EcommerceBytes-Update, Number 78 - September 08, 2002 - ISSN 1528-6703     2 of 6

eBay by the Numbers

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You know them, you love them, you see them every time you log onto eBay: auctions for pills boasting "Lose 60 lbs in 60 days" or "TOP SECRET CDs that eBay doesn't want you to have!" The proliferation of these auctions makes an observer wonder how anyone can make a living selling these inexpensive items that never seem to have any bids. Don't they simply take up space on the "World's Online Marketplace?"

Maybe, maybe not.

Could there be a method to the madness of these high-volume sellers who can afford to sport a 20% sell-through rate and sell their items for half a sawbuck? After subtracting all of their fees and commissions, how could they possibly make any profit?

Let me state for the record that I've stood on my soapbox for the past several years espousing the "High Sell-through/High Profit Margin" theory of online selling. I try to sell items that will bring more than $50 that are found at yard and estate sales, and pay as little as possible for them. Of course, this entails actually finding some of these treasures. Anyone who drags themselves out of bed on a Friday or Saturday morning at 5am to scour their neighborhoods for "inventory" knows that some weeks are better than others.

But being a curious sort, I wanted to know how the other side lived. How was it possible to sell such a low percentage of items at such low prices, and still make it worthwhile? So I did a 30-day analysis of an actual eBay seller (Mr. X) whose average sale was between $5 and $6. Not really impressive in itself, but oh, how those dollars can add up!

Leafing through the pages of Mr. X's completed auctions, it was rare to see a successfully completed auction, but then, there were over 550 pages of them. So I turned to my trusty HammerTap DeepAnalysis program and did a 30-day completed auction search for this seller.

Here's what I found, get your pencils ready:

In one month, Mr. X listed over 11,000 auctions and sold 1,870 for a sell-through rate of 17%. The average selling price of his auctions was $5.65.

That brought Mr. X's Gross Sales to $10,565. Since he started his auctions at $4.99, his listing fees were .30 cents per auction. (11,000 x .30 = $3,300) That brought his take down to $7,265. Subtract Final Value Fees of 5% per completed auction ($528.25) and that left $6,736.75

Now, it does help to have done an analysis of a seller whose cost structure I know. Mr. X pays no more than $1 per item for his inventory. Subtract the dollar/item cost of $1,870 and that leaves him with a net of roughly $4,866.75. I'm sure there a various other costs connected with doing business: a featured Dutch Auction per month, some deadbeat bidders, payment service charges. So, for the sake of neatness, let's round the net down to $4,500/month.

Now add back in a little something called shipping and handling charge. These items weigh very little, and the seller charges a flat S&H rate of $4. There's easily $1 of profit in this, after figuring in the cost of shipping materials, so you can add the $1,870 (probably more) back in.

Multiply that by 12 months and you have a pretty decent annual income exceeding $75,000. And you get to work in your pajamas!

I should also note that I did the analysis in the summer when sales were slower. Mr. X usually lists closer to 20,000 items per month.

Pencils down.

Although it flies in the face of first appearances, it seems that you actually can make a very decent income selling those damnable "trendy" items that make you lose weight, brighten your teeth or clean your colon. In fact, it led me to analyze a few other sellers of these eBay "staples" and, while they had different methods of posting - some used Dutch Auctions exclusively - the gross sales on their merchandise ranged from $4,000 - $20,000 over a 30-day period. It may not be chic to sell them - I still prefer the thrill of the hunt and the auction that has a last minute bidding war - but I won't argue with the numbers.

Next time, before I scoff at all those auctions for diet and weight loss tablets, I'll remember: There's GOLD in them thar pills!


About the author:

David Steiner is President of Steiner Associates LLC, publisher of EcommerceBytes.com and the EveryPlaceISell.com merchant directory. David, a former television producer, handles business development and advertising for EcommerceBytes. You can reach him at dsteiner@ecommercebytes.com


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