Mighty Bargain Hunter

Making money with an eBay Store, Part 4: Obtaining product at the right price

September 15th, 2007 | by mbhunter |

(This post is part of a series on Making Money with an eBay Store. The Introduction and table of contents to the series is here.)

Part 3 of this series on making money with an eBay store elaborated on telling the appropriate governing bodies about your business, and setting up some of the appropriate financial avenues for managing the business’s money.

I made an assumption here. The assumption I made was that you actually have a source for “product” — the stuff you’re going to sell — and that you can obtain it cheaply enough that you can sell it in an eBay Store so that it’s worth your while. After all, an eBay Store is a store, so you’re selling product. And if you’re losing money on each unit, it’s really hard to make up that loss on volume. So you have to be able to acquire whatever you want to sell at low enough cost so you can make money on the sale.

This requires research. Presumably if you’re pondering a store, you’ve already done this, but if not, this is a very important activity!

A local comic book and collectibles dealer graciously shared some advice with me. (He used to have an eBay Store, but it looks like it’s closed now.) He asked me how much money I’d be making on sales. I started out by saying, “Well, I guess this would cost here, and fees would be about this …” and he stopped me and said, “You can’t guess. You’ve got to know.” Those words stuck with me. Or, from real estate investor John Schaub, you make your profit when you buy. Either way, this means three things:

1. Knowing what you can sell your product for
2. Knowing what the transaction and labor costs are
3. Using these numbers to determine what you need to buy the product for to profit

What will your stuff go for on eBay?

This is actually pretty easy to answer. You check on eBay to see what your stuff will go for on eBay!

• Go to eBay and do a search for the item you want to sell. I’m assuming there’s some kind of demand for the item, as evidenced by people selling the item. If there are none, then either (a) you’ve hit on a totally untapped niche on eBay, (b) you’re not allowed to sell the item on eBay, or (c) it’s really difficult, or impossible, to make money selling that item on eBay. Further research on your part is required at this point.
• Go to the left sidebar and check the “Completed listings” box under the Search Options heading, and then click the “Show Items” button beneath the column of checkboxes. You may need to log in again to see the listings.
• Sort these listings by price. The items with a green price in boldface type sold. The items with a red price didn’t. If you sorted with the highest price first, most likely you’ll see red prices at the top, and more and more green prices as you scroll down. The green prices, plus the appropriate shipping charges, represent the range of prices that eBay buyers were willing to accept recently for the items you want to sell.
• Double check the condition of the sold items. New items in the package will usually command a higher price than used items, regardless of how lightly used.

OK, I have a range of prices that the items sold for. What next?

The final selling price plus what you charge for shipping and handling is your income for the item. In order to turn a profit, what you sell the item for must be less than the sum of the following:

• What you paid to obtain the item (cost of goods sold). Ultimately, you make your profit when you buy.
• EBay listing fees and final value fees. EBay’s fee structure is different for auctions than it is for store items. You’ll want to figure it out both ways so that you can sell either way.
• PayPal fees. These are similar to merchant account fees, the fees that you’re assessed to process credit card transactions.
• Packing material costs. Depending on what you’re selling, you may be able to get free packing materials from your favorite delivery service free of charge. For example, USPS gives free boxes, envelopes, and labels for Priority Mail and Express Mail. If you want to offer cheaper shipping options, then these free packing materials cannot be used, in which case it costs you. In addition, you may need bubble wrap, paper, and tape.
• Transportation to mail items. If there’s enough volume you may be able to schedule a pickup, but this may cost.
• Shipping costs. What it costs you to get the item from Point A to Point B.
• Taxes. Sales tax if applicable, as well as any local, state, and federal income taxes.
• A prorated amount for you other costs of business, like licensing fees, advertising, commissions, eBay Store costs, etc.
• An allowance for returns, lost items, and other mishaps that will eat into your profits.

Did you calculate — not guess! — all of these contributions? Did you get a positive answer? If so, this is good. There’s a chance that this could be worth your while.

Isn’t the bottom line the bottom line?

Having the income larger than the expenses is good. But it’s also important how long it took you to earn that money! If your total cost is $9.95 per item out the door and you’re clearing only $10.00 for each item, you’d better have a really huge volume or else you’re working for about 37 cents an hour! You might as well work alongside the teenagers at the grocery store, because you’ll make a lot more. It’s not worth your while to sell at such a small margin.

So what is worth your while? That’s something you’ll need to answer for yourself. Making money is better than losing money, for sure, but if you can make more money elsewhere, or if the money you are making really is insignificant, then you have to ask whether it’s really worth it or not to sell. This profit threshold can be lower if you enjoy the activities associated with obtaining, listing, and shipping the products. If you enjoy going to yard sales anyway, you might not mind making only $5 an hour because you’d be doing it anyway, and now you’re getting paid.

Your time cost per item goes way up if you’re obtaining the items one at a time. But if your profit is $500 per item, you can afford to spend 10 hours on that one item and still be making $50/hour. If you have smaller items ($5 items) your initial time cost is high the first time you sell them, because you haven’t listed the items, taken pictures of them, etc. It drops dramatically if you buy a bunch of the same kind of item, because you only need to go through construction of the auction once. (Plus, you can sell up to 100 identical items in an eBay Store for one listing fee!)

Here’s a list of activites that consume your time during the money-making process:

• Obtaining the items. This might be traveling to a dealer to purchase inventory, or hunting flea markets, yard sales, and the like. It may be less time-intensive, like picking up the phone and getting merchandise delivered. Or there could be none, if people bring the items directly to you!
• Listing the items for sale. Photographing or scanning the items, writing up the listings, and answering questions from prospective buyers.
• Packaging the items. This could be quite labor intensive (for fragile collectibles) less labor intensive (putting a magazine back issue in a Priority Mail envelope) or none (the buyer clicks on a link to download your electronic product).
• Shipping the items. You may need to get the item to the post office, or not.
• Tracking and bookkeeping the items. The recordkeeping part of running a business.

So if you spent 10 hours obtaining a pallet of multimeters, 30 hours listing them, 10 hours packing them, 15 hours shipping them, and 5 hours with bookkeeping, and profited $1,400, you made $50/hour selling those multimeters.

How do I obtain product at the right price?

That was the title of the post, and you were probably wondering when I was going to reveal the secret formula for obtaining things below retail.

Well, there is no secret formula, mainly because I don’t know where you live, what’s around you, or what you want to sell! All I can really do is offer some suggestions. Some of them may be great for certain kinds of items and horrible for other items. Some of them may work great in Illinois but lousy in Idaho. Here are some ways to obtain merchandise that will work in some situations:

• Auctions. Liquidations are good places to get goods at decent prices. Sometimes the selling price will be fantastic, and other times it will be high. It’s a function of how many bidders are competing for the goods. These items are usually sold as-is with no warranties. The variety of items you can buy at auction is large.
• Flea markets, antique shops, and yard sales. A good portion of the items in antique shops may have been purchased at auction, but if the dealer doesn’t know what they really have, there’s a chance to make a lot of money if you know what it will go for on eBay. Yard sales may allow a better chance of getting a fantastic deal on something depending on the situation.
• Drop-shipping companies. This isn’t really obtaining the item at all. It’s selling for another company and making the profit on the difference between the price they charge you and what you charge the customer. It’s a very clean business to operate (no inventory) but it’s also very dependent on the availability of the merchandise and the stability of the prices. (I’m involved in a partnership that sells paintball gear among other things, and we use a drop-shipping method.)
• Wholesale distributors. This involves buying in quantity to get discounts. There may be a process to go through to become a qualified seller, and there may be a minimum initial order that’s prohibitive. This works if you are selling a high-demand product and can move a lot of volume.
• From your own efforts. Nothing says that you can’t make your own products! There needs to be a market for them, of course, and there’s additional time that needs to be factored in to your time cost (as well as any material costs). Products that do well here are products that can be made once and sold again and again with little or no additional construction effort. For example, quilt patterns. You construct the pattern once, and print it out many times, or have people download it many times. It may take three hours to make a pattern or 100 hours to assemble a decent e-book, but once it’s made, it’s made.
• Consignment. This is another decent way to get merchandise at the right price. EBay itself can be described in part as a really big consignment shop. People are willing to pay others to sell their stuff on eBay. Some of the magazines in my eBay Store are consigned. I don’t make money obtaining the item and reselling it; I make money through an additional commission that I charge.
• EBay. If you buy large enough on eBay at a good enough price, you can put them right back up on eBay and make money. EBay is both your source and your store. Buying a personal collection of 500 DVDs for $2.50 per DVD may have enough worth $10 plus shipping that you can make a few hundred on it selling them right back on eBay.
• Anyplace else you can find! There are opportunities to pick up product to resell right in your area. A nice e-book by The Product Hunter (aff) gives instruction on how to go about finding these sources. These sources are found off the beaten path (the really good ones, anyway). Folks who have already found them are very reluctant about volunteering their sources, because they’ll just make a competitor if they tell you where they get their stuff! It’s their competitive advantage. So going this route takes time to build relationships and learn the ropes well enough to separate the wheat from the chaff and not get taken for a ride. But getting through this successfully will reward you with your own competitive advantage.

In the next part I’ll talk about the mechanics of setting up an eBay Store.

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