Image by muntazar mansory from Pixabay
I have posted in the past about my experience running an Ebay store as a hobby and what you need to know and do to get started. Now, I would like to get into a little more detail with my methods, theories and concerns in this particular area of e-commerce. I believe this can be a worthwhile work from home option for those who are willing to make the effort, however, there are a number of pitfalls I would try to steer you away from. So let’s say you have your business license, fictitious business name and website all taken care of and now you want to know how to really run your business. How do you turn this into a profitable and consistent enterprise?
Pick a niche. I’m sure you have heard this before, in order to stand out you need to specialize. So now you’re thinking, well what about Walmart and Amazon? I’m assuming you don’t have a massive budget and army of minions to help you jump straight into the online department store game. Also, keep in mind that Amazon started off just selling books. Think small enough that with your budget you can encompass the entirety of the market. As an example I specialized in role playing games that used the d20 rules of play. Within a couple of years I had a copy of 95 percent of all the d20 books ever published. Were there a lot of other people in the market? Of course, everybody wants to see if they can make money with their hobby. Few of them, however, had the consistent selection I had combined with a 100% feedback rating. So, for what I had, my books sold well, and I was able to charge a higher price and get it.
The problems with my particular niche was that it consisted of a limited number of items with a small number of customers and a very small profit margin. It was tough to get stock because relatively few people were selling and prices were competitive, even in the bulk market. I expanded into game miniatures thinking I just needed to have more products to sell. For a while it felt like I was doing well because I had at least one of almost every plastic Dungeons & Dragons miniature from the various sets and I was selling a great deal of multi-figured lots and combining my shipping efforts. When I finally sat down and did the math, however, it was a face slap of a wakeup call.
On average I would sell about one item per week for every fifty items I had listed in a 30 day auto-renewal store format. There are a lot of variables here, so I am just estimating. I think Ebay has some sort of algorithm that rates your items higher when you list more items. I would always sell more items the first day or two after listing a bunch of new items. For a while I thought I could incorporate that into my system and get more sales, but it turns out to be an exponential curve where you simply run out of items to list. So I did the basics by making sure I at least had a business card or brochure with all my packaging. I usually listed items between 5 and 7 at night because apparently people tend to check right after work for new stuff or listings that are ending soon. My average amount of sales never really changed though.
I thought, ok I just need to list a massive amount of items. You can probably imagine that my profit margins were small. I tried to always make sure I had at least a dollar of profit with the books. The miniatures were a different story. You need to take into account the Ebay fees, PayPal fees, sales tax, shipping costs, and packaging costs. It seems pretty complicated, but you can set up a spreadsheet pretty quickly that will do the math for you.
So lets say I have an average profit of 1 dollar per item and I need about 50 items listed in order to sell one item per week. You are probably getting the picture. In order to make 50k a year in profit you need to sell about 137 items per day, 7 days a week, every day of the year. Oh and you would need to have about 48,000 items listed and you would need to keep listing about 137 new items every day to keep up! I know there are automations and duplicate items and processes that can help out, but do you know how much time it takes to package and list items? I think on a good day I could package about 10 items an hour and list about 12 per hour if I was sort of familiar with everything and I did not run out of printer ink or packaging materials. Of course you have worked this imaginary 24 hours a day 7 days a week to make 50k and it will now be subject to the other 3 taxes: the federal, the state, and the self employment tax. Now imagine doing all this with a family encroaching upon your workspace, including kids and pets.
Image by Tung Lam from Pixabay
The moral of that story is sell bigger ticket items or collections of smaller items. I think back in the day the recommendation was items that have a profit of at least 50 dollars each or something. I have friends that ordered pallets of stuff from China and stored it in their garages while trying to sell it off. I stuck with my collectibles because I wanted to at least be interested in the stuff I was handling.
So I tried selling more expensive stuff and collections, but it was more of a slog because I couldn’t really find a lot of collectibles to mark up that much. At least not ones that I could afford myself. Living in Southern California in small condos and apartments also didn’t help. I simply did not have room for all the items, much less the packaging. Then I ran into more social issues. Some friends were watching our apartment and decided they could smoke in the spare bedroom, which I had converted into a library with all my gaming books. Yeah, smoke never really comes out of books. I probably lost close to 10,000 dollars with all the markdowns. I had another box of signed first editions that after a move somehow ended up in a cardboard box in the garage under a leaky pipe. That loss was less expensive but I lost some great books, like the leatherbound annotated Dragonlance Chronicles signed by Margaret Weis. Sigh. I was pretty disheartened after that and considered renting a storage area for all the Ebay stuff. The logistics there proved more cumbersome than I was willing to put up with and way more expensive than I was expecting. I spent the next couple years selling everything off, which sort of worked out since it helped us purchase a house and pay for 60k in renovations.
I know you’re probably thinking, so what about drop shipping? Believe me I looked into it. After scouring markets like Worldwide Brands and Alibaba for something I was both interested in and thought I could turn a profit on, I was still pretty discouraged. There is a lot of junk out there, and the stuff that looks interesting, well I’m not the only one who thinks so. The margins were so small and sometimes nonexistent because of the competition. I saw items selling for 5 to 10 percent less than what I could get from a distributor. I still don’t understand it. A buddy of mine who tried drop shopping with little success, eventually wrote a program that tracked prices of certain items on Walmart.com and Amazon. He would list the items on Ebay and have Amazon or Walmart deliver them and he was making better margins than our best dropshipping calculations.
So why bother, right? Well, let’s just say that online sales are not for the faint of heart. More specifically I mean that an online business person, like anyone starting from scratch I suppose, requires persistence and creativity. There are certainly plenty of success stories out there. My same friend who used Walmart and Amazon to ship for him eventually found success with glass etching. He bought pallets of glassware and did custom engravings for weddings and such making as much as 50k a month when we last spoke. Obviously this takes a certain skillset, marketing and some investment in machinery. The ticket here is a modification of an existing product. Much like flipping a house, you buy it, upgrade it and then turn around and sell it for 20-30% more. In this case we have bulk glassware that is custom etched and sold for an 8x markup. Sounds easy right? Not so much, but if you can pull it off and get some quality employees working with you, it’s definitely worth the effort. As soon as I find something like this that works for me, I’ll let you know.
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