The Business of eBay

Thinking of quitting your day job to sell on eBay full time? Everybody and their mothers seems to be able to eke out a living doing that. Sounds like a fantasy: no more time cards to punch, no more bosses to answer to, no more personal grooming necessary. So here are a few things you should know before you make the jump.

1. Capital C

You will need some cash. You have to be able to have cash held up in inventory... at all times. Even after you've sold your first few batches and made a profit, you will need to buy more inventory. In fact, once you've sold those batches, you will be thinking of buying bigger batches at a time, creating a bigger cash flow problem if you don't have enough cash set aside to be constantly held up in inventory. How much do you need? It depends on what you are selling, of course. But have a good nest egg to fall back on if business is slow. Especially at the beginning when you are experimenting with prices and products. Also, there are no guarantees in life. Just like when you put money at the casino table, make sure it's money you're willing to lose.

2. Winning and Losing

Part of the risk of running your own business is taking losses. If you've never worked for yourself, you've never experienced the ache of having lost money on a business decision. You need to be prepared to take losses — sometimes accepting returns for refunds (for valid reasons), knowing when you've got a dud product and need to sell it for less than you paid, or other things that just happen.

One of the things I sell is concert tickets, and each year I lose thousands on concerts I thought were going to be good but ended up selling for less than cost. Once in a while, tickets even get lost in the mail. Of course in the end, I make more than I lose, which is what's important.

But you have to know that taking losses once in a while is part of running a business. You can't take it too hard, or else the stress will overwhelm you. Sometimes it's a learning experience and it won't happen again. But if you are constantly losing more money than you are making, either you've got a bad product or you're not a good business person.

3. Monthly Cycles

No one should have a credit card that doesn't give them rewards anyway, but for your business, using the right credit card will add to your profits.

I use a cash back card and each year I get at least $500 back for the purchases I made. If you travel a lot, use the card that gives you mileage. But you have to be diligent in paying it each month! It will cut into your profits deeply if your inventory has a 15–20% markup because you don't have enough cash set aside to pay for it.

Also, keep note of when your billing cycle ends. If it ends on the 15th each month, make your inventory purchase on the 16th (most of the time you can even charge it a day or two before since it doesn't get billed right away) and you won't have to worry about having to pay for it for another six weeks. Don't forget not to spend more than your available credit, though!

4. Netting Is Everything

So you stood in line for hours to get a Nintendo Wii for $250. You post it on eBay and sell it for $400. You made an easy $150, right? Well, actually, your Wii cost you more like $270 (depending on your sales tax), and eBay fees for that listing were close to $20, and PayPal fees were about $15.  And did you offer free shipping? Your $150 profit went down to about $95. Still good money, but a chunk has been chopped off.

eBay and PayPal fees, shipping and packaging costs, taxes, and miscellaneous expenses add up when you're not looking. Be sure that what you are selling is worth your time and effort.

5. Ups and Downs

Another big lesson about running your business is the seasonal cycles. When you worked for The Man, you got the same paycheck every two weeks. When you work for yourself, you're never guaranteed where your next dollar will come from. Sometimes business is booming. Sometimes it slows down...a lot. If you are an intense obsessive compulsive like me, you'll keep detailed records year to year to see the trends and history. If you are more laid back and don't need to worry about the money, as long as you're making some, then this won't concern you.

6. Using PayPal

Under PayPal's policy, the seller is always guilty until proven innocent. A buyer makes a complaint (I never got the item; I didn't authorize use of my funds; I'm just an ass trying to screw you over), and PayPal will place your money on "hold" until you provide proof of delivery (sometimes signature proof) to their confirmed address. This doesn't sound very difficult until you realize that A LOT of people don't provide confirmed addresses (they want it sent to their work; they want to send it to their friend's/mother's/boyfriend's, etc.). Also, you are completely unprotected when shipping to an international address (there's a new policy with Canada and the UK but details are sketchy).

In a perfect world, everyone would send you a check or money order. No chance of funds reversing (after a check has cleared). No exorbitant PayPal fees (I pay thousands in fees to PayPal each year). But everyone wants to pay with PayPal. Some sellers are really strict. No unconfirmed addresses whatsoever. I make case by case decisions, depending on the cost of the item and eBay feedback ranking. I also had a product that sold really well internationally and I was accepting a lot of overseas payments. Three times I had to refund because of lost mail, but had I not accepted international buyers, I would have lost much more profit than the amount I had to refund.

The most important thing to know about PayPal is they don't protect you. So don't be surprised if you get a few reversals out of the blue once in awhile. Just keep as much information on your buyers and transactions as you can. I believe PayPal doesn't allow reversals after 45 days.

7. Customer Service

How important this is to you depends on your personality. I'm a people pleaser. I want everyone happy. I've never gotten a negative out of a total of 2899 positive feedback received to date. But there are as many nice buyers as there are unreasonable ones. Many people are suspicious about sellers on eBay and constantly fear being ripped off. They'll assume you are crooked if they don't get their item the day after it was paid for.

My suggestion is to be the peacemaker and provide good and fast customer service. Even though it's not a place where repeat buyers will make or kill your business, it still gives people who are choosing between your listing and an identical one a few lines down that much more incentive if you've got a history of happy customers. So try to be nice.

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Greg Go's picture
Greg Go

Wow. Amazing post. Thanks for sharing your hard earned lessons.  Looking forward to reading more ebay tips, tricks and gotchas!

Guest's picture

As you mention, figuring in all the costs is key. I have spreadsheet that compares the cost of selling (purchase price, eBay fees, PayPal fees, sales tax) to the potential profit. If you get to know this formula well it will help you make money on everything you sell.

Guest's picture

Thanks for submitting this article to my ezine, Brilliant Business Ideas


Guest's picture

Thanks for such a thoughtful article, it is true that a lot of work is needed to make eBay pay and there are some gaps in the so-called protection offered to buyers and sellers. As an eBay merchant your account could be closed down if you get one really difficult, complaining customer. Also as a buyer remember that small eBay transactions do not qualify for eBay's dispute protection. This happened to me and the seller did not accept Paypal so i lost out. I now avoid all non-Paypal sellers: whatever its faults, at least Paypal will normally refund you for goods not received if the seller is unco-operative.

Guest's picture

Thanks for presenting this very cogent article for those considering entering the eBay seller workforce. As Platinum PowerSellers with eBay we have struggled with maintaining the proper inventories and keeping adequate reserves. You nailed it for the newbies.

I had to laugh when you wrote that sellers are "guilty until proven innocent" with PayPal. Yes, they side with buyers -- even with proper documentation of delivery with tracking confirmation. There's not much a seller can do.

All the best to you!