making a living from ebay part 2

Chapter 2. Researching Your Business Model

The first step in preparing to launch your eBay business is to do a little research. In particular, you need to find out as much as you can about any and all products you might want to sell. You need to discover how well those products are likely to sell for you, as well as determine the average selling price for each item. Combine what you learn about sales rate and sales price, and you can make a good estimate as to how much revenue you can generate selling that type of item.

The value of this research, then, is that it helps you determine what products to sell. Pick a product category, and research the auction close rate and average selling price. Avoid those categories that don’t meet your criteria, and target those categories that do.

Why Research Is Important

You should never launch an eBay business or any business, for that matterwithout doing your homework first. You might think you have a great idea for an eBay business, but you won’t know for sure until you do some research. When you start poking your nose around the eBay community, you’ll get a much better idea of which types of items are good sellers, and which aren’t. In short, you use this preliminary research to help you determine your business modelthat is, the type of eBay business that you want to run.

To determine your eBay business model, you should research a variety of different product categories on eBay. It’s as simple as looking up the historical sales for specific items (by model number) or for entire product categories. There are several questions you want answered, including

• How many items of this type are listed each week, on average?
• What is the sell-through percentagethat is, the percent of all auctions that end with successful bids?
• What is the average final selling price?
• Are sales of this product increasing or decreasing over time?

For example, I discovered that during the month of June, 2006, there were 3,185 listings for Nikon Coolpix digital cameras on eBay. Almost half (44%) of those auctions closed successfully, at an average selling price of $167.97a fairly hot category.

In contrast, during the same month there were 834 auctions for men’s golf jackets. Of these auctions a third (32%) closed successfully, at an average selling price of just $20.16a less-exciting category, by all measurements. If I had to choose between these two products to sell, I’d be a lot more interested in those digital cameras than I would the golf jackets.

How did I get this information? Read on and discover the many ways to research prior sales on eBay.

Searching Closed eBay Auctions

The cheapest (but not necessarily the easiest) way to research auction pricing is to do it yourself, using eBay’s search feature. The downside to this method is that it’s labor intensive; you’ll have to perform a number of manual searches and then crunch all the numbers yourself. The upside is that the only cost is your time.

Performing the Search

Extracting sales data from eBay is very much a manual process. You have to use eBay’s search pages and then comb the results for the information you need. Here’s how to do it.

Note

You can limit your search to specific product categories by making a selection from the Category list.

Start by clicking the Advanced Search link at the top of any eBay page. (You don’t want to use the standard Search box; it won’t provide the fine-tuned results you need.) When the Find Items page appears, as shown in Figure 2.1, enter one or more keywords into the Enter Keyword or Item Number box. Thenand this is the important partcheck the Completed Listings Only option. When you click the Search button at the bottom of the page, eBay will display your results on a separate search results page.

Figure 2.1. Use eBay’s Find Items page to list auctions of specific merchandise.

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The key point here is to search for completed auctions only. You don’t want to search in-process auctions because you don’t know what the final selling prices will be until the auction closes. When you search completed auctions, you’ll have all the information you needincluding the final selling price.

Extracting the Data

When the search results page appears, it’s time to get your fingers dirty. You’ll need to click through each of the auctions listed and write down the following:

• Starting price
• Final selling price
• Number of bids

Note

Make sure you include only those auctions that closely match the type of item you want to sell. For example, if you’re selling new merchandise, don’t include auctions for used items; if you’re selling in lots of 10, don’t include single-item auctions.

It’s best to enter this information into an Excel spreadsheet, with one row for each completed auction and a column for each of the parameters. If the auction ended without a sale, enter “0″ for both the final selling price and number of bids.

Analyzing the Data

Once you’ve gathered your data, it’s time to analyze it. Here are some things to look at:

• Total the number of items listed within the given time period.
• Calculate the percentage of successful auctions by manually counting the number of auctions that had a winning bid and dividing by the total number of auctions.
• Look at the range of prices by sorting the list in order of highest selling price.
• Add a new column to calculate the ratio of final selling to starting price; fill the column by dividing the final selling price column by the starting price column.
• Calculate an average selling price for those items that closed successfully.

Fun, eh? Well, it gets better. The search you just did captures only auctions that closed in the past 15 days or so. (That’s the longest eBay keeps this information for public consumption.) You’ll want to supplement this data with more recent auctions, so you should repeat this search on a weekly basis. This way you can capture any pricing trends over time.

Using the Data

After you’ve assembled your analysis of these auction results, you can use your analysis to determine whether a given category is a good one or not. Skip to the “Determining Your Business Model” section, later in this chapter, to learn more.

Using Other Research Tools

Does all that manual number crunching seem like a lot of work? Then let somebody else do it for you! There are a handful of pricing research services and programs available that perform all sorts of analysis on eBay auction trends. The good news is that these services greatly simplify this process and provide highly detailed (and very professional) analysis. The bad news is that you have to pay for what you get.

That said, let’s look at the freestanding research tools offered by eBay, as well as some useful third-party tools.

eBay’s Hot Categories Report

When you want to find out the best types of merchandise to sell, it helps to know which product categories are hot in terms of sales. Fortunately, eBay makes this relatively easy, with its monthly Hot Categories Report. As you can see in Figure 2.2, this list details the hottest product categories on the eBay sitewhich are the best categories in which to sell.

Figure 2.2. Find out the hottest product categories with eBay’s Hot Categories Report.

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To access the Hot Categories Report, click the Sell link on the eBay Navigation Bar to open the Sell hub, and then click the The Hot List link. eBay updates this report every 30 days, so it’s good to check it monthly.

eBay’s Market Database

The Hot Categories Report isn’t eBay’s only research tool. eBay pulls together other essential sales statistics in its Marketplace Research database, which you can search (for a fee). What sort of information are we talking about? Here’s a sample, for any given item:

• Average sold price
• Sold price range
• Start price range
• Average BIN price
• BIN price range
• Average shipping cost
• Last sold price
• Last sold date/time
• Number successfully sold
• Average bids per item

Then there are the charts, including trend charts for average sold price, number successfully sold, and average bids per item; and distribution charts for average start price and number successfully sold. You can search the entire database, or filter your results by date, specific sellers, specific stores, country, and so on.

eBay’s Marketplace Research can be accessed at pages.ebay.com/marketplace_research/. Three different packages are availablethe Fast Pass provides two days’ access for $2.99; the Basic plan costs $9.99 per month; and the more robust Pro plan (which offers more search options) costs $24.99 per month.

I find the Marketplace Research to be a real boon when I need specifics about any given product or product category. It’s in-depth data, well worth the money for serious sellers.

Ándale’s Research Tools

You can supplement eBay’s research tools with those from Ándale (www.andale.com), a popular third-party site. Ándale offers three key research toolsWhat’s Hot, Research, and Sales Analyzer. You can use these various tools to discover hot product categories and determine how to price and when to list your items. We’ll look at each of these research tools separately.

What’s Hot

Ándale What’s Hot is a research tool that provides detailed reports about the hottest selling eBay items, in any category. As you can see in Figure 2.3, the main What’s Hot page lets you click through each category to find the hottest products in each category, or search for particular items to see their performance. Ándale also pulls out the hottest products in all categories (for the past four weeks) and lists them on this main page.

Figure 2.3. Discover hot products and categories with the Ándale What’s Hot research tool.

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When you click through to a specific product, you see the individual product report, as shown in Figure 2.4. Ándale uses a chili pepper icon to denote the relative hotness of any particular product; three peppers means high demand, two peppers means medium demand, and a single pepper indicates just mild demand. You’re also presented with the percentage of closed items (the higher, the better), the total quantity listed and sold, the average number of bids per item, the average sale price, the price range, and the number of unique sellers offering this item. If you want to view specifics of each auction, click the See Individual Items link to display a list of auctions monitored over the past month.

Figure 2.4. A typical What’s Hot product report.

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What’s Hot is an excellent tool for identifying specific products to sell or general product categories to enterand a lot more fully featured than eBay’s superficially similar Hot Categories Report. I recommend What’s Hot for all potential eBay sellers who are considering what type of business model to use. The cost to use this tool is $3.95 per month.

Research

Ándale’s Research tool provides detailed pricing reports for any specific product or category on eBay. The main Research page, shown in Figure 2.5, lets you search for specific items. Enter the item or category in the Research Prices box, and then click the Research button.

Figure 2.5. Research products or categories with Ándale Research.

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The results of a typical search are shown in Figure 2.6. The Price Summary tab displays some key information and three useful charts. The main information includes the average selling price, number of total listings, number of items listed (there can be multiple items per listing, remember), total number of items sold, and the success ratethe number of items sold divided by the number of items listed.

Figure 2.6. Using Ándale Research to track pricing trends over time.

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As to the charts, the first one presents the average selling price of the item, for each of the past four weeks. The second chart displays the quantity listed and sold, again for each of the past four weeks. The third chart displays the percentage of successful auctions, again for each of the past four weeks. Below the charts are links to individual auctions, which you can view in more detail.

You can view even more detailed information when you click the How to Sell tab, shown in Figure 2.7. This tab displays a very detailed report about the item or category you selected. A typical How to Sell report includes information on scheduled start day, eBay marketing features, and type of listing.

Figure 2.7. Fine-tune your auction listings with Research’s How to Sell tab.

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Most useful is the Summary at the top of the page, which offers advice regarding

• Best category to list your product
• Best day and time to start your auctionand how long an auction to run
• Which listing enhancements (bold, gallery, and so on) are cost effective
• What listing type (standard, reserve, BIN, and so on) provides the best results
• What opening price generates the most bids and highest sale price

I find Ándale’s Research tool essential for both determining what products to sell, and for fine-tuning my product listings. Follow the advice givenbased on Ándale’s extensive auction researchand you’ll find yourself selling more items at higher prices.

The cost to use this tool is $7.95 per month.

Sales Analyzer

Ándale also offers the Sales Analyzer tool ($5.95/month), which is designed to help you better understand your own eBay sales. It provides a detailed analysis of your total sales, sell-through rate, return on investment, and other key metrics. This tool is of more use to established sellers than to new eBay businesses; check it out once you have your business up and running.

Mpire Researcher

Mpire Researcher (www.mpire.com/research/login.page) is a web-based eBay research tool, similar to Ándale Research. Enter a product or category and Mpire returns a report that tells you the average selling price of the top-selling listings and the most effective title keywords, listing enhancements, listing types, start price, listing duration, ending day and time, and product category. (Figure 2.8 shows a sample report.)

Figure 2.8. Detailed product and category analysis from Mpire Researcher.

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And here’s the very best thing about Mpire Researcherit’s free. That’s right, unlike Ándale Research and all the other paid research tools and services, there’s absolutely no charge to search the Mpire database and generate research reports. You do have to register, but there are no fees associated with that. Just enter your search query and generate your free report.

Terapeak Marketplace Research

Another good web-based research service is Terapeak Marketplace Research (www.terapeak.com). Terapeak searches a three-month running database of eBay listings to provide a variety of detailed research reports. Two plans are availableResearch Lite for $9.95/month, or the more fully featured Research Complete for $16.95 per month. The Research Complete plan also includes research on the top sellers in any eBay marketplace, which is a good way to get smarter about the competition.

AuctionIntelligence

AuctionIntelligence (www.certes.net/AuctionIntelligence/) is an auction analysis program available on a subscription basis. Downloading the software is free; you have to pay $14.99 per month to use it.

This program lets you search eBay by category or keyword. After it retrieves all matching auctions, you can generate a wide variety of sophisticated reports just by clicking the name of the report in the Reports list, and then you can customize the report based on your own user-defined parameters. You can generate reports that detail price over time; bidding and pricing trends; the effects of auction duration, premium features, feedback, and PayPal; frequent bidders; common words in listing titles; and more.

For example, Figure 2.9 shows the AuctionIntelligence Search Summary report. This particular report displays the total number of auctions found; the sell-through rate for this item; number of regular, reserve, fixed price, and Dutch auctions; average number of bids for each auction; average price for this item; and more.

Figure 2.9. Basic auction sales analysis from the AuctionIntelligence Search Summary report.

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Figure 2.10 shows the Price Over Time report. This report is an excellent way to discover the pricing trends for a particular item, whether the average selling price is going up or down. The results are presented in a highly visual fashion, making it easy to see whether pricing is trending up or down.

Figure 2.10. Track pricing trends with the AuctionIntelligence Price Over Time report.

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AuctionIntelligence also offers Hot Items and Category Distribution reports. As such, you’re looking at an extremely full-featured research program, although it’s somewhat technically demanding (it requires the installation of a Microsoft SQL Server 2000 or MSDE 2000 database before it can run) and not the easiest program in the world to use. Given these caveats, AuctionIntelligence can generate some extremely valuable research reports for the serious eBay seller.

HammerTap

HammerTap (www.hammertap.com) is a software program that performs basic auction sales analysis. It’s a tad pricey, at $199 for a yearly subscription or $24.95 per month. HammerTap provides fundamental information about any category or specific product, including the number of auctions in the past 30 days, the number of bids for each auction, percentage of items sold, average selling price, and so on.

Note

The product now known as HammerTap was formerly known as DeepAnalysisand is still called that in various places in the program and on the company’s web-site. The product formerly known as HammerTap (an auction management program) no longer exists.

HammerTap presents several tabs of information, including

• Auction, which lets you view the details of individual auctions for a given product or category
• Seller, which provides competitive sales data for individual sellers
• Report, which displays relevant statistics about the selected product or category, such as sell-through rate, average selling price, most useful listing features, and so forth

Tip

Several other companies offer category-specific eBay research tools. These include MiBlueBook.com (www.mibluebook.com) for musical instruments; PriceMiner (www.priceminer.com) for antiques, art, and collectibles; and SmartCollector (www.smartcollector.com) for antiques and collectibles.

Other tabs provide even more detailed analysis, such as which title keywords are most effective. You can save individual searches within the program, as well as export your results to both spreadsheet and database formats. This versatile program works seamlessly with the data available on the eBay site.

Determining Your Business Model

You canand probably shouldspend a lot of time researching a variety of products and product categories. The more information you have, the smarter you’ll be about what does and doesn’t sell well in the eBay marketplace.

The whole point of doing this research, however, is to help you make a decision regarding what type of merchandise you want to sell in your eBay business. Generating loads of numbers is fine, but it’s what you do with these numbers that really matters.

When it comes to determining the model for your potential eBay business, here are some points to consider:

• Is this a big product category? You don’t want to peg your business hopes on a category that’s prohibitively small. How many auctions are listed every week, on average? Is there enough business in this category to generate an acceptable income? (I like to look for categories that have at least 50 listings a week, on averageand more if they’re low-priced categories.)
• Is this a hot product category? Size isn’t everything; you also need to look at the percent of auctions that close successfully. A category with a low close rate is “soft”that is, customer demand is low, compared to product supply. A category with a high close rate is much hotter, which means that a larger percentage of customers want the products that other users are selling. Hotter is better. (I like to look for a close rate of at least 60%and the higher, the better.)
• How much revenue can you generate? Is this a high-priced or a low-priced category? The amount of money you make depends not only on the number of auctions you can run (and close successfully), but also on the final selling price of those items. Taking our earlier example of golf jackets versus digital cameras, you have to sell a lot more $20 items than you do $160 items to generate the same amount of revenuealthough selling that $160 item may be more difficult than selling a corresponding $20 item. Which pricing strategy do you prefer? When you’re just starting out, choosing a higher-priced item might make more senseyou’ll have fewer items to list, manage, pack, and ship every week, although you also have to take into account how much profit you make on each of the items. If you make the same $1 profit on each item, you’re better off selling the lower-priced one!
• Is the category growingor shrinking? Here’s a good reason to track a category over an extended period of time. There’s an ebb and flow to the various product categories on eBay. Some categories get hotter, some get colder, and some are fairly constant in their sales. Track a category’s sales over time and you can get a sense of whether that category is on the upswing or the downturn. Obviously, getting in on a rising sales curve is better than jumping into a once-trendy category that’s nearing the end of its product life cycle.

When you’re deciding on a business model, you need to take all these factors into account. But, as you’ll soon learn, there is no one right model that suits everyone. Some sellers prefer a constant flow of low-priced products. Others prefer selling the occasional high-priced item. Some prefer selling the same type of item week-in and week-out; others prefer a bit more variety and being able to jump on and off product trends over time. So all this research is just a tool in helping you decide what type of business you want to run. Do your homework to find the model that you’re most comfortable with.

Tip

When you’re looking at sales trends over time, remember to factor in any seasonality. Many categories pick up during the holiday shopping season and slow down over the summer. Some categories have different types of seasonality; for example, you’ll sell more swim suits in the summer and more ski boots in the winter. Don’t mistake normal seasonality for longer-term product life-cycle trends.