Posted: Jan 01, 2004
Smart Money Article - Sold On eBay
By ANNE KADET
Photograph by Craig Bromley
Taken from the January 2004 issue of Smart Money Magazine
Who logs on to eBay? Sure, there's the Sinatra fanatic looking for that elusive 'Old Blue Eyes' magnet set, the collectibles dealer who hopes that someone out there wants a Richmond, Va., state penitentiary postcard, the college grad hoping to furnish her apartment for 20 bucks. But that's not all. There's also the couple shopping for a new home, the department store manager shedding last fall's shoe inventory and the shoe store owner across the country looking to buy it. There's the home-furnishings wholesaler hawking 2,000 square feet of marble tile and the farmer combing the site for a new John Deere.
Welcome to the new eBay economy. What started out as a venue for Pez fanatics and retirees cleaning out their attics has grown into the capitalist ideal Adam Smith only dreamed of - a transparent marketplace where every seller has equal access to every buyer, and every consumer can instantly compare sellers on price and service. And we're not talking just in the U.S. Having launched sites in 16 countries over the past few years, eBay has morphed its marketplace into a global economy. International business now makes up 40 percent of total sales, and eBay has 85.5 million registered users worldwide, 56 percent more than just a year ago. From multimillion-dollar homes to diet pigs, the site sells products and services in 35,000 categories. All told, eBay rakes in an eye-popping 45 percent of all Internet retail sales - that's $21 billion in the past year.
The top dog on eBay: cars, hands down. In the past 12 months, eBay Motors rang up $6.7 billion in sales. By comparison, the categories you may think make up the backbone of eBay - antiques, coins, stamps - each account for less than $1 billion in sales. And now more new merchandise is sold on eBay - an estimated 30 percent of all inventory has never been used.
Obviously, it's not just individuals selling to each other anymore. Sales in the wholesale-lots category, one of the fastest-growing on eBay, zoomed a whopping 465 percent in 12 months. EBay even launched a business site recently, which offers fun stuff such as grain hoppers, industrial sewing machines, cement mixers and network routers. Dell, Motorola, Sears, Home Depot and other companies are dumping discontinued or clearance inventory on the site-and making on average three or four times what they would normally get selling to liquidators.
So is eBay turning its back on the little guys? Not a chance. In fact, it's doing more to attract entrepreneurs. "PowerSellers" who gross at least $ 1,000 in sales a month get help making the leap to full-time merchants. Run a print ad hawking your wares, for example, and eBay will kick in 25 percent of the cost. Need health insurance? EBay has negotiated discounted rates for PowerSellers and their employees. So far, several hundred people have signed up. Even the government is pitching in. Last summer eBay announced o partnership with the Small Business Administration to cosponsor training and education programs for entrepreneurs. "eBay puts the smallest of small businesses on a global trading platform," says SBA spokesperson Doug Heye. "We'll be teaching the uses of the technology so small businesses can become more self-sufficient."
All this means one thing: Competition is fiercer than ever. According to the newsletter AuctionBytes.com, based in Natick, Mass., the percentage of listings resulting in a sale in the collectibles category, for instance, has fallen from 72 percent to 45 percent since 2000. The average price of a winning bid fell 35 percent. "The supply is really matching the demand, " says the editor, Ina Steiner.
In the increasingly fluid eBay marketplace, businesses have to keep moving or risk getting trampled by a herd of copycats. "EBay is a dynamic marketplace where sales follow the laws of supply and demand in real time," says Chris Donlay, an eBay spokesperson. “Consequently, buying and selling activity in any one category can fluctuate quite a bit. We find that individuals and small businesses are often in the best position to react quickly and take advantage of these changes.”
It seems that entrepreneurs agree. An estimated 150,000 Americans not only sell merchandise on eBay but earn a living doing it. Some even boast seven-figure revenues. How can you get a piece of the auction? We asked top sellers, industry experts and auction consultants to tell us the strategies that will help you whip the competition. We even conducted our own auctions to see which listing methods produce the highest bids. Let's get started.
Just don't carve yourself too deep a niche. As soon as you discover a nifty new widget, 10 sellers will offer the same gizmo at half the price. So don't sell just the latest herbal baldness remedy, branch out into toupees, hats and hair-in-a-can.
Dan Kasal has seen firsthand how competitive things have gotten on eBay. Kasal, 28, put himself through school auctioning cell phones. In 2000 he bought 50 Ericsson Bluetooth-enabled phones at $350 a pop. No other eBay seller had them, and Kasai sold each for about $1,000. But these days he's just one of dozens of sellers offering the latest trendy handset. Only by lowering prices, speeding up inventory turnover and boosting customer service has Kasai managed to remain one of the top cell phone sellers on eBay, grossing $6 million last year. "Our typical profit margin used to be 40 percent, which was huge," says the Chester Springs, Pa., entrepreneur, who now has seven employees. "Now it's between 5 and 10 percent.”
Steer clear of commodity items such as electronics that category is pretty saturated already. As a small-time operator, you'll likely to have an easier time in a category such as antiques, in which a rare piece will set off a bidding war and produce a fat profit. Stickley means nothing to you? DeepAnalysis software - which analyzes sell-through rates, average number of bids per item and average sale price in any eBay category or subcategory - will show you the product groups that are most popular. A free 30day trial can be downloaded at www.hammertap.com. We tried it out and found that men's clothing and small appliances both have impressive sell-through rates of 56.6 and 68.4 percent, respectively. Paintings, meanwhile, sold just 18.9 percent of the time, which, judging by the quality of the work on display, is about right.
One last thing: Don't forget about the shipping. You might have a killer idea for selling dog food, but do you really want to lug bulky 20-pound bags of kibble out of the house, into your car and to the post office every day? Be realistic about how much work you want to put into it.
It typically takes several months of losing their shirts online for sellers to develop a feel for what will generate a profit. That's where consignment comes in. Randy Smythe, a former television production manager living in Placentia, Calif., started his DVD business in 2001 by cold-calling video production companies and offering to sell their languishing stocks of how-to VHS tapes on eBay. “If I sell anything, I'll pay you. If I don't, I'll give it back," he told them. He managed to gross $400,000 his first year. The 43-year-old now employs 12 full and part-time employees and expects to finish 2003 with nearly $4 million in sales.
Where are you going to get consignment goods? That's easy. eBay has a Trading Assistant program where auction-clueless treasure holders can hook up with consignment sellers. McGrath says on average, you'll earn a commission of around 30 percent of the sale price.
Once you know what sells, wholesalers are your best ally. You can find them on Web sites such as Liquidation.com and, you guessed it – eBay. Or you can go to trade shows or ask manufacturers for their distributor contacts. Wendy Warren, a 40-year-old Whittier, Calif., seller of women's accessories, started her eBay business in 1998 selling one-of-a-kind trinkets she found at estate sales and auctions. "But you're on the hunt a lot," she says, "and every time you sell something, you have to write a whole new product description.' It wasn't until she started buying in bulk from wholesalers she met at trade shows that her business took off. Revenue has since increased fivefold, to more than $10,000 a month. 'Now I'm working smarter, not harder," she says.
Of course, you have to pick your allies carefully. 'It's a corrupt business," says Lisa Ellis, a Grass Valley, Calif., eBay seller who doubles as a wholesaler in plus-size women's clothes. An acquaintance of Ellis once ordered a truckload of children's toys and got a trailer full of broken, vomit-covered chdren's car seats dumped on her lawn. A legitimate wholesaler will require you to have a state-issued sales tax number, which allows you to buy product without paying sales tax. Ellis advises that you find wholesalers willing to start you off with a small sample order and that you log on to Buyersinfo.net, where, for a $21.99 membership fee, you can search for complaints against specific wholesalers.
But your work isn't done yet. Prepare to woo your wholesalers. It was months before Steve Weinberg, a 43-year-old El Dorado Hills, Calif., eBay entrepreneur, lined up wholesalers for his consumer electronics business. "You can go to Kodak and say you want to buy direct, and they say, ‘How many million do you want?’” he says. Distributors, meanwhile, saw him as a small-time, unknown entity. Finally, after hundreds of cold calls to wholesalers, Weinberg found a few willing to sell digital cameras to him as long as he paid up front. Now, with his monthly revenue exceeding $25,000 a month, distributors are calling him, eager for his business.
As for pricing merchandise, never pay more than half of what you expect to sell an item for on eBay. Don't forget, fees associated with an auction can eat into your profits. (See a typical seller's budget in "Anatomy of an eBay Sale," page 95.) Find out what products are selling for by using eBay’s advanced search and checking off the 'completed items only" box. We thought twice about auctioning off our soul after discovering that the highest bid for any of the five souls auctioned off in the previous 30 days was a measly $7.16.
On eBay, you live or die by the feedback you get from customers, and they're not the sort to hold back. Render decent service and you'll get “Greatest Seller in History!" or “Walks on Water!!" Forget to respond to a buyer's e-mad, though, and suddenly you're Saddam, Beelzebub and Gray Davis all rolled into one. And no matter how outrageous the comment, it all goes on your permanent eBay record, for all the world to see, including your mother. It's important, then, to start on the right foot. Until you generate at least 25 positive feedback postings, most buyers will treat you as if you were selling leprosy.
The free "About Me" page that eBay offers can also give you a leg up on competitors. Describe your background as a seller, your feedback record, where you operate and what you sell. Include contact information and a detailed shipping and returns policy. "Make it look professional," advises Jacqueline Renner, an eBay seller consultant in Manchester, Conn. "People derive a level of comfort thinking they're dealing with a real business and not someone operating out of their bedroom – even if that’s what you are.” just don't follow the example of one eBayer who posted, 'I'm a nice person, it's just that I've been bit quite a few times and tormented way too much. I don't trust people.' About as personal as you want to get is including a photo of yourself. "It humanizes you. You'll get fewer of those skeptical e-mags,' says McGrath.
Lavishing customers with attention doesn't hurt, either. Write them a sweet note as soon as they win an auction. When you ship the goods, include a thank-you note or even a small gift. Franci Neale, an Olympia, Wash., eBay book dealer, always wraps her merchandise in pretty paper and includes a coupon for 10 percent off the next purchase. "Most people don't actually use the coupon, but they never forget that I sent it," she says. Most important, Neale includes a note thanking the customer for their business and asking that they let her know the parcel arrived in good shape by leaving her feedback. As a result, she's received 5,463 feedback ratings-99.6 percent of them positive. If you get an unhappy customer, a fast response is crucial-a large percentage of negative feedback comes from customers who grew frustrated waiting to hear back about a complaint. Wendy Warren, the accessories dealer, immediately calls anyone who sends her an angry message. "What can I do to make you happy?" she asks, even when she's not at fault. "It will completely defuse the situation," she says. "It's never faded me."
Browsing through 19 Million listings can be a little time consuming, so most buyers use keywords to find what they're looking for on eBay. Each headline, then, should contain all the obvious words people might use to search for that item. For instance, "Lilly Pulitzer green skirt size 8." Don't waste precious title space with useless adjectives-"totally awesome!" – or carnival barker incitements – "L@@K INSIDE!" You should also consider using acronyms (see "A Better Way to Search eBay,' below) where appropriate. EBay's "gallery" enhancement, which adds a thumbnail photo of your item next to the listing title, is a must. It's the one eBay listings tool that most sellers swear by.
Your product description should be thorough so buyers don't have to go through the trouble of asking you for more details. Paula Meunier, who sells women's garments, doesn't list only the dress size; she also offers the arm length, waist circumference and any other relevant measurements. She even lists the Crayola crayon color that corresponds to the garment's hue. "Almost everyone has a box of crayons at home,' says the 57year-old Jerome, Idaho, resident. As a result, Meunier now spends far less time responding to e-mail queries. 'I used to get 10 to 15 questions a day about my listings," she says. "Now if I get two or three a day I'm surprised."
If a product doesn't sell, cut the starting bid price to a penny and relist it immediately. As with any retail business, click inventory turnover is important for making a profit. Don't lock up your money in merchandise that's not selling. Take the loss and move on.
Your instinct will tell you to start an auction at what you hope to sell an item for. But that's treating eBay like a brick-and-mortar store. In 1999 John Stack hoped to rescue his family's Atlanta-based restaurant-equipment business, A City Discount, by selling products on eBay. Worried about losing money, he always started the bidding at what he was willing to accept. He didn't get a single bid. "Then I remembered my father telling me an item is only worth what someone is willing to pay for it," says Stack, 52. So he started auctions at a dollar. Recently, he used that tactic when fisting an industrial ice cream maker. "We had tried selling it a couple times starting at $999, and no one bid," he says. "This time we sold it for $2,000.' Stack quickly learned the eBay buyer's mentality. "When you start something at a dollar, it seems people bid on it and develop an attachment to it, even if they have to go above what they originally intended, " says Stack. "Now we start 95 percent of our used equipment at one dollar."
An offer of free shipping could help too. In 2002 it took Stack 12 months to sell a $60,000 shipment of ice machines. This year he advertised the same machine with free shipping. "We sold $75,000 in a month and a half,' he says. Annual revenue now stands at $4 miflion-10 times the 1998 level. Stack even closed the retail store in 2001 to focus on online sales.
Finally, the timing of an auction can make a difference. For an unusual collectible, like, well, a Virginia penitentiary postcard, hold a longer auction to make sure the nation's only penitentiary postcard collector can find it. End the auction on Sunday evening, when more people will be bidding. And don't launch your auction if there are similar items for sale. On the other hand, if you're selling a commodity item, these factors don't matter. Just keep the auction short and sweet. Says Steiner, "No one wants to wait 10 days to see if they won an ink printer cartridge."