Selling things on eBay can be a nice side income. The premise is simple: buy low, sell high.
EBay began as an auction-only site. Potential buyers bid against one another for an item, just like in a live auction.
Five years later, in November 2000, eBay introduced its Buy It Now option. This allowed sellers to set a price for their item, and sell it to the first buyer to accept that price.
Each kind of listing format has its advantages and disadvantages.
There are advantages to the auction listing format:
- Auction listings tend to get more eyeballs on them, especially if the starting bid is very low.
- Auction listings are good if you aren't really sure what an item is worth. The market decides for you.
Some disadvantages to the auction listing format:
- Auction listings can be sniped (bid on at the closing seconds of the auction) which can deter some buyers.
- Auction listings last the entire listing period (typically seven days) so the sale takes at least that amount of time.
- Auction listings can end at a lower price than you'd like to sell.
Some advantages of fixed-price listing format (known as Buy It Now in the eBay branding):
- The sale can come very quickly if you price your item to sell (first buyer wins immediately).
- You can set the price where you are absolutely sure you will make money.
Some disadvantages:
- Your upside is limited to the price you set. If you're not sure what your item is worth, then it could sell for less than you might get with an auction format.
What happens to marginal items at an auction?
We used to participate in live estate auctions. The situation usually is someone has a houseful of stuff and needs to get rid of it all at once for cash. All kinds of things come up on the auction block. Some things are valuable, but a lot of things are common household items like pots and pans, glasses, mass-produced dressers, etc.
When the auctioneer gets to these kinds of items, they usually don't sell individually, or even a box at a time. The auctioneer may get down to $5 and then add another box of stuff to the lot to increase the value of the lot. He continues to do this until he gets a bid.
What happens to marginal items on eBay?
This kind of thing can't happen on eBay. The auction will complete without a sale if the value isn't enough to justify any bids. There's no adding stuff to the auction to get bids.
This isn't a bad outcome necessarily. EBay gives sellers a number of free insertion fees every month. If the item doesn't sell, eBay doesn't take a fee for that item. No biggie.
What can happen, though, is that the item may get only one bid or a few bids, and the final price ends up being very low.
Even this doesn't have to be a bad outcome. But it can be if some other things aren't in place.
These mistakes can cause you to lose money on eBay
There's nothing wrong at all with hoping for the best with your eBay sale. It's a cool thing you're selling, and you just KNOW that there are a bunch of people who will see it and fight each other to get it.
You might even start the auction at one cent to get even more people interested in it. It's not where the price starts, it's where it ends, after all!
Often, though, things don't pan out and the fighting over the item doesn't happen. The low starting price doesn't bring the wads of money that you hoped.
What it can bring, though, is bargain hunters (!) that are looking to capitalize on your mistakes.
The mistake happens when you allow your item to sell for a price that loses you money.
Here are three things that contribute to this:
1. Not setting a reserve price
It's fine to start your auction at a low price! Sometimes prospective buyers will sort auctions by price + shipping, lowest first.
But you need to have the sale happen at a price that you make money on!
One way to do this is to set a reserve price that makes you money. It's the lowest price that you'll sell for: you “reserve” the right to not sell the item if it doesn't reach this amount.
If you don't do this, eBay will assume that you will sell the item to the highest bidder, regardless of the amount of the bid. If your item starts at $0.01 and gets one bid, it will sell for $0.01!
2. Not accounting for all of the selling costs
EBay charges a number of fees for bringing prospective buyers to you:
- Listing fee (which may be waived)
- Upgraded listing fees for things like more pictures, bold listings, etc.
- Final value fees, either a fixed amount or a percentage of the winning bid plus shipping
- Transaction fees related to the payment
Other fees and costs that come up:
- The cost of the item itself
- Shipping materials (box, tape, packing material, etc.)
- Postage
- Transportation to mail the item
These all offset any profit you might make from the winning bid. If you didn't account for all of them, you might lose money.
3. Offering free shipping that backfires
I've offered free shipping on some of my items. It can be a good way to bring more eyeballs on an eBay listing because it's something that can be searched. It makes life easier for the prospective buyer, because they know the shipping is included in the price and they have to think less and do less arithmetic.
At the same time, though, it makes it easier for bargain hunters to see the obvious value in an item. As an example, eBay has a lot of listings for dollar bills with various kinds of special serial numbers. It's trivial to see that a dollar bill is worth at least … one dollar. So if someone starts the bidding at $0.01 with free shipping, of course it will get bids — who wouldn't pay $0.01 to have someone ship them a dollar?
I know there are buyers who look for this exact thing. One night when I was searching through listings, I ran across some that started at $0.99 with free shipping. All of them had at least one bid. The buyers knew they would get a deal if they won the auction. It was obvious. (They could even get a bit extra by getting cash back and even coupons for eBay from RebateFanatic!)
Here's a video that shows many screens of listings where sellers make these kinds of mistakes.
How to avoid losing money on eBay
Fortunately, it's straightforward to set things up so that you don't make these kinds of mistakes.
1. Build your profit into the minimum price that you'll accept
Let's say you have an item that cost you $20, and you want to clear $20 on the sale.
Consider shipping. You find that you can ship the item anywhere you need for $16 (say). The packaging costs you $1. You can walk to the post office from your house, so no gas cost.
You decide to offer free shipping on the listing, so it is not added separately.
You then consider the fees that eBay charges. You don't incur a listing fee, but you do incur a 15% final value fee for your item, plus $0.30 for the payment fee.
Here's the equation (sorry there's some math):
Final price - Final value fee - payment fee - shipping costs - cost of item = PROFIT
Call the final price P. Then
P – (0.15 x P) – 0.30 – 17 – 20 = 20
Solving for P (remember your algebra) we get P = $67.41. That's the price you'll need to get for your item to double your money.
2. Then ensure that the item doesn't sell for less than that price
There are a number of ways to do this.
- Do a fixed-price listing (Buy It Now) with a price higher than your minimum profitable price. Accept offers but don't take less than what you need to be profitable.
- Do a fixed-price listing (Buy It Now) at the price you'd be happy selling it for.
- Do an auction-style listing that starts at your minimum profitable price. See if you get a bidding war going. The only thing that can happen is that you'll make more than your minimum price. If you don't get bids, it doesn't sell, but you don't lose money either.
- Do an auction-style listing that starts below your minimum profitable price, but set a reserve on it. Make sure the reserve price is profitable. If you get bids that don't exceed your reserve price, it doesn't sell, and you don't lose money.
