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Making a living from ebay part 1
Chapter 1. So You Want to Start an eBay Business…
Starting a business of your own is a thrilling thoughtespecially if you can run that business from the comfort of your own home. You’ve heard about this eBay thing, maybe even sold a thing or two on the site, and think that selling on eBay might be the key to your personal business success.
Is it true? Can you really make a living with an eBay business? And just what is an eBay business, anyway?
This chapter answers those questions and many more. Read on to learn more about the basics of running a business on eBay.
What, Exactly, Is an eBay Business?
To the question of what an eBay business is, the simple answer is that it’s a company that generates profits by selling merchandise on the eBay site. That company, of course, can be a sole proprietorship run by a single individual, as most eBay businesses are, or it can be a legal corporation with multiple employees. The company doesn’t have to sell exclusively on eBay; it can sell through any number of channels (including a traditional bricks-and-mortar store), as long as at least some of its revenues are generated via the eBay family of sites.
Contrary to what you might think, eBay businesses do not have formal business relationships with the eBay corporation, nor do they have to be authorized by eBay. To become an eBay business, all you have to do is start selling on the eBay site. Nothing more formal than a standard eBay membershipin the form of a free Seller’s Accountis required.
eBay businesses can be of any size, revenue-wise. Some eBay businesses sell only one item a week; some sell millions of dollars worth of merchandise every year. It doesn’t even have to be a full-time thing. Many eBay businesses are part-time endeavors run by people who have other full-time jobs.
What distinguishes an eBay business from the average individual selling on eBay is intent. While individuals tend to sell on eBay because they need the money or want to get rid of old junk lying around the house, eBay businesses sell merchandise that they intend to make a profit on. eBay businesses have to purchase or create the items they sell; they also have to ensure a constant flow of merchandise to feed a continuing schedule of auction listings. eBay businesses sell on eBay every week of the year, not just when it’s convenient. And they work hard at it.
And, finally, eBay businesses are businesses. That means they have to deal with the same issues any business has to deal withmanaging inventory, handling customer payments, paying taxes, dealing with complaints, and the like. The people behind these eBay businesses do what they do because they like it, sure, but also because they want to make a profit.
Understanding eBay’s Fees
If you’re going to run a successful eBay business, you better get used to paying eBay. That’s because eBay gets its cut every time you list or sell an item on the eBay site. Every time. It may be a few pennies here and a few pennies there, but eBay’s fees add up quite rapidlyand become a significant expense if you’re selling a lot of items each month.
For that reason, you need to understand the costs involved before you put any items up for auction. eBay charges two main types of fees to sellers:
- Insertion fees (I prefer to call them listing fees). These fees are what you pay every time you list an item for sale on eBay. They are based on the minimum bid or reserve price of the item listed. These fees are nonrefundable.
- Final value fees (I prefer to call them selling fees or commissions). These fees are what you pay when an item is actually sold to a buyer. They are based on the item’s final selling price (the highest bid). If your item doesn’t sell, you aren’t charged a final value fee.
Table 1.1 lists eBay’s current insertion fees (as of fall 2006); Table 1.2 lists the current final value fees.
Table 1.1. eBay Insertion Fees |
|
| Starting Bid Price | Insertion Fee |
| $0.01$0.99 | $0.20 |
| $1.00$9.99 | $0.35 |
| $10.00$24.99 | $0.60 |
| $25.00$49.99 | $1.20 |
| $50.00$199.99 | $2.40 |
| $200.00$499.99 | $3.60 |
| $500.00 or more | $4.80 |
Table 1.2. eBay Final Value Fees |
|
| Final Selling Price | Final Value Fee |
| Item not sold | No fee |
| $0.01$25.00 | 5.25% of the final price |
| $25.01$1,000.00 | 5.25% of the initial $25.00 ($1.31), plus 3% of the remaining closing value balance |
| $1,000.01 or more | 5.25% of the initial $25.00 ($1.31), plus 3% of the amount from $25.00$1,000.00 ($29.25), plus 1.5% of the remaining balance |
eBay also charges a variety of fees for different types of listing enhancements, such as bold and highlight. And, as you might expect, all manner of fine print is associated with these fees. The most important things to keep in mind are that insertions are nonrefundable; you won’t be charged a final value fee if the item doesn’t sell; and it doesn’t matter whether the buyer actually pays you you still owe eBay the full final value fee, even if you get stiffed.
Invoicing on your account occurs once a month, for the previous month’s activity. You’ll get an invoice via email detailing your charges for the month. If you’ve set up your account for automatic credit card billing or checking account withdrawal, your account will be charged at that time. (If you prefer to pay via check or regular credit card, now’s the time to do it.)
Know, however, that these aren’t the only costs you’ll incur in running an eBay auction. Most sellers opt to accept credit cards via eBay’s PayPal service, which charges its own fees. For the average small to mid-sized seller, PayPal charges 2.9% of the total payment price, plus a flat $0.30 per transaction. That’s right in line with what a traditional retailer would pay to a bank to handle its credit card payments.
As you can see, these fees start to add up. For most eBay businesses, you can estimate paying 12%15% in fees for every successful sale you make. This doesn’t take into account the actual cost of the item you sell, nor any other costs you incursuch as the costs of packing materials, labels, Internet access, and the like. You’ll need to factor all these costs into your business model, just as you would factor in rent, credit card fees, and other operating expenses if you were running a bricks-and-mortar business.
Note
You can view all of eBay’s current fees at pages.ebay.com/help/sell/fees.html.
Different Ways to Sell on eBayIf you’ve never sold on eBay before, you should know that there are several different ways to sell your merchandise on the eBay family of sites. Yes, most merchandise sold on eBay is via the online auction format, but not all. Many businesses sell their items on eBay at a fixed price, just as they would in a conventional store. And there are more sites than just the auction site on which to sell. Note Learn more about PayPal (and PayPal’s fees) in Chapter 16, “Managing Customer Payments.” Standard Auction FormatSelling an item via an eBay auction is quite a bit different from selling it off a shelf in a traditional retail store. In essence, an eBay auction works pretty much like an old-fashioned real-world auction, with potential buyers driving the price higher every time they place a bid. The only difference is that there’s no fast-talking auctioneer online (the bidding process is executed by eBay’s special auction software), and all the bidders aren’t in the same room; potential buyers can be located anywhere in the world, as long as they have Internet access. When you’re ready to sell an item via eBay auction, you post a listing for that item, like the one shown in Figure 1.1. When you create a listing, you select the product category, length of the auction (1, 3, 5, 7, or 10 days), and the starting bid price. From there the auction process takes over, with interested buyers making increasing bids on the item; bidding starts at the initial price you specified and goes up from there. At the end of the auction, the bidder with the highest bid wins and pays you for the item. When payment is received, you ship the item to the buyer. Figure 1.1. A typical eBay auction listing.
eBay makes the entire process fairly simple for both the seller and the buyer. Just know that while you’re using the eBay site to facilitate the sale (by hosting the auction listing), eBay is not a middleman in the transaction. The buyer pays you directly, not the eBay site. You, however, do have to pay fees to eBay for the services it offersas we’ve already discussed. The thing that makes an eBay auction different from a traditional retail transaction is that there is no guarantee the item will actually sellnor do you know what the final price will be if it does sell. That’s part and parcel of being an auction. If no one bids on your item, you don’t sell it. And the final sales price is totally market-driven; the price will go as high as potential buyers are willing to pay. That can be both good (you could get a higher price than you anticipated) and bad (you could sell an item for less than you thoughtor not sell it at all). That’s just the way it goes. Reserve Price AuctioneBay offers several variations on its main auction format. One of the more common variations is the reserve price auction. In this type of auction, your starting bid price really isn’t the minimum price you’ll accept. You set a starting bid price as you would in a normal auction, but you also specify a reserve price somewhere above the starting price. This reserve price is the actual minimum price you want the item to sell for. Even though bids might exceed the initial bid price, if they don’t hit your reserve price, there isn’t a sale. Many buyersespecially those just getting starteddon’t like reserve price auctions, and shy away from them. They probably feel that way because these auctions appear more complicated than regular auctions (and they are, just a little), and also because the reserve price is never disclosed to bidders. In this case, lack of familiarity definitely breeds contempt, at least from a certain class of bidders. Why, then, would you opt for a reserve price auction? There are two possible scenarios:
Remember, if no one bids the reserve price or higher, no one wins. Dutch AuctionDutch auctions are those in which you have more than one of an identical item to sell, and you want to offer all your items via the auction format. (If you have more than one item you want to sell for the same fixed price, there are other nonauction options available.) A Dutch auction is great if you have a dozen waffle irons, 10 copies of Ocean’s 11 on DVD, or a hundred units of white extra-large boxer shorts to sell. In a Dutch auction, you specify both the minimum bid and the number of items available in the auction. As in a normal auction, bidders bid at or above that minimum bid for the itemalthough, in a Dutch auction, bidders can also specify a specific quantity that they’re interested in purchasing. Determining who “wins” a Dutch auction is a little different from determining who wins a normal auction. In a Dutch auction, the highest bidders purchase the items, but all buyers pay only the amount that matches the lowest successful bid. Let’s work through an example. Say you’re selling 10 identical copies of a particular Lord of the Rings T-shirt. You indicate the number of items available (10) and the minimum bid (let’s say $5). Potential buyers enter their bids, which must be equal to or higher than the minimum bid of $5; each buyer also indicates the quantity (from 1 to 10) that he or she is interested in purchasing. If 11 people bid $5 each (for one shirt apiece), the first 10 bidders will win the auction, each paying $5 for their items, and the last bidder will be out of luck. But if the 11th person had placed a higher bid$6, let’s saythen that 11th bidder would be listed as the #1 bidder, and the last $5 bidder (chronologically) would be knocked from the list. All 10 winning bidders, howeverincluding the person who bid $6would have to pay only $5 for the item. (Highest bidders, lowest bidsget it?) In a Dutch auction, the minimum price ends up being raised only if enough bidders place bids above the minimum bid. In our example, if 9 bidders bid over the minimum, but the 10th bidder bid $5, all bidders would still pay $5. But if the lowest bid was $6 (and the other bidders bid from $6 to $10), all 10 bidders would pay $6 (the lowest current bid). Posting a higher bid increases a buyer’s chances of winning an item at a Dutch auction, but it also increases the risk of raising the price for everybody. Sound confusing? It is, a little, even though eBay handles all the details automatically. For most sellers with large quantities to sell, going with either an auction with the Buy It Now option or a straight fixed-price listing is a better way to gowhich we’ll discuss in a moment. Auction with Best OfferHere’s one that I’m not too hot on, but some sellers swear by. eBay lets you put an item up for sale with the caveat that interested buyers can make you an offer that’s below your initial listed price. You set up a fixed-priced listing (discussed in a few pages), but then add the Best Offer option. With Best Offer, a buyer can click a button (like the one shown in Figure 1.2) and suggest the price he’s willing to pay. You can then accept or decline the offer. Figure 1.2. An item offered for sale for a given priceor the best offer by a potential buyer.
I’d recommend Best Offer when you’re selling collectibles and similar rare, higher-priced items. You should also know that using the Best Offer option is more time-consuming than a normal listing; you have to manage all the correspondence associated with the offer, as well as make the call on whether or not to accept a particular offer. That said, I know of at least one seller who uses Best Offer on a regular basis for lower-priced, commodity items. If you go this route, you should make sure you set your price high enough so that there’s room for buyers to make an offer that is below your price but still financially acceptable to you. Auction with the Buy It Now OptioneBay’s Buy It Now (BIN) option lets you add a fixed-price option to your auction listings. The way BIN works is that you name a fixed price for your item, as shown in Figure 1.3. If a user bids that price, the auction is automatically closed and that user is named the high bidder; bidders can also make a bid lower than the BIN price, via the regular auction process. When you make a BIN sale, it’s like selling an item via a traditional retail transactionbut on the eBay site. Figure 1.3. An auction with the Buy It Now option enabled.
The BIN option is popular among professional eBay sellers with a lot of similar inventory. That is, they’re likely to place the same item up for auction week after week. In this scenario, the BIN price becomes the de facto retail price of the item, and you can ship items as soon as you find a willing buyer. You don’t have to wait the standard seven days for a normal auction to end. You might also want to consider the BIN option around the Christmas holiday, when buyers don’t always want to wait around seven whole days to see if they’ve won an item; desperate Christmas shoppers will sometimes pay a premium to get something now, which is where a BIN comes in. Using the Buy It Now option will cost you extra as a seller, however. Table 1.3 details the fees that eBay charges to add a BIN to your auction, over and above the standard listing fees (that we’ll discuss in just a few paragraphs).
Note The BIN price is active only until the first bid is placed (or, in a reserve price auction, until the reserve price is met). If the first bidder places a bid lower than the BIN price, the BIN price is removed and the auction proceeds normally. Fixed-Price Sales on the eBay SiteBuy It Now isn’t the only way to sell items for a fixed price. If you want to avoid the possibility for an item selling for less than the Buy It Now price (which is possible with a BIN-enabled auction), you can simply list an item with a fixed selling price. As you can see in Figure 1.4, eBay’s fixed-price listings look just like regular auction listings and have the same duration (1 to 10 days, your choice), they just don’t offer the option of placing a bid. When someone wants to buy your item, he clicks the Buy It Now button; there’s no way to place a lower bid. Figure 1.4. A fixed-price item listingno bidding allowed.
Fixed-Price Sales with eBay ExpresseBay’s auction site isn’t the only online marketplace offered by eBay. New to the eBay family of sites is eBay Express, which offers a more traditional retail approach to online shopping. As you can see in Figure 1.5, eBay Express offers a variety of merchandise for a fixed priceno auctions (except for those with a Buy It Now option). For buyers, it’s the opportunity to buy merchandise from multiple sellers using a single checkout system. For sellers, it’s yet another way to sell your fixed-price items. Figure 1.5. eBay Expressa marketplace for fixed-price items.
eBay Express offers a viable alternative to traditional online auction selling. Learn more in Chapter 26, “Selling Fixed-Price Items on eBay Express and Half.com.” Fixed-Price Sales on Half.comIf you have both new and used merchandise to sell, eBay’s Half.com is another place to make your mark. As you can see in Figure 1.6, Half.com looks and feels a little like Amazon.com, and offers similar products for salebooks, CDs, DVDs, and videogames. Half.com lets you items in these categories for a fixed price, with quick and easy listing creation. (All you have to do is enter the item’s UPC or ISBN code, and Half.com fills in all the other information for you.) Figure 1.6. Half.comanother way to sell fixed-price items.
If you sell in these particular categories, Half.com is worth a look. Learn more in Chapter 26. Note You can learn more about these selling options and a whole lot more in my companion book, Absolute Beginner’s Guide to eBay, 4th Edition (Que, 2006). This book is also a good resource if you’re just starting out as a seller; it offers detailed step-by-step instructions on how to create an auction listing, how to manage the auction process, and so on. Fixed-Price Sales in eBay StoresThe final way to sell items at a fixed price on eBay is to open an eBay Store. In this online storefront, operated in conjunction with your eBay auctions, you sell multiple quantities of items at fixed prices. As you can see in Figure 1.7, an eBay Store is just like a traditional store; you have your items on the virtual shelves, and shoppers can buy what they want for the price listed, at any time. Figure 1.7. Fixed-price merchandise for sale in an eBay Store.
An eBay Store is a good way to sell items that you have in quantity, or items that you haven’t yet listed for auction. Learn more in Chapter 27, “Opening an eBay Store.” |
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The Secret to eBay Business Success: Planning
The big difference between the casual eBay seller and the person running a successful eBay business is often nothing more than volume. Whether you’re selling one item a month or a hundred, the process is basically the same. It’s just that the professional seller has to manage a lot more activityand do so with the lowest possible expenditure of time and money. Manage this process well, and you’ll have a successful eBay business on your hands.
While anyone can become a casual eBay seller, there’s a lot more involved if you intend on launching a full-time eBay business. An eBay business is like any other type of businessit requires planning, organization, and a lot of hard work.
I’ve had a few people read the first edition of this book and comment they thought I spent too much time covering business-related information; in their opinion, you don’t need to know all this business stuff to be successful on eBay. Those readers are, of course, mistakenas they’ll no doubt discover for themselves in time.
Yes, it’s ridiculously easy for any individual to start selling on eBay. You don’t need a business degree to fill out the Sell Your Item form and create a rudimentary auction listing. You don’t even need any business savvy to become a relatively successful seller, on a small scale. But when your sales start escalating, you need all the business skills you can muster to manage a large volume of transactions, and to keep the slim profits you generate from turning into losses.
Put another way, it takes planning to launch a successful business, organizational skills to grow the business, and business savvy to stay ahead of the competition and keep your business in the black. While anyone starting out can be lucky, luck alone won’t keep you successful over the long term. I know too many former eBay sellers who had a nice ride at the beginning, but didn’t have the skills necessary to turn their initial success into a profitable continuing business.
Planning for Success
To that end, I encourage anyone who is considering launching an eBay business to take their time, do their homework, and not rush into things. It’s okay to get your feet wet by running a few (or a few dozen) auctions, but make sure you’ve thoroughly thought through what you’re doing before you start buying bulk lots of merchandise for resale. As much as I’d like to tell you how easy it is to get rich quick on eBay, success definitely is not guaranteed.
Success is, however, more likely when you do your planning beforehand. What type of planning am I talking about? Here’s a short list:
- Research sales across a variety of product categories to find the right merchandise to sell (covered in Chapter 2)
- Think through your business goals and write a short business plan that outlines what you want to achieveand how (covered in Chapter 3)
- Evaluate how much money you’ll need to get started, and figure out where you can get that money (covered in Chapter 4)
- Determine what type of business entity you want to createa simple sole proprietorship or a legal corporation (covered in Chapter 5)
- Set up a complete recordkeeping system, including both inventory management and accounting (covered in Chapter 6)
- Determine how much physical space you’ll need to manage your eBay salesincluding inventory storage, packing and shipping, and your home office (covered in Chapter 7)
As part of this planning, you need to work up a sales projection for your first year of business, along with a budget of your expenses. You should also determine how many hours per week you’ll need to put into your businessas well as any employees you might need to hire to help you out.
Choosing a Business Model
As part of the planning process, you have to determine what type of eBay business you want to run. After all, not every eBay business operates exactly the same. With a half-million businesses making a living on eBay, you know that there are a lot of different ways to proceed; there’s no one “right” way to run an eBay business.
What kinds of eBay businesses are there? I like to organize the different business models as follows:
- The Second-Hand Reseller, who buys a variety of used merchandise and resells it to others (covered in Chapter 8)
- The Collector/Trader, who buys and sells on eBay as an extension of a collectible hobby (covered in Chapter 9)
- The Bulk Reseller, who purchases large quantities of closeout or liquidated merchandise and resells it one piece at a time (covered in Chapter 10)
- The Retailer, who resells new goods purchased direct from the manufacturer, just like a traditional bricks-and-mortar retailer (covered in Chapter 11)
- The Manufacturer/Craftsperson, who creates the items he or she sells to eBay buyers (covered in Chapter 12)
- The Trading Assistant, who sells items on consignment for other people (covered in Chapter 13)
Each of these models, as different as they are from one another, is equally viable. Which you choose is entirely up to you.
Making It Yours
Now we come to one last point about launching your own eBay business. Most successful eBay sellers aren’t in it just for the money. The best business-people sell what they do because they like doing it. There’s no point at all in setting up a business in which you have little or no interest. You’ll be more successfuland lot happierwhen you build your business around something you’re familiar with, and something you like. Anyone, after all, can sell paper clips; but only you can create a unique business based on your personal interests and strengths. Researching “hot” categories can only go so far; your final decision needs to be made with your head and your heart.
With that in mind, read on to learn how to research and launch the type of eBay business that’s best for you.
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