Analyzing Your Business

As your eBay business grows, it's increasingly important for you to analyze your business's performance. That's because lots of sales don't always translate into lots of profits.

Let's take the example of a businessperson I know who had grown his eBay business to the $2,500/month level. Do the math, and you see that this person was on a pace to generate $30,000 a year in sales. That sounds good, but the seller couldn't figure out why he couldn't quit his regular job and rely on his eBay business for full-time employment.

The answer, if you remember my advice from Chapter 3, "Creating a Business Plan," is that revenues aren't the same as profits. Yes, this seller was going to sell $30,000 of merchandise over the course of a year, but after subtracting the costs of that merchandise, along with all relevant eBay fees, the money left overhis profitwas less than $10,000. That $10,000 profitnot the $30,000 in revenuesis the seller's salary. And you can't live on $10,000 a year. This person would have to triple his sales rate to generate a minimal net income to live on.

I've seen even worse situations. What about the seller who was moving $2,000/month worth of merchandise and never built up any money in her bank account? She was selling collectible cards for a buck or two a piece, but selling a lot of them to achieve those sales figures. The problem is that she wasn't making any money on it. Yeah, she was able to generate revenues of a buck or so a card, but eBay's listing and final value fees (along with PayPal's credit card fees) ate up every bit of that buck, and sometimes more. Almost every sale this person made cost her a few pennies, and you simply can't sell at a loss and make it up in volume. This seller needed to reevaluate her entire business model and consider charging more for what she soldor move into higher-priced products.

The takeaway from both these stories is that you not only have to run your eBay business on a day-to-day basis, you have to analyze it, as well. That's why establishing a solid recordkeeping system is important so that you can generate the financial reports necessary to determine just how much profit you're really generating. Only after you're sure that you're truly making moneyand enough of it to mattercan you think about increasing your sales and growing your business.

Note

Learn more about accounting and financial analysis in Chapter 6, "Setting Up a Recordkeeping System," and Appendix A, "Accounting Basics."