Running an eBay consignment business
can be complicated, time consuming, and nerve wracking...
As a business, consignment
selling on eBay is not the easy get rich quick scheme some would have you
believe. While initially setting up an eBay consignment business may sound like
a ticket to easy street...
Whats better than selling other peoples stuff and making a 40% commission from the sale?
Having a retail store without
owning inventory...
When one gets right down to the
facts, its not that simple...
eBay consignment has its
rewards and challenges, like any other business. The difference here is the
dependence eBay consignment sellers have on outside influences. Outside factors
have a great deal to do with how well an eBay consignment based business will
prosper or if it will even survive.
Some of those outside sources
of influences are:
1.
eBay - eBay itself controls whether you have a
business at all. If you make just three bad decisions, your account can be
closed forever and you will be shut down. Tough to be a eBay consignment
business without eBay. Knowing the rules of eBay is sometimes just enough to
stay out of trouble. But as we all have seen recently, eBay can change the
rules at any given moment and these rules are interpreted by different eBay
employees with differing view points at different times. One day you can be
perfectly OK, the next day all 250 items you have listed this week can be
removed without even an email warning. Be aware of the risks because the
listing fees you lose will be your own.
2.
Local Government - Your local or State Governments can
decide in a moment to come down on your operation for breaking rules you were
not breaking the day before. (SEE PENSYLVANIA)
3.
Customers - Your first customers - the sellers, are
your life blood, without them you have nothing to sell. They all want you to
work for minimum wage and they have a hard time understanding why you need to
"charge so much". Customers can also lead you into peril with outside
factor number 1 - eBay, if just one customer places a shill bid, or gives you stolen
merchandise to sell... can lead to trouble your business can not withstand and
you did not deserve.
4.
Expenses - You are not really running a store
without inventory, your landlord knows that and so does you're insurance agent.
You are operating what the insurance companies want to classify as a Pawn Shop.
When insurance company underwriters see the code for "Pawn Shop",
whatever that code may be, on the agents form for your quote... they
immediately think guns, and robbery and all kinds of unsavory situations
involved with bailee insurance coverage. They quote high rates, if they return
a quote for coverage at all... and you end up paying much more than a simple
retail store would for a similar exposure. - Other expenses including eBay
fees, PayPal fees and Software expenses sometime become a reality no one at the
franchise office or eBay warned you about.
5.
Hours - If you thought eBay consignment was a 9-5
type of job for a store owner, well you may have been mislead. Running an eBay
consignment or drop store will take a great deal of time. Each item you accept
through your doors must be handled and processed in multiple steps both in
intake and when processing for shipment. Plan on each item taking up at least
one hour of employee or owner time, start to finish, if your lucky. Multiply
that by the 250 - 400 items you should be trying to process per week and you
get the picture. Lower the number of items processed by raising the bar on what
you accept is one option... but then you reduce your overall numbers and raise
the amount of time each higher priced item will demand of your man-hour pool.
(Higher priced items get more questions, demand better photos and need more
careful handling and packaging).
6.
eBay Sellers & Buyers - As a consignment seller it is necessary
to include numerous disclaimers in your listing details sections on your eBay
auctions detailing the facts . i.e. "This is not a new item, there is no
warranty, we only take returns if we did not describe it correctly, you will
pay shipping for returns etc"... All of these necessary protections are
reasonable from your point of view as a consignment seller. They are not
reasonable from the point of view of most buyers on eBay. If the eBay buyer
smells a possible problem, they bolt and do not bid. Your standard disclaimers
hurt your chances to sell your items. It is a catch 22. Buyers are your second
set of customers for each item you list and hopefully sell. This second set of
customers, the buyers, are very inquisitive and they demand to know certain
facts about certain items you have listed for sale. Some of these questions may
be difficult to answer. This in turn causes you to either fake an answer,
ignore the question from the buyer, or to forward the question to your seller.
Your first customer the seller may answer in a less than honest manner to get
the item sold. All of these questions and answers take time and in the case of
incorrect answers returning from your seller customer, can put you in a bind
with the buyer customer. - In the end you are in the middle serving two
customers for each item sold.
7.
Unsold Items - It is a fact that not every item will
sell on eBay. Some items will not sell, no matter how much you lower the price.
If you run these items as auctions on eBay too many times for your first
customer the seller the eBay listing fees will build up to unacceptable
amounts. Even if you charge an up front fee, the eBay fees are lost money if an
item does not sell. To make money on each item brought through your door just
from a man-power and eBay listing fee perspective, you would need to charge an
upfront fee to your first customer - the seller of $25 or more. (Consider
labor, electricity, lease payment, insurance costs, etc etc...). We all know
mechanics charge $35 to just estimate the repair on a car, but when it comes to
eBay consignment it is very difficult to get reimbursed from your first
customer - the seller what you have spent for your time.
8.
Employees - Do you need employees? Yes, you do... One
person can not process the amount of product necessary to meet the monthly
overhead of a full eBay drop store operation. Three full time people is the
usual minimum used for successful operations. (By successful I mean meeting the
overhead and paying the landlord). So, why are employees an outside source of
influence over your business? Most business owners know why, but in this
instance the reasoning can be a bit different. Finding good employees, who
understand the intricacies of this business is the first challenge, keeping
them is the second. After those challenges are met, your next hurdle includes
trusting other people to handle and describe , merchandise you do not own. If a
description is incorrect or the right keywords are not selected for the title
of the item on eBay, you can lose money for yourself and your first customer
the seller. As the owner of the business your job is to bring in sales and
handle marketing. You must depend upon your employees for your product
presentation (eBay description). Unless you plan on describing every item
yourself... You should have good employees. Good employees with computer
skills, customer service skills, no criminal record etc... are not inexpensive,
nor are they easy to find and keep. Offer those employees incentives in the
form of commissions on sales and you will open up a whole new can of worms.
Shill Bidding - Your employees can not have any incentive to bid on your
consignment items themselves. If they do it, you will lose... possibly your
entire business. Be very wary of offering commissions on sales.
9.
Limited Venue - eBay... Yes eBay... Everyone I know is painfully
aware of the fact that I sing the praises of eBay every chance I get... I fully
and completely believe, as a marketplace eBay is unmatched, but it is just one
marketplace. Placing your entire business plan and future prosperity in the
hands of just one provider or one outlet to sell your consigned items... is a
very risky proposition. I think the events of the past week have proven this to
be true (See REDOL). eBay changes the rules, when they want to. They have not a
care about the investment you have made in your business. When you set up an
eBay consignment store or TA business, your banking on the fact that eBay will
be there with you 100% and will not change the rules or raise the fees, or
eliminate your ability to offer your services (as in the case of eBay Motors
recently) to the public. Almost every successful Internet business today sells
in many "channels" or on multiple venues. Stand alone eCommerce
websites, Amazon, Yahoo, Buy.com, Overstock, even Craig's List. eBay is not the
only game in town any longer. As an eBay consignment seller, especially if tied
to a franchise, you are pretty much locked into one solution or venue to sell
your wares. This is a choice no savvy marketer would make in good conscience,
not if long term stability and profitability were in his/her goals.
10.
Progress - Read the tea leaves... eBay is changing
and morphing into a new and some think a better place. eBay is too large and
has too many high dollar, high profile new merchandise sellers to remain a
place where used Pez dispensers can be sold at a profit. Repeatable inventory
sales is the future... or actually the now of eBay. No consignment seller will
have repeatable merchandise to compete with the big sellers on eBay. When you
list a used item for your customer -( the seller) and learn that a brand new
item or one very similar, can be purchased for pennies more than what you know
your customer should receive for his nearly new item... you know the game is
up. eBay has become the land of mass merchandising.
Used item auctions will remain
as the core of eBay but the role of auctions will continue to diminish over
time. See the recent quotes by new eBay CEO John Donahoe. In addition as people
become more Internet savvy and sell their own items on Craigslist or Kijji for
free the demand for eBay professionals to provide this service will be
diminished. Progress is inevitable, when the eBay consignment industry was born
most of our consignment customers did not know how to turn on a computer or
surf the web. Now it is estimated high speed Internet connections will be
available in 70% of US homes in the next few years.
Grandmothers are selling on
eBay and kids are inventing new and interesting worlds online like Second Life
or Club Penguin. If you don't know what those last two places are, you are no
longer an Internet savvy pioneer and have become one of the old school Internet
professionals. Kinda feel like a blacksmith?
What to do?
If you are contemplating
opening an stand alone eBay consignment drop store, one which sells nothing but
merchandise brought through the door by consignment customers... Please study
your numbers, your costs, your soul... before dedicating any of your own assets
to this type of venture. As a former franchise representative for an eBay drop
store chain, I can tell you the numbers were not looking good nationwide back
in 2006. This is 2008 and many of the market factors limiting the profitable
outlook for a stand alone eBay drop stores have only become more competitive.
If you are thinking about
adding eBay sales and eBay consignment in a limited fashion to your
pre-existing business...
Great idea! Just be aware of
the consignment challenges and be sure to include selling other new and
repeatable merchandise in your eBay business plan. eBay selling and an eBay
Stores website can be a huge benefit for any retail or wholesale operation
needing a boost in exposure, sales, and eCommerce revenue. Using consignment to
boost your existing revenue or offer a trade in program for your regular
customers is a great way to increase overall business. This is what we do for
our clients at All Business Auctions and I can tell you it works. There is no
better and less expensive way to get your brand and your products in front or
more buyers worldwide. As long as your outlook is focused on the advertising
and exposure benefits and possibly the service to existing customers aspects,
you will find an eBay program to be very rewarding for your business.
If your currently a eBay drop
store franchisee or owner...
Look for ways to move your
business into other markets. Most franchises are trying to offer import good
from the far east as a way to placate their franchisees who are not generating
the revenue originally projected for the eBay drop store consignment business.
I think these measures are someone foolhardy. Yes, every eBay drop store owner
could profit by selling repeatable merchandise. The merchandise offered by the
franchises does not seem to be repeatable however. (small lots of no-name brand
second run merchandise). Be careful about what types of merchandise you import
or buy to supplement your store sales. You do not want to end up owning a
container full of widgets which also can not be sold. Some drop stores have
begun to sell pallet loads of returned electronics and other merchandise bought
from brokers. This is a difficult way to add to your bottom line. The high rate
of returns inherent with this kind of already returned merchandise will do nothing
for your feedback rating or your labor costs.
Bottom line for current drop
store owners is... look for a way out.
If your store is just on the
edge of profitability or it has never reached profitability then you should be
looking for better ways to make your money work for you.
You can do what I have done
with All Business Auctions and move your business from a consignment only model
to that of a business to business service provider. Become what you are in your
community - an eBay and eCommerce expert. Use the knowledge you have gained
during this time of eBay growth and decline of eBay consignment to further your
goals in business. Business to business coaching and consulting is one of the
most lucrative professions in the world.
If set up and trained correctly
you can make enough money in one afternoon of consulting to cover the overhead
of your store for a month. How many businesses in your community would be
interested in learning about how to sell product on eBay without having to pay
you a commission on each item sold? What if you could set them up with the
software, the eBay store design and the tools necessary and then be there for
them as a paid consultant to help them get online and selling smoothly and
efficiently? Could you sell your local chamber members on a service like that?
I am sure you could...
Sometimes there is opportunity in the darkest moments. If your consignment
sales business has been floundering, maybe you should look at it differently.
Look at the time spent as a training program for your future.
Become an Internet Business
Mentor... rather than a eBay Drop Store owner. It even sounds better...
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