|Sun Dec 30 2012 20:19:09|
eBay Nets More in Fees Thanks to Higher Shipping Costs
By: Ina Steiner
Higher shipping costs never bode well for online merchants, but eBay actually makes more money when carriers raise rates thanks to a policy change that took effect last year: eBay now charges a commission on shipping. Previously, it had charged "final value fees" on the cost of the item alone.
eBay also requires a majority of users to accept its PayPal payment processing service, which also takes a cut on the total transaction, including shipping.
All the major carriers (USPS, UPS and FedEx) are raising shipping rates in the New Year (see Monday's EcommerceBytes Newsflash article for details), meaning eBay will earn even more in fees without having to announce a fee increase.
How does this play out? Many eBay sellers use Priority Mail flat rate boxes to ship their items. A small box is going up by 45 cents ($5.35 to $5.80), netting eBay an extra 6 cents in final value fees, assuming an 11% FVF and a 2.9% PayPal processing fee. (eBay FVFs vary by selling format and category.)
Using the same assumptions, eBay will net an extra 14 cents for every order sent using a Medium Priority Mail flat rate box where the buyer pays with PayPal.
While buyers usually pay for shipping, now that eBay charges fees for shipping costs, the price of doing business on the marketplace is going up.
It's worth noting that Amazon plays a similar game, but wrapped in much more complexity. In 2005, Amazon introduced a variable closing fee. To see how complicated the shipping portion of its fee structure gets, see this 2006 Newsflash article. Often it chooses not to increase shipping credits when shipping costs increase, and when it does, it also increases its variable closing fees.
The bottom line is that sellers' profit margins will be shrinking in the New Year.