Thinking It ThroughBefore You Start

The key to planning your eBay business is to sit down and give it some serious thought. You don't want to rush into this new endeavor without thinking through all the details. While it is possible to stumble into eBay profitability, the most successful sellers know what they want to do and how they want to do it. In other words, they have a plan for success.

If you don't plan your business in advance, chances are you'll run into more than a few surprises. Unpleasant surprises. You don't want to get six months into your business and then find out that you're losing money on every sale you make. Far better to think through everything beforehand, so you'll know what to expect. No surprisesthat's my motto.

Can you start selling on eBay without putting together this kind of business plan? Of course you can. Can you be successful without a business plan? Maybebut probably not, at least not in the long term. It's easy to start selling on eBay and even to generate a small profit in the short term. But to launch a business that generates sustained profits, you need to plan for that success. If you don't know where you want to go, you'll never get there.

The easiest way to begin this planning process is to ask yourself a series of questions. When you can comfortably answer these questions, you'll have the framework of your business plan.

What Type of Business Do You Want to Run?

The first question to ask is the most important: What type of business do you want to run? Or, put more pointedly, what types of merchandise do you intend to sell on eBay?

You see, you can't just sell "stuff" on eBay. That's not a real business; that's an online garage sale. No, you have to determine what kind of "stuff" you want to sell. And you probably want to specialize.

You took a good first step toward determining what to sell when you worked through the preliminary product research in Chapter 2, "Researching Your Business Model." As you learned there, you can easily find out how well any given type of merchandise performs just by searching eBay's closed auctions or using one of the many available research tools. Use this research to help you determine whether selling a certain type of product makes sense. You want to look at sales potential, sell-through rate, and the average final selling price. If the research shows high profit potential, you've made a good choice. If the research shows low sales or low profits, it's time to do some more thinking. You might have your heart set on selling a particular type of product, but if the sales potential isn't there, why bother?

Note

You can examine six different types of eBay businesses in Part 2 of this book. These general business models include "The Second-Hand Reseller" (Chapter 8), "The Collector/Trader" (Chapter 9), "The Bulk Reseller" (Chapter 10), "The Retailer" (Chapter 11), "The Manufacturer/Craftsperson" (Chapter 12), and "The Trading Assistant" (Chapter 13).

Of course, the answer to this question is easy if you create or produce your own merchandise. For example, if you're a painter, your product is your artwork. If you make hand-sewn quilts, your product is your quilts. Your business is based on your product; your plan is to use eBay to sell your artwork or your quilts. Everything you do from this point forward is designed to accomplish that goal.

If you don't yet have a source of merchandiseif you could, in fact, sell anything on eBaythen you have to decide what type of merchandise you want to sell. That involves determining the type of item you want to work with (smaller and lighter is good, for shipping purposes; cheap to acquire but commands a high price from bidders is also good) and then finding a source for those items. You may also want to choose a business model that plays off a personal interest. For example, if you collect comic books, selling comic books on eBay could be interesting and fun.

The point is that you have to know what you're going to sell before you can figure out how to sell it. That's why this step is so crucial to putting together your business plan.

How Much Money Do You Want to Make?

Knowing what you want to sell is one thing. Knowing how much money you want to make is another. And, unfortunately, sometimes they don't match up.

(This is why planning is importantso you'll know what works before you're hip-deep in things.)

Start from the top down. For your business to be successful, you have to generate an income on which you can comfortably liveunless, of course, you're looking for your eBay business to supplement an existing income. In any case, you need to set a monetary goal that you want to achieve. This number will determine how many items you need to sell.

What you don't want to do is set up your business first and then ask how much money you'll make on it. Successful businesses start out with a specific goal in mind and then work toward that goal. Unsuccessful businesses open their doors (figuratively speaking, of course) without knowing where they'll end upand, more often than not, end up going pretty much nowhere at all.

Let's work through an example. You've talked it over with your family and decided that you would be extremely happy if you could quit your current job and generate the same income from your eBay business. You currently earn $30,000 a year, so this becomes the financial goal of your eBay business.

That $30,000 a year translates into $600 a week, on average. (Figure on 50 working weeks a year, giving yourself 2 weeks of vacation; also keep in mind that certain weeksaround the Christmas holiday, especiallywill generate more sales than others, which is why that $600/week is an average.) Now you have to determine how you're going to hit that $600/week target.

We'll also assume that you've already decided what types of items you want to sell. For the purposes of this example, let's say that you're selling gift baskets. Based on your research (primarily by looking at sales of similar items on eBay), you've established that you can sell these gift baskets for $20 each, on average. So you do some quick math and determine that you need to sell 30 of these $20 gift baskets every week to reach your $600/week goal. (That's $600 divided by $20.)

Stop right there! There's something wrong with this calculation. Can you figure out what it is?

Here's the problem: This simple calculation fails to take into account any of your expenses! That $20 per item represents your gross revenue, not your net profit. So we have to go back and figure out the costs involved with the sale of each item.

The first cost you have to take into account is the actual cost of the merchandise. Let's say that you pay $5 for each gift basket. Subtract that $5 product cost from your $20 selling price, and you have a $15 profit for every item you sell.

But that's not your only expense. You have to pay eBay for every item you list and for every item you sell. If you accept credit card payments, you'll pay a percentage for all purchases made with plastic. And if you avail yourself of an auction management service, you'll pay for that, too.

Altogether, these nonproduct costs can add up to 1015% of your total revenues. Let's use the top figure15%and subtract $3 for each $20 sale.

Now let's do the math. Take your $20 selling price, subtract your $5 product cost and $3 for eBay-related fees, and you have a net profit of $12. To generate $600 a week in profit, you have to sell 50 gift baskets. (That's $600 divided by $12.)

That's not the end of the math, however. Based on additional research, you determine that only about half of the eBay auctions in this category end in a sale. So to sell those 50 items, you have to launch 100 auctions every week, half of which will end with no bidders.

That's a lot of work.

Now you need to start thinking about the options available to you. What if you could find a better-quality gift basket that you could sell for $40 instead of $20? Assuming you could keep the rest of your costs in line, that would cut in half the number of auctions you have to run every week. Or what if you decided you could live on $20,000 a year instead of $30,000? That would reduce your financial nut by a third.

You see where we're going with this. By working through these types of details ahead of time, you can fine-tune the amount of money you expect to make and the amount of effort you have to expend. Want to make more money? Then find a higher-priced (or lower-cost) item to sell, or plan on listing a larger quantity of items every week. It's all relatedplan where you want to go; then you can figure out how to get there.

How Much Time Can Youand Do You Want toDevote to Your Business?

Now you're at a point to ask if all this work seems reasonable. Taking our previous example, can you physically manage 100 item listings a week? Can you pack and ship 50 items a week? And, more importantly, can you realistically sell 50 items a week? Are there enough potential customers to support that sort of sales volume?

If you plan on making eBay a full-time activity, you'll have eight hours a day, five (or six) days a week, to devote to managing your auctions. If, on the other hand, your eBay business is only a part-time job, you'll have less time to spend. Think it through carefully. Can you reasonably expect to do what you need to do to reach your desired level of sales?

Of course, if you're selling more expensive items (or, more precisely, items that generate a higher dollar profit), there's less work involved. Let's say you're an artist and think you can generate $200 in profit for each painting you sell (at an average selling price of $250 or so). At these prices, you need to sell only three items a week to hit your $30,000/year target. (That's $600 a week required profit divided by $200 profit per item.) And, since each piece of artwork is unique, you might have a higher close rate than you would on a lower-priced commodity itemso you might have to list only four items a week and ship three, which won't take up too much of your time.

On the other hand, if you're selling less expensive items, you'll have to do a lot more sales volume to hit your desired income level. For example, if you're selling $5 computer cables that generate a $3 net profit, you'll have to sell 200 cables per week to make your nut. (That's $600 a week required profit divided by $3 profit per item.) And that's a lot of items to sell.

The point is that you have to realistically estimate the amount of work involved to run your eBay business, and then determine if you have that kind of timeand if it's worth the effort to you. If you have only a few hours per week to spend, you might not be cut out to be a high-volume seller. (Unless, of course, you're selling very high-priced/high-profit items.) If you're willing to put in the hours, however, higher income can result.