell within 2 days? Maybe, maybe not. It’s not that one option is better than the other, it’s about having the information to choose whether the investment (money, time, and space) is worth it to you.
Some people don’t mind holding items for a while and waiting for the right buyer, but some people don’t have the space to be sitting on inventory and prefer a quick flip. There are certain types of items that tend to take longer to sell, and there are certain things that usually sell fast. Lot’s of higher dollar or more unique items take longer to sell, but the return is usually worth it. Whereas lower dollar more bread & butter items tend to sell quicker (if priced right). Knowing this, and knowing which items fall into which categories for you will give you the power to make the best decisions for you and your business.
Other Things these Numbers Will Tell You
Sell Through Rate
This is the number that compares how much inventory you have, to how much you’re selling. It’s typically a percentage and can be calculated to different time frames. You can calculate a daily, weekly, monthly, or yearly sell through rate. For resellers i’d recommend weekly or monthly, or both.
How to calculate this
The calculation is fairly simple, you divide the number of items sold during your time frame, by the number of items available for sale during that same time frame. You can determine your sell through rate for each month and then compare your numbers.
For example, if in January you had 450 active listings and sold 90, you divide 90 by 450 and get a sell through rate of 20%. This means that in January, you sold 20% of your inventory. Then, hypothetically, if you replace those 90 sold items with 90 new items, and maintain an inventory of 450 items, you should rotate through all of your inventory every 5 months (20% each month, with oldest items selling first). Again, this in a hypothetical world, in the real world there are many other factors that mean this is unlikely to actually occur, however it can help you make business decisions.
How to Use It
Determining the actual sell through rate and analyzing that rather then just number of items sold is very important. For example, if in January you had 450 listings, and sold 90, your 20% sell through rate is relatively good. But then in February you have 800 active listings and sell 90, it’s easy to make the mistake that you did just as well in February as you did in January, when really you did worse, because your sell through rate is now only 11%.
Knowing how to analyze your sell through rate allows you to look at why this number may have changed and allows you to work towards improving it. Maybe it dropped this month because you listed 300 items in the last 3 days of the month, and it skewed your numbers. But maybe it’s because the new inventory you bought is poor quality, or prices are too high, or you’re not active enough on the app, etc.
Why It’s Important
Ultimately, watching your sell through rate and working to increase it is a great tool. Determining what sell through rate you feel comfortable sitting at is up to you. I”m okay with around a 30% monthly sell through rate. For me, this means that i rotate through my inventory about every 3.5 months.
You can use these numbers to help make decision about price drops, offers, re-listing, and re-donating. For example, if i know that i should rotate through all of my inventory within 3.5 months, but something has been listed for 4 months, then it’s time to look at that item and listing for an issue. It could be pricing, the season, the algorithm, or maybe it was a bad buy. You can combine this knowledge with average sale times for certain categories or types of items, discussed earlier, and use both to make decisions about your inventory.
If you need to maintain a lower amount of inventory, but wish to be making more money, then you will need to increase your sell through rate (and/or average sale price, but that’s a different discussion). However, keep in mind that if you increase your sell through rate, you also have to increase the number of items your sourcing.
Total Average Sale Price
Poshmark provides you with the number of items you’ve sold (in your whole time on Poshmark), and the dollar amount you’ve sold. You can determine your all time ASP by dividing the dollar amount sold by the number of items sold. However if you’ve been selling for a long time or your business model has changed, this number may not be accurate. I usually like to determine my average sale price at the end of each month, just to see where i fall. You can calculate either average sale price, or average price for each item sold (these will be different if you sell lots of bundles), i usually prefer average sale price for each item.
Simply divide total sales in dollar amount, by number of items sold (or number of sales) and you get your average sale price (ASP). You can also use total monthly earnings to remove posh fees from the mix, and determine how much you net (on average), per item.
Average sale price varies throughout the year, in the summer tees, tanks, and shorts have a lower ASP than sweaters, jeans, and boots in the fall and winter. Understanding how much and when your ASP varies can help you make smarter sourcing decisions. If you know you ASP dips in the summer, but you still want to be profiting the same dollar amount, then you may need to increase your volume, or your sell through rate.
How To Track Everything
Now that you’ve been bombarded with a ridiculous amount of information, you’re probably wondering how the heck you’re supposed to actually keep track of these numbers. Well the good news is, you don’t have to be a math or accounting genius, or some sort of spread sheet goddess to effectively and efficiently manage the accounting side of your business.
If you’re a hobby seller, you can track your stuff easily in any old spread sheet. However, if you sell more than a few items a week i HIGHLY recommend making the small investment in some sort of pre-made inventory management spreadsheet. My absolute favorite one is the “PRO Mutli-Platfrom Reseller Spreadsheet” created by Emelie, @everdayemelie on Instagram. This spreadsheet, is absolutely incredible. I cannot say enough about all of the insight it has given me about my business. The best part? A lot of the calculations i talked about earlier, are automatically done for you on the spreadsheet.
A Quick Synapses on How it Works
This spreadsheet is extremely easy to use, and is already set up for you. Emelie also allows you to contact her directly for help or questions. You’re able to input all of your inventory (it also tracks your available inventory numbers for you!), with all of the information about it.
You can fill in the purchase date, inventory number, a brand and description, the category and the type of clothing item. You can also fill in item specifics such as color, condition, measurements, and fabric content. There’s a spot for notes (i usually use this for flaws, but you could also use it for the location of purchase, or how you paid, etc.). And then, a spot for date listed, and COG. It then automatically calculates how many days your item has been listed.
Side note: The item specifics allow for super easy cross-listing, and it’s already programmed to remove the different fees for each platform!
There’s also a “status” column, that allows you to change to “unavailable” once the item sells, which automatically opens up the inventory number for use again. Once something sells and you’ve changed it to unavailable, you can look at the inventory number, and simply input that into the “sales log” tab, and it will auto-populate all of you item information, and you can put in the specifics about the sale, such as which platform it sold on, how much it sold for, and whether or not you gave a shipping discount.
Average Inventory Cost Tracker
You can input into the “average inventory cost tracker” all your inventory purchases, and it will store them and calculate some things for you. It will calculate monthly, your units sold, average COG, and COG sold, as well as total purchases. It will also calculate how much you paid for all of your inventory, and how many items you have.
The Overview Page (My favorite!)
The overview page calculates your gross sales, COG sold, profits, profit margins, and return on investment for each month across all platforms, and it’s then broken down into individual platforms below that. It also calculates how much inventory you bought for the month in both dollar amount and number of pieces, the number of items sold, your average sale price, and has an approximation of how much should be saved for taxes. (I know, literally amazing right?).
If you’re looking for a great spreadsheet that can hold all of your information and calculate most numbers for you, this is the one. Whether your a small seller or a huge volume seller, it’s easy to use and allows you to grow your business and maximize profits. You can get it here. She also has a great Youtube tutorial on how to get started and how to use it, she breaks it down and makes it super simple, you can watch that here. (Side note: if you purchase the spreadsheet, it’s considered a business expense and is tax deductible!)
Quickbooks Self Employed
Quickbooks self-employed is a very inexpensive (and also tax deductible) way to track all of your expenses. Using a spreadsheet to track all of your item and sale specifics is great (and i’d say necessary). However, all of your other expenses need to be tracked too. Things like, meals, miles, shipping supplies, storage solutions, spreadsheet costs, office supplies, printing supples, i could go on and on.
Basically, if you’re using it in any way for business, you should be tracking the costs, it’s likely tax deductible. Quickbooks is only $10 a month, and well worth it. If you plan to use TurboTax, you can automatically import all of your data come tax time as well.
Other Things you Should be Tracking
There are a few other things that you should probably be tracking to maximize your tax savings.
- Miles; quickbooks self-employed has a great app that you can use to track your miles.
- Meals while out sourcing (I believe they’re 50% tax deductible, did someone say chipotle?)
- Donations; have bad buys from 6 months ago that you’re sick of looking at? You can re-donate them (if nothing else works to sell them), itemize them, and deduct your donation. Emelie has a great donation deduction spreadsheet, you can get it here.
- Shipping supplies (pumpkin poly-mailers anyone?), additional inventory storage (bins & shelving), painted your office? new back drop? Replica Surfaces? leather cleaner? sweater shaver? tape measure? hangers? tissue paper? custom stickers, mailers, business cards?
My point is, track EVERYTHING, you don’t realize how much a weekly sourcing taco run, business cards, tissue paper, and polymailers can add up to until you settle down to do taxes. Us small business owners will take any tax break we can get, so make sure you’re getting yours!