Be Your Own Boss

NewsFactor Magazine had an interesting article over the 4 day weekend titled Does Anyone Get Rich on eBay?¹ The article goes into great depth on the money that has been made on eBay, the mega-auction site, and also gives some examples on who is actually making the millions that seem to be sold by every “make it rich” guide on the Internet. I believe that the best money made online seems to be to sell make-it-rich guides to suckers (which is why I never charge for my published information and only charge on a face-to-face basis).

I’ve played the eBay game for years — sometimes making very good money, and other times losing my shirt. In my experience, the best money made is in unique and custom items sold to a hungry clique or fanbase of buyers. For about a year I helped one of my employees sell a few thousand sets of custom “punk pins” — those unbiquitous pins that alternative music fans seem to stick everywhere on their clothes. My young employee made about 1000 pins a week that he was selling at various local music shows and at school. At 20 cents profit each he was bringing in about US$200 per week in profit, but he was spending almost 50 hours a week making pins — not a very good income at US$4 per hour. Once he took it to the web, though, he made big strides in selling at a bigger margin, and was seeing US$30 or so an hour average. Then the competition came in and his market collapsed, but he covered his end for over a year before it fell apart. His market was small initially, but the suppliers were smaller. Once it became a big buying market, the suppliers grew in number and everyone lost out except the few companies that specialized in making the trinkets.

My favorite way to make money on eBay was always to help retailers and wholesalers sell their overstock. For years this was an hourly gig for me — I’d send cold-call letters to hundreds of local retailers and wholesalers offering to help move their overstock for a flat hourly fee. For almost 2 years I could count on getting at least 5 calls a week from people holding too much inventory and wanting to move things. These customers would see a net loss on the goods they sold, but they sold them in order to recoup from old stock so that they could sell new stock to their retail customers. Paying me hourly meant they didn’t have to navigate the market. My secret was finding which items in the same market sold the best and taking those item profiles and making them better. It isn’t always how well written your description is, but I found that more pictures and a cheaper starting price always brought a better selling price in the end. Starting a US$500 lawnmower at US$0.99 often times sold better than starting it at US$100. Yet even this market has quickly been swallowed up by full-time retail stores that focus on helping others liquidate their overstock and even clutter at home. Their commissions are high — 30% of the selling price — and they generally don’t even allow any sort of reserve to be made (meaning your US$500 lawnmower might sell for US$30), but people are more willing to trust a retail reseller than a consulting one, it seems. I left that market over 18 months ago and won’t look back.

When my friends and relatives ask me about eBay today, I tell them to forget about using it to make a consistent profit. There are too many people out there working way too hard for very little money — the wonder of competition in a free market. This is good for buyers and terrible for sellers — I don’t think the average reader will want to invest the thousands of hours of labor in order to make a few dollars an hour during that time period. The outlook for eBay is more and more foreign and local competition driving profits down — again a great thing for the consumer. The eBay market isn’t saturated, but it is much more work to try to find a profitable direction, and the only winner is he that is the hardest working with the most luck — not the greatest market to be in.

Another thing that many eBay experts fail to realize is the reality behind much of where eBay is heading — the insider game. I know of a few warehouse employees and managers from large distribution networks that have started their own eBay business — they get to buy well below wholesale cost, and get to ship right from their office. One of my own retail businesses a few years ago was shut down by someone selling at 30% below our cost on eBay, and some meticulous spying on my part made the discovery that my supplier’s warehouse manager was doing it. Over time, expect distributors and manufacturers to go to eBay directly and avoid the mall, the retailers and the small online sellers. Why do they even need the old system when the new system gives them more power and more profits?

I don’t believe eBay is a lost cause, but I think it is one area that the new entrepreneur should avoid. You need quite a bit of cash, you need a ton of time and you need a very good supply of inventory just to build your base foundation. I’d skip it and focus locally on making ends meet before dreaming of untold quick millions that only a lucky and hard working few will ever see.

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