The changes to eBay’s fee structure in the first quarter of 2007 were primarily targeted toward eBay stores. If you didn’t have an eBay store, the changes had very little affect on you. That won’t be the case with the upcoming changes. Everyone will be affected by them.
While different fee changes are being tossed around, the most likely change will be to either lower, or completely do away with, listing fees and increase final value fees. Several people have already speculated on how this will affect eBay, Scott Wingo goes into the most detail in his post The eBay ecosystem is abuzz about the fee change - What will it mean?
What I haven’t yet seen anyone talk much about is how such changes will affect sellers. One thing we can be sure of though, for most sellers, their overall costs are going to increase.
The most likely new fee structure is ‘near-zero’ listing fees with increased final value fees (FVF) similar to the changes put in place for eBay stores at the beginning of 2007. We won’t know what the exact figures will be until their are announced, probably sometime early in 2008. There are, however, things we can do now so we are better prepared than most when the increases come.
1. Don’t get sucked in by the whiners. - While we don’t yet know details of the new fee structure, one thing is sure. As soon as they are announced, eBay cyberspace will become clogged with distraught sellers moaning and whining. Do not allow yourself become part of that mob. Rather, spend your time implementing changes that will allow you to continue to grow your business.
2. If insertion fees drop to zero, consider increasing your opening bids by $1 or $2 on each item you list. - The popularity of $9.95 or $9.99 as a starting bid is solely due to the $10 breakpoint of eBays current insertion fee structure. If an item attracts several bids where you start it at isn’t going to matter. But, we all know that some items end with just one bid. Starting these items one or two dollars higher won’t dissuade most people from bidding, and the extra one or two dollars you get will cover the FVF increase.
3. Eliminate low-priced items from your inventory. - Sellers whose inventory consists primarily of $4 and $5 items will likely be one of the two groups hit the hardest by the new fee structure. Even though lower insertion fees along with increased FVF may actually increase their net profit per item sold, the new structure may quite possibly result in a huge increase in overall listings of low value items. This will increase competition for these items and likely result in dramatically reduced sell through rates. Money tied up in this kind of inventory isn’t working for you.
4. Eliminate products with built-in price ceilings. - Sellers who source their inventory from drop shippers and wholesale lists will be the other hardest hit group. All these items have built in price ceilings created by the large number of other sellers offering the same items and by retail prices for the same thing found in brick and mortar stores. Net profits on these items are usually low to begin with and there won’t be any reliable way to increase the profit-per-item to cover increased FVFs. Add in the fact that if insertion fees drop to zero, or close to zero, and there will be a huge influx of more being offered on eBay, once again decreasing sell-through-rates.
5. Concentrate on selling inventory that provides the opportunity of 300%, 500%, or higher net profits. - Many sellers deal in inventory that only provides net profits in the 40% to 60% range. No matter what an item eventually sells for, an increase of one or 2 percent in FVFs, will take a big bite out of their profits. If your net profits are 300% or higher, the additional FVFs will have a much smaller impact on your business.
6. Sell better quality inventory. - The sellers who will be most adversely affected by the new fee structure are those who deal in low-end inventory. Increasing the quality of whatever genre you sell in will increase your sell-through-rate along with your profit margins. The result will be that this increase, along with any future eBay or USPS shipping creases, will have a much smaller impact on your profits and your business.
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December 18th, 2007 at 10:01 am
Good post, Gary.
Every time eBay raises their fees, my response to the whiners is that they should be thanking eBay for helping to eliminate the competition.
December 18th, 2007 at 11:11 am
Two questions: If listing fees go to zero, do you think stores will then be virtually invisible? I am thinkng of opening up a store for the first time.
Now for the dumb question, how do you figure net profit of 300 percent? Does that mean 3 times what you paid for it minus fees, purchase price?
Thanks, Diane
December 18th, 2007 at 6:23 pm
Diane,
There are no dumb question. At least not here.
When I talk about a net profit of 300% it means a return of roughly 4 times what I paid for an item. So, if I paid $20 for something, my goal is to end up with a $60 profit after deducting all fees, incidental costs, and my purchase price from what it eventually sells for.
In response to your first question - If there is no expense involved with a listing unless it sells, I think we will see a lot of people listing items they normally wouldn’t, and then just keep re-listing them in the hope they eventually sell. If this happens many stores will become, as you say, virtually invisible.
There will be exceptions, but those will be stores that contain predominantly the kind of items that are not readily available to the general seller, such as higher quality antiques/collectibles and special interest items that sellers produce themselves. Overall, most store owners will need to find more ways to creatively market their stores outside of ebay to maintain their traffic levels.
At the same time, although eBay has not been very store-friendly in the last year or two, store listings do account for a sizable number of their overall listings and earnings. The loss of visibility may well cause a sizable percentage of store owners to close their stores and I’m not sure eBay wants to face that loss of revenue and listings.
It wouldn’t surprise me if sometime in the second or third quarter of 2008, we see eBay break stores away from the main site, similar to what Half.com already is.
They already have the basic infrastructure to do this with eBay Express. As it sits, eBay Express has been pretty much a failure for eBay, but using the basic structure along with breaking stores away from the main site would be a relatively simple move.
If they did this and promoted stores like they currently promote Express it would likely result in much greater store visibility resulting in increase sales, happier store owners, and increased revenue for eBay.
Gary H.
December 18th, 2007 at 6:48 pm
Some great advice there Gary.
Right now my eBay fees are running just under 9%. That includes paypal fees, and listing upgrades when I use them and is averaged over hundreds of items.
I’m sending a bunch of items to auction houses next year. The cheapest rate I can get from them is 10% and most want 15-20%.
I also have items in an antique mall. They charge $105 a month plus 10% plus credit card fees if the buyer pays with plastic. I sold $600 last month and the total selling costs ran 28% of sales.
I also sell at shows in AZ and CA. The last show I did resulted in $300 in sales and cost $90 for tables and gas. That’s 30%. That’s high as the show was poorly promoted and the weather prevented many from attending. Normal show costs run 5-10%. (The show percents only figure costs and sales. I also buy items for resale at the shows and this lowers the cost greatly depending on my purchases.)
Looking at the alternatives, it’s not hard to see eBay is much cheaper. When you factor in the surprises from bidding wars - last week I sold something for $50 on eBay I would have sold for $8-10 at a show - the choice is even easier.
Of course my cost of goods is low. I pay about 40% of the expected selling price. That means I expect the items to sell for 250% of my cost leaving me a 150% profit before selling costs.
If eBay drops the listing fees, the market will be flooded with crap. Many eBay sellers don’t watch their costs much less understand them.
I think the reason eBay might remove listing fees is to increase the number of auctions. This number is no longer climbing like it was 5 years ago. The only reason it’s climbing now is because eBay runs free listing days like last week’s free fixed price day.
The free listing days are done to push the numbers up so they can report favorable results to wall street. That’s why they always come in the end of a quarter.
Terry
December 25th, 2007 at 3:41 pm
Even with a fee increase eBay is STILL a bargin in terms of traffic versus dollar spent. eBay is STILL a hot marketplace!!
I love price/fee increases…it gets folks going to eBay to see what all the comotion is all about, increasing traffic even more.
Remember friends, find the market first, then supply it with the products they want and you’ll never have to worry about fee increases.
January 10th, 2008 at 6:58 pm
While I truly believe eBay will likely remain “the” place for 2nd hand goods, there has been significant ground covered by competing sites regardless of format which is chewing away at eBays traffic, regarding ‘new’ items. This traffic is what draws and retains eBay store owners who sell “new” items.
An increase in fees, coupled with a decrease in overall traffic [TO EBAY, not internal traffic .ie member uploads and administration], is not very encouraging.
Regardless, eBay, even with increases, remains “the” place to sell 2nd hand goods.
January 10th, 2008 at 7:02 pm
Ebay will remain the best place to sell 2nd hand goods.
However, regarding new items, there has been a lot of ground made up by competing sites selling new items, drawing traffic away.
once you subtract all the internal traffic that occurs as a result of millions of users adminstering their listings, you see that Ebay is experiencing a reduction in overall traffic
this reduction combined with increased fees leaves the educated seller wondering what the solution will be if the traffic continues to drop off.