How to Choose an eBay Business Model
Six classic, time-tested models for selling on eBay explained
Thinking about starting your own eBay business? You’ve probably seen sales pitches for eBay selling kits that promise an easy route to quick riches using a secret Proven Method[TM] or Winning eBay Business Model[TM]. Often, you'll be wooed with claims that this is the one business model that only the fabulously wealthy eBay "insiders" know about.
Don’t let yourself be fooled. If a $34.95 book, CD, video, or kit were the path to millions on eBay, everyone in the world would have already done it.
More to the point, not everyone in the world can be a successful eBay seller. For eBay sellers to make money, after all, they have to be heavily outnumbered by eBay buyers, and they have to compete with one another to make sales to these buyers. This is the real world, and selling anything is a cutthroat business. Selling online, where every buyer can literally choose from a world of sellers, is even more cutthroat than that.
At the same time, it's also true that there are incredibly successful eBay sellers out there, and that many of these sellers have arrived at eBay success using different business models. While this does mean that there's no One True Model[TM] that, once discovered, will lead you to eBay riches, it also means that as a prospective eBay seller you have flexibility about your business. What you really need is unbiased information.
Selecting the Business Model that Works for YouThere are as many eBay business models as there are sellers, but a few general models are seen again and again on eBay. The key to success as an eBay seller is to play to your advantages and abilities. Sometimes these advantages are a matter of what you know, sometimes of who you know, sometimes of the resources that you have available to you, and at other times they are a matter of simple things like where you live.
On the next two pages are six common eBay business models, summarized and then broken down into details that you should be aware of, each detail with a rating from low to high:
- Startup feasibility: The degree to which almost anyone can start this kind of business without having special knowledge, special contacts, lots of money, or other things that might be difficult to come by.
- Sourcing difficulty: The difficulty you’ll have in sourcing your products (getting your hands on the things that you sell) as your business operates.
- Overhead: The overhead (operating costs) involved in the business.
- Competitive advantage: The advantage you’ll have with this kind of business model over other sellers on eBay.
- Potential for success: A combination of the overall growth potential for a business like this and the chances that any individual seller who adopts it will find it to be profitable and manageable enough to continue long-term.
Read on to see the business models and their ratings, keeping in mind that for every rule in the world there are exceptions—so use this discussion as guidance, not gospel. In the end, your success as an eBay seller is all about you, your ingenuity, and your ability to satisfy your customers—eBay shoppers—on an ongoing basis.
Business Model: Drop ShippingStartup feasibility: High
Sourcing difficulty: Low
Competitive advantage: Low
How it works: The most heavily advertised eBay business model, drop shipping is the idea behind those ads you’ll hear on the radio promising that you can get rich on eBay selling stuff “you never even have to buy.” The idea is simple. You’re the eBay-based salesperson for another company, who actually fulfills the orders.
You post item listings, collect money, and handle customer service, but don’t keep any stock or inventory or worry about packaging and shipping. When a buyer wins your listing and pays you, you immediately place an order to your supplier at a slightly lower cost, who delivers the item directly to your buyer. You pocket the difference.
Problems: The problems and difficulties with the model are too numerous to mention but the biggest is that most sellers simply can’t make a pure drop shipping business work. You’re purchasing in the same quantity (one at a time) as your buyers, so you get little if any discount for your markup. At the same time, you pay all of the eBay fees, as well as the shipping costs, meaning that margins are razor-thin. Worse, buyers can often turn around next time and buy directly from the company filling orders for you, bypassing your listings entirely. Meanwhile, it’s your feedback on eBay that's at stake and you’re the one legally responsible for the transaction, even though you have little control over how your fulfillment partner handles it.
Finally, because it’s so easy to start this kind of business, millions have. Any kind of item that does happen to sell with a reasonable margin is instantly seized upon (within hours, not weeks or months) by dozens and dozens of other drop shipping sellers, too, creating a supply problem in which you have have heavy price competition with already razor thin profit margins while listings for the item(s) multiply out of control, seriously threatening scarcity and demand.
Potential for success: Low. Most who start this kind of business don’t continue because the sales aren't good enough (if you want to make any money) or the money isn't good enough (if you want to make any sales). Furthermore, the hassles are high and the competition is intense. On the upside, there’s very little up-front risk involved in drop-shipping when compared to other selling models; your business is closed without liabilities the moment you stop posting new listings.
Business Model: Wholesale-RetailStartup feasibility: Medium
Sourcing difficulty: Medium
Competitive advantage: Low
How it works: This is the classic retail business model, only taken online with eBay. You decide what sorts of goods you want to sell. Then, you form relationship(s) with supplier(s), stock your inventory with goods purchased in wholesale quantities (with corresponding wholesale discounts) and sell them on eBay.
Problems: There are two basic problems here. The first is that this isn’t a “start the business in your bedroom, tonight!” sort of operation. After you find space for your inventory and get zoning permission to operate a business in that location, you’ll find yourself searching for and having to build relationships with suppliers and needing a measurable amount of up-front capital to invest in your inventory and manage your operations costs, which include all of the usual small business tasks, right down to bookkeeping, licensing, and labor (whether yours or someone else’s via payroll).
All of your investment is at risk—if your inventory doesn’t sell (or if it is eaten by mice or swept away in a flood without insurance), the loss is yours.
Potential for success: Medium. If retail is in your blood, eBay can be a great place to enter the world of online business. It’s better than opening your own website because eBay comes with a massive built-in audience. On the other hand, the competition is stiffer that you’re used to as well. This option is best for those who already have experience in retail, or who seriously want to get it, not for those who are looking for an “easy” online business.
Business Model: Liquidation/Surplus/Thrift LotsStartup feasibility: Medium
Sourcing difficulty: Low
Competitive advantage: Medium
How it works: As with the traditional wholesale-retail model, you stock your inventory with goods bought at wholesale quantities and prices, then try to sell them to individual eBay shoppers at higher prices, pocketing the difference.
The twist in this model is that you’re buying goods that are rare in some way—inventories of discontinued items that nobody else will have, large grab-bag lots of surplus goods or equipment that can be had AS-IS, WHERE-IS for very little if any money, and so on, meaning that either your competitive advantage or your sourcing costs improve.
Problems: With this model you’ll have all of the difficulties involved in the traditional wholesale-retail business model plus the problem of sourcing. You’ll have significantly more legwork here. Either you’re identifying sourcing opportunities and building relationships with other companies as their liquidator or you’re combing through piles and piles of goods you’ve acquired at very low cost to separate the “sellable” from the “unsellable” and to identify, photograph, and describe the many (often unidentifiable to you) things that now form your inventory. More to the point, sourcing of this kind can be notoriously unstable and difficult to maintain, though some people seem to have a natural instinct for it.
Potential for success: High. This is really one of the business models that made eBay what it is today. The trick is to mix your own business skills and body of knowledge with unique source access that you have to find or create—access to discontinued, liquidation, or lot-packaged goods or to things like large government surplus auctions. You’ll have to get your hands dirtier than with the previous two models, but because your goods are far likelier to be unique and your sourcing costs much lower, you’ll have a better chance of making an ongoing profit—if you can maintain your sourcing pipeline.
Business Model: Local Goods, CraftsStartup feasibility: High
Sourcing difficulty: Low
Competitive advantage: High
How it works: The idea behind this model to identify in your local region or your personal network of contacts a set of unique goods, crafts, products, or services that nobody else on eBay offers, but for which demand exists. Though sales volume is lower with this kind of business, margins are often much higher once you’ve identified such product(s) and developed a stable supply chain for them.
Problems: It’s entirely possible to run a business like this with zero inventory and very little overhead. Instead, your problems are likely to be the in the opposite direction—finding product(s) to sell in the first place and then, and perhaps much more critically, finding a way to ensure that the supply of such products is stable, exclusive, and able to grow with your needs as your business grows.
Potential for success: High. If you’ve chosen well and a market exists on eBay for the goods in question, your business will be poised for steady, stable growth and will be relatively well-protected against other sellers, who won’t be able to quickly duplicate your supply chain in response to your success.
Business Model: Hobby and SpecialtyStartup feasibility: Varies
Competitive advantage: High
How it works: Using your hobby or area of special expertise, you slowly build up an inventory of unique or expertly collected/assembled goods and a body of very loyal customers who are fellow enthusiasts.
Sourcing often isn’t a matter of wholesale and large quantities, but instead of tracking down hard to find items, tools, or components, often reconditioning, refurbishing, or assembling them, and then selling them as top-grade or entirely unique items to specialty buyers on eBay. The real products that you’re selling are your expertise and ability, which allow you to offer enthusiast goods that are rare, unavailable elsewhere, or unsupported elsewhere.
Problems: The most basic problem with this kind of eBay business is that either you can do it or you can’t. Whether the business is comic books, baseball cards, antique cameras, vintage Italian car parts, or Star Trek paraphernalia, the knowledge required to be successful at this kind of business must be built over a lifetime. Beyond this, there is once again the issue of sourcing. For many serious collectors or hobbyists who routinely pound the pavement visiting estate sales, old warehouses, thrift stores, antique stores, auctions, and specialty manufacturers and dealers, this is already a part of life. For others, however, the work involved is a very new wrinkle on their hobby—and one that may not be entirely welcome or feasible.
Potential for success: High. If you have the needed knowledge and dedication and can earn the respect of the enthusiast community you’re targeting, this is one of the most stable eBay businesses going. It's also one that can be taken with you if you ever decide to leave eBay, thanks to the often fierce loyalty of the kinds of customers involved. If you don’t already have a hobby, however, this business probably isn’t for you.
Business Model: Brick-and-Mortar eBayStartup feasibility: Varies
Competitive advantage: Varies
How it works: If you already have a “real” (otherwise known as “brick-and-mortar”) store, shop, or business in the offline world, simply add eBay selling to it in some way.
For consignment and buy-sell-trade stores, this often takes the form of listing the best of your in-house goods on eBay as well. If they sell in store, you cancel the eBay auction. If they sell online, you pack them up and ship them out. For others, eBay becomes a convenient place to liquidate overstock and unsold seasonal goods. For still others, the model is the inverse of all the others here: eBay becomes a sourcing avenue for goods to be sold locally to buyers that don’t shop online.
Problems: The biggest problems here are logistical ones—the trouble involved in adjusting your bookkeeping, inventory management, labor, and other business areas to include eBay as a new facet of your business. You’ll also have to pick up the speed with eBay; the online world moves much more quickly than the offline world, and some traditional sellers have trouble adjusting to the customer service and expedited processing expectations of eBay shoppers.
There’s also the biggest problem of all: if you don’t already have a brick-and-mortar store, there’s no way to add eBay transactions to your brick-and-mortar business model.
Potential for success: Medium. At the end of the day, the chances for success here depend on two things, only one of them fully under your control. The first is your ability to adapt as an existing business. The second, just as critical, is the degree to which the kinds of products you already handle can either be bought or sold to your advantage on eBay. If you’re a consignment shop, a bookstore, or a furniture retailer, the possibilities are huge. If you’re a corner grocery or a lube-and-oil shop, however, you’ll have much more trouble making it happen.
At the end of the day, success as a seller on eBay is like success in any kind of business. It requires nothing less than good ideas, a well-suited temperament and set of skills, a lot of hard work, and no small amount of luck.
The most important thing to keep in mind as you review a basic list of business models like this one is that one or two of these probably match your circumstances better than the others.
Perhaps you have access to investment capital and business expertise. On the other hand, perhaps you're an expert fly fisher or cyclist. Maybe you live twenty minutes away from a local arts and crafts market in the deep Southwest. If you're thinking about giving eBay a whirl, follow your nose and model your business on your strengths and unique advantages if you want the best chance at success—don't jump straight into business models that may have worked for others if your own circumstances aren't similar to theirs.
As for those offering to sell you "make millions quickly using eBay" kits, one thing can be said: someone is making millions quickly using eBay, but in most cases it's not who the publishers of such kits would like the world to believe it is.