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It sounded like a great idea: Take a group of eBay sellers who live in the same geographic area. Give them a place to share photography, warehouse, and shipping resources and pool together their combined feedback under a single User ID.
Each seller offers his or her own merchandise and creates sales descriptions separately. But the selling "team" has the same User ID and the same eBay Store, so the feedback rating associated with it increases exponentially. Within a few weeks, everyone who shares the User ID has become a PowerSeller. Within a year, they all have a feedback rating in the thousands. All sellers pay a fee to the organization that provides the warehouse space and staff to complete the "picking and packing" duties associated with selling on eBay.
It was an innovative, seemingly win-win situation, and one that I wrote about in a book called "Secrets of the eBay Millionaires" (http://digbig.com/4fwqh). I profiled a company called Auction Safari, which was started by two entrepreneurs who started out selling on eBay on their own and decided to charge "rent" to other sellers to share their extensive warehouse facilities, photography equipment, shipping and packing personnel, and much more.
What's the problem? The former CEO of Auction Safari, Ron Bratt, now admits that the "eBay brokerage" model didn't quite work. The company is out of business, and he is selling at home and helping to take care of four small children. The lessons he learned as a result of his experience can serve as a cautionary tale to other eBay sellers.
Lesson 1: Don't Take On Too Much
Ron Bratt and his partner came back from an eBay Live convention all fired up about starting a new kind of eBay business. They were impressed with the spirit of sharing and collaboration they saw among sellers. It seemed natural to carry the sharing idea into the "overhead" required to run a business on eBay.
They started out smart: they became PowerSellers in their own right, selling DVDs and other popular items, so they knew what was involved. But their idea to rent and furnish a warehouse, hire employees, and find sellers to share the space and the Auction Safari User ID might have been excessive, Bratt admits. "The problem was that we were trying to do everything and provide people with a complete outsourced solution," he says.
Lesson 2: Don't Slice Your Margins Too Thin
Lots of eBay businesses invest in resources, both human and physical, in order to increase income. But the greater your expenses, the lower your profits, all things being equal. (Currently, as U.S. Postal Service rates increase, this is something many of us are experiencing.) But wait a while - perhaps a year - and build up a substantial "nest egg" before you start expanding. Auction Safari was conceived after eBay Live in 2004; in early 2005, they started their eBay brokerage.
"I think there is a benefit for PowerSellers coming together and aggregating sales. But you have to absorb a lot of overhead. The rent and the heat cost $10,000 a month. Wages and salaries could easily reach $10,000 to $20,000 a month. It's all a numbers game." Add to this the fees you pay to eBay, to your suppliers, and to service providers like ChannelAdvisor or Marketworks, and your profits become razor thin.
Lesson 3: Keep Personnel Costs Down
At one point, Auction Safari had 20 employees. One person handled merchandise acquisition; there was a vice-president of sales, a customer service representative, and employees to handle warehousing, packing, and shipping.
Many of the successful businesses I profiled in Secrets of the eBay Millionaires already had employees who worked at conventional, brick-and-mortar businesses; as the companies expanded to sell on eBay, the existing employees handled the extra work. New staff were hired only if the eBay part of the business proved more than the existing personnel could handle. Smaller sellers typically minimize personnel costs by hiring relatives or high school students to help out with packing and shipping on a part-time basis. It's much more difficult for a startup to assemble an all new staff for full-time eBay sales.
Lesson 4: Don't Lose Control of Your Business
When you sell on eBay all by yourself, you do all the work. But you have total control as well. When you hire coworkers or take on partners, you lose control. "No one will ever take the same level of pride in your business than you do," says Bratt. "You have to assume your customer service person is really answering the questions, and your shipping person is doing the job right."
Despite its problems, Ron Bratt says Auction Safari was almost a success. He still has two employees to handle the 500 or so items he has up for sale. "It's been a good experience," he says. "We'll get back out there in the consulting game. That's my plan right now. You learn something every single day on eBay. It's the only way you can make money and survive in this game."
It's getting more and more difficult to make a business work on eBay. Profit margins are so thin that sellers have to keep overhead to a bare minimum. The lone seller who works at home with a digital camera and a few shop lights and who turns around a few dozen transactions on one-of-a-kind items that were bought cheaply has just as a good a chance of turning a profit as a seller who hires several employees, develops accounts with multiple wholesale distributors, and tries to complete hundreds of sales each week.
In each case, the same basic business principles apply: buy low, sell high; don't try to do too much; and build your business gradually. Even if you have a good business plan, trying to develop it too quickly can lead to disaster.
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