Two weeks ago in Why Most People Will Never Be Successful On eBay I talked about the bad advice that’s so prevalent on many eBay related, and other, discussion forums.
Below is a sampling of advice concerning how to become successful on eBay:
“Aim for a 10% profit on everything you sell…..”
“…but if you can double your money on your items that do sell you’ll do just fine.”
“If you make $10 on each auction that ends successfully then you will be on your way to success.”
“List all your auctions with a $.99 starting bid and add $2 to the shipping costs as a handling fee.”
I can guarantee you that someone taking any of that kind of advice won’t be selling on eBay a year from now. Most won’t be around six months from now. I’ll also guarantee you that if the people giving the advice were making any money on eBay it amounted to peanuts.
I started buying and selling antiques and collectibles more than twenty-five years ago. A lot of what I sold then, and what I sell now, is bought at auction sales.
Just a few months after I started I was at an estate auction here in Grand Forks where there were several nice pieces of pottery and I’d managed to buy every one of them. While I was packing the pieces for the trip home, Roger, the owner of a local antique shop, who had also been bidding on some of the pieces, approached me and told me I’d paid way too much for most of the pots.
I told him that I would make money on all of them and I would double my money on many of them. While it took me 6 months to realize it, Roger then gave me the secret to success in the antique/collectibles business. He simply said “You have to sell things for at least three times what you pay for them or you will never make any money on this junk” and walked away.
Today, those words are still the secret to being successful in the antiques/collectible business. They are also the number one secret to success on eBay.
You must get a 300% return on what you spend for inventory or you will never succeed on eBay.”
It makes no difference what you are selling. If you don’t consistently get a 300% return on your investment your eBay business is going to fail. It may take three months. It may take three years. But you are never going be successful on eBay. Here’s why:
Assume you are selling widgets and your cost is $50 per widget. The first 100% return does nothing but cover your original cost.
The next 100% return covers your expenses. While your actual expenses vary depending on how you do business and what you sell, they are a very real part of any business. These include, but may not be limited to:
- Listing fees
- Final value fees
- PayPal fees
- Image hosting fees
- The cost of your ISP
- Depreciation on your computer
- Depreciation on your printer
- Printer cartridges
- Printer paper
- Phone expenses
- Depreciation on your camera or scanner
- Gas and oil for your vehicle
- Depreciation on your vehicle
- Costs for packing supplies
- Your time
- Research and reference materials
- Web hosting
- eBay or other store fees
- Auction management services
- Other costs
And you’re not finished yet. The average seller on eBay has between a 40% and 45% sell-through rate. So you have to factor in the cost of the inventory that doesn’t sell. Additionally, even if an item doesn’t sell, the expenses of trying to sell it are still present. By the time you’re all done, the second 100% does little more than pay expenses.
The last 100% is profit. Selling a widget for $100 might look as if you’ve made money, but you haven’t. To be profitable and stay in business for the long term, you must have that last $50 because that’s where your profit is.
Most people will say you can’t expect to get a 300% return on every item you sell on eBay and they are right - you can’t. But if you want to succeed on eBay you do have to get a 300% return for your efforts.
That means that if you list 20 auctions a week and your total cost for those 20 items is $150, your completed auctions for the week need to total $450 or more. If your inventory cost is $1500 your sales need to be $4500 or more.
Fail to do so and you are destined to fail.
Popularity: 7% [?]
If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!
October 27th, 2005 at 7:56 pm
Gary,
Are your comments on this blog open for discussion here?
If so, I’ll gladly bang heads with you over this one because I have some totally different opinions.
Let me know
Jim
October 27th, 2005 at 11:08 pm
Jim,
Just as long as we basically stay on topic, don’t draw blood, don’t call each other nasty names, or don’t end up never talking to each other again go ahead and bang away.
Gary
October 28th, 2005 at 2:40 am
I’d sure like to see you two debate this at length! I think Gary has a good point that there are costs that too many people don’t consider. They think they are making money, but really aren’t.
I don’t think the 300% rule holds at very low priced items or high priced items, however. If I buy a product for $1 and sell it for $3, I’ll kill myself shipping hundreds of these to make any significant profit.
On the other hand, If I can buy for $100 and sell for $200, then there seems to be enough profit after selling costs to be worth while. I’m assuming a constant demand so I can have a high sell thru rate.
I also don’t consider my time to be an expense. I’m currently doing nothing anyway, and might as well spend all day doing auctions. But I do think that selling for a $50 profit is a better use of my time than a $2 profit would be.
George
October 28th, 2005 at 6:50 am
I agree with George in his point. A 300% return on a $1 item as compared to a 300% return on even a $10 item makes a big difference to me. I actually look to make 300% profit on what I sell (which would ne 400% return based on your thoughts)
October 28th, 2005 at 12:42 pm
Profit margin is not a number I even look at in my business - it is nothing more than a variable that has no direct effect on my bottom line and there is no possible way of working a solid number into my business plan.
Sure, it’s a number that I can calculate once all is said and done but I don’t look at it as an important number at all.
The number we need to look at here is not how much profit per item but how much can I make in a month or a week or a day or an hour. Now, how do we calculate that number…
It’s real easy…. Take all you collected for the week, subtract all you spent for the week and divide that by the total number of hours you spent running your business. There’s your hourly rate and right there is the only number I concern myself with.
If you are not putting in a 40 hour week, go ahead and multiply your hourly rate by 40 to see your maximum potential earnings if you were doing this full time with your current system. I suspect that if most eBay sellers took the time to look at this simple equation, they would be shocked to find that they are making less than minimum wage for their efforts.
I think Gary would agree with me here so far but here is where our opinions differ….
Gary’s solution to getting the higher hourly rates is to focus on products that have a minimum of 300% profit so that his time spend getting them, writing up listings, answering questions, and packing and shipping is covered.
When Gary sees the equation above, he focuses on two parts of it - how much money collected and how much money spent.
My focus is on the other part of it - how much TIME spent. This is the variable that you have total control over and is by far the easiest way to adjust your hourly rate from minimum wage to something that most would consider obscene.
I can tell you that I have about 40 listings a week going and I make about 50K a year with my current eBay business. Not a single one of my items comes anywhere close to a 100% profit margin. The stuff I sell ranges from 99 cents to $99
I’ll take a wild guess here and assume that Gary makes about the same with the same number of listings - I may be way off here but this scenario will work for my example.
While it is impossible to tell from what Gary has written here, it looks like he spends around two full days a week getting his products and I would have to assume a day or more writing listings, answering emails and packing and shipping. (am I close here Gary?) Let’s call it 30 hours spent for $1000 profit each week.
Again, I don’t claim to know actual numbers and Gary is welcome to adjust these if he’d like to.
Compare that to my business…
My time to get products is less than an hour a week - it involves me picking up the phone and calling 3 local suppliers every Monday morning and having them deliver the products that my customers have ALREADY ORDERED. I don’t spend a dime on anything unless it is already sold. My listings all end on Sunday evenings and all of my products are shipped by Monday afternoon.
Listing items - I mentioned that I list 40 items a week. It takes me NO time to do this where it would take most sellers a full day or more. I list the same exact items every week and I have a program that automatically launches them with no involvement from me. I haven’t written a new listing in over a year.
Answering emails - almost nonexistent for me. When you are selling the same items over and over you get to know all the common questions and it is easy to just put the answers in your listing so you don’t keep getting the questions.
Packing and shipping - I’m so fine tuned here it’s amazing. All of the items I sell will fit into various sized Priority mail boxes that the post office will deliver to me. Even better, my mailman comes to my door every Monday to pick up whatever I have. I spend no time getting shipping supplies or going to the post office. The time I spend packing is minimal since I know exactly how to pack each item and I have all of the supplies at home.
My total hours spent per week? - About 4 - And I don’t even have to leave the house.
Now let’s break down the two examples here into an hourly rate and extrapolate that into a full 40 hour week. (I’ve never used that word before - LOL)
With my example of Gary’s type of business - $1000 divided by 30 hours is $33.33 an hour with a maximum potential of $1333 per week. Sure, I understand that many people would give anything for that kind of income but let’s now compare that to a very fine tuned and systemized type of business plan such as mine.
I make the same $1000 a week but I do it in 4 hours. The math on this one is real simple - $250 an hour. So, If I were to find more products to fit into my system and do this stuff for 40 hours a week, I could make $10,000 a week or over half a mil per year.
I guess the point I’m trying to make here is to look at the equation above and really understand it - It’s really simple.
Look at each of the factors in it and understand how they effect each other and how they all fit together to make your bottom line. Fine tune and systemize each one as much as you can.
I could go on and on here and I will if Gary wants me to.
On another note - I don’t want anyone to think that this post was in any way against Gary or his business. I totally respect and admire him and have learned much from him over the years.
This post was meant, not to argue but to get a good discussion going on a very important topic.
Jim
October 30th, 2005 at 5:43 pm
Interesting post Jim. Becoming a minimum wage auction seller is one drawback to Auctions as a business model. You seem to have avoided that trap rather nicely. Gary has as well, $30+/hr aint half bad either (assuming your numbers about Gary are right) !
Garys main time burner is procurement. That’s unavoidable if you are into collectibles. But most people enjoy that part of the game and don’t mind the time spent.
Jim, I see you as someone who came to Ebay and designed a business with efficiency as priority #1, selling whatever. Gary came to Ebay with priority #1 being to sell collectibles,whatever inefficiencies that inherently involves.
Both approaches appeal to me. It’s fun to scrounge around and see what you can find, but hay, $250/hr sounds good too.
George