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:
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.
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)
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.
Expenses - You are not really running a store without inventory, your landlord knows that and so does your insurance agent. You are running 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.
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).
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.
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.
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 hurdles include trusting other people to handle and describe , merchandise you do not own. If a description is incorrect or the right keywords are 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.
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.
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 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 drop store owners is to 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.
Scott Pooler - All Rights Restricted - Reprint only with prior written permission