Nothing But Net: calculating profits and margins

Here’s one thing I come across a lot with my customers that are eBay sellers: On one hand, the price of designer merchandise is rising. On the other hand, the amount of money they can get for it on eBay is falling. And they are constantly searching for less and less expensive merchandise or untapped niches.

The problem is that most jobbers serve retail stores as well. And the retail stores do not have the same nature of competition as eBay sellers, so they are perfectly fine with the prices the jobber is charging.

So what happens is that there is no incentive for a jobber to find cheaper merchandise or lower their profits to service the eBay seller. As a result the eBay seller is in a crunch.

Some of you, I feel really sorry for you, in a year, or two or three, you are either going to have to wrap up your business and get a job, suffer financially as prices fall or find something else to do. Some of you are smarter and will evolve because you see it coming and are planning an exit strategy.

Now the number one problem many eBay sellers have that’s keeping them “in their box” is that they are looking at how much they are SELLING and not how much they are MAKING.

So, let me explain. Some of you high volume sellers are paying $2,000-$3,000 a month in eBay fees. You won’t look for other avenues to sell in because you feel that the $3,000 is a necessary expense. eBay is a venue, but eBay is also advertising. If many of you looked at what percentage of your sales you were spending on advertising (i.e. eBay) you would not be there.

Anyhow, most other people don’t evaluate other avenues of selling because they don’t want to give up the income eBay provides. So I pose the question:

How much of a decline in sales can you tolerate and be just as well off. Someone who pays eBay $3,000 a month in fees will normally say that they can tolerate a $3,000 reduction in sales and be just the same.

WRONG.

If you have to sell $10,000 in merchandise in one month, just to pay the $3,000 eBay fees, then you can tolerate a $10,000 reduction in sales and be just the same.

But, GASP, OH, CHOKE, no one wants to suffer a $10,000 decline in sales.
The problem is most of you are looking at how much you are SELLING and not how much you are MAKING.

Let me give you one lesson I had to learn early on and thank god I learned it when I did.

Don’t get addicted to the revenue and get a big ego based on how much you sell. Take a good look at what’s left over after paying for inventory and selling related expenses (payment processing fees, auction fees, auction software fees, etc.). Take a good look at what that final number is and ask yourself two questions:

Based on this final number is what I am doing worth my time?

Is there a way to make that same amount of money with less work (because eBay is VERY labor intensive for many of you).

Let me give you an example. A somewhat distant relative of mine is a personal shopper. She specializes in getting people deals on merchandise. She meets with a client, sizes them up and hits the stores. Because she mostly gets discount merchandise, she charges a markup on her merchandise in lieu of charging by the hour of her time.

So, one day she is telling me about this client. She spends three days shopping for the woman. And she says, it was great, I made $3300. And I said, okay, but how much did the merchandise cost? $3,000. And so I said, well you only made $300. Now, I’m not going to make a judgment about whether $300 for three days of work is good or bad because it all depends on where you live. In some areas, $300 is half your mortgage, in others, it isn’t even your car payment.

But what I said to her is:

Is what you do worth it for the money you NET and could you find a way of making that same $300 without having to drive all over town all day for three days (even though you like it)?

These are two important questions all of you have to ask yourself.

Why? Because some of you spend all day shopping at consignment stores, outlet stores and thrift stores for deals. I know you, you email me, you’re stay at home mothers who say that the thing you want most is more time with your kids, yet you select a method of sourcing your inventory that requires you to drive and shop all the time. Not to mention the time spent getting stuff listed. Is what you do worth it for the money you net and can you find a way of making the same money with less work?

Now to bring this back to eBay. The reason this is relevant is because some of you need to look at what you are selling and how you sell it. Some of you have one item that you’re going to sell for $10. I don’t care if you bought it for a dollar and made a million percent profit, is it worth the time involved in listing for what you are making for that item? I get a lot of people who want to sell children’s clothing. Man, they are perfectly happy photographing one onesie at a time and making $5 profit on that item. And then there are many who won’t touch certain brands of children’s clothing with a ten foot pole because they *know* that they don’t want to list a bunch of low dollar stuff. Low dollar stuff is only really worthwhile when you have a lot of it and you only invest the time into writing one auction ad to sell multiple items.

So the lesson here is take a look at how much you NET, not how much you sell and ask yourself those two extremely important questions.