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How to make Money wiith Ebay
www.info-on.us/eBay/
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As a former official eBay Trading Assistant, Trading Post owner and master franchise
representative for an eBay drop store franchise chain. I would like to weigh in on the subject of
franchising and stand alone eBay drop stores or consignment locations.
My experience on both sides of the fence has revealed certain truths, and since I was at one time
a proponent of the franchise model, I believe my views could be helpful to anyone considering the
purchase of a new franchise eBay drop store. These views are my own opinion and do not reflect
upon eBay any eBay franchise drop store chain in particular or upon eBay consignment as an
addition to any other type of business. I am simply expressing my views regarding the stand alone
drop store franchise model and why it has failed.
The Promise:
eBay drop stores came upon the scene with a great fanfare and promise. Initially it was
considered a unique and interesting proposition by both business pundits (Entrepreneur
Magazine) and investors alike. The promise of the initial drop store franchise operations seemed
limitless and they expanded like weeds across the land. Soon it would be difficult to pick up a
newspaper or read a business magazine without seeing some reference, either advertisement or
article, about the eBay drop store franchise revolution. It was an exciting time...
These franchises promised individuals an easy way to be in business for themselves - a way to
"have a store without investing in inventory" by offering a simple effective solution to everyone in
America's battle with clutter. People heard the story and they believed; they read about eBay's
fabulous growth and the amount of merchandise sold every moment on eBay and they felt it was a
sure thing. If any franchise could work for them, this type would because it was easy and it was
new and customers would clamor over themselves to get in the door. And really it was a "cheap"
franchise to buy....
The Deal:
The deal was simple.
Anyone could own a store if they agreed to the franchise terms. Most of these terms included a
simple up-front franchise fee of about $25,000, an added expense for signage and fixtures of
anywhere from $5,000 to $25,000, plus a continuing monthly national advertising fee and a royalty
fee on all sales of about 4% (of Gross Sales), some with a cap at $1,250.00 per month but most
with no cap on the royalty fee.
Once "accepted" into the franchise, the new store owner would be "helped" in finding a suitable
lease for a prime storefront (its all about location). These prime retail locations usually were
recommended to have a footprint in excess of 2500 square feet. (The storefront itself did not
require more than 300 square feet, but storage would be large consideration). Usually the
overhead numbers involved with operating a 2500 square foot space in prime retail locations were
not stressed to the new store owner, but it would be mentioned to cover the basic requirements of
disclosure.
Every franchise must comply with the U.S. government rules regulating franchises and they do so
with a document called the UFOC. The UFOC is a very verbose & complicated document
which provides both parties in a franchise transaction certain definitions, disclaimers and
disclosures. The document can reach 400 pages in length or more and is simply not easy for a
layman to understand or evaluate. The U.S. government requires this UFOC document, but they
do not provide a course in how to read it. I will say that it is intended to provide many worthwhile
protections for prospective franchise buyers, but since most of those same people do not read the
document, these protections are rarely understood.
The Process:
A new store owner is first given a training course, usually lasting approximately 7 days. This
course is given by the franchise at a franchise designated location (travel expenses are not
included in the up-front franchise fee). The course is designed to teach the standard methods and
practices of the franchise methodology of drop store operations. The class will also include many
details about eBay rules, eBay practices and eBay listing procedures. Very little time is usually
devoted to the calculation of eBay fees. Intake, Description, Software Operation, Photography,
Storage & Inventory, Shipping, Customer Service (both store front and online) and numerous
other topics are covered in this 7 day course. It really is a lot to absorb, especially if the new store
owner has never sold an item on eBay before.
The Program:
The newly trained store owner is then released to complete his store construction phase according
to franchise regulations. Counter colors, sign placement, numbers of computers, placement of
interior walls and paint colors all are defined in the materials given to the new store owner. He has
bought into a "proven" system and he must follow the franchise specs.
Once the new drop shop franchise owner's store is complete, he is ready for business. Some
franchises will use a portion of the "National Advertising" budget to send out flyers and possibly
buy a newspaper ad or a radio spot for the grand opening of the new eBay drop store. Initially the
store owner is pleased with the small amount of initial business which results from this advertising
push because he and his staff (usually 4 or more employees to start) need to get up to speed on
all of the procedures of both eBay and the franchise and they need to learn each step of the
process. The store owner is responsible for training his employees or he can send them to the
franchise corporate headquarters for a training class at his own expense. Usually it is a trial and
error method with the new store owner teaching his staff as much as he can remember from his
short training class.
The Grind:
Now that everyone is all "trained" and the initial "ad buy" is over, the store owner is now looking for
ways to drive business into his new store. He has more overhead than he initially had envisioned
so he must get to work. Staring at a monthly nut to crack of nearly $8,000 on average, most store
owners realize fairly quickly that they need items to sell on eBay. Where to get them? Some store
owners simply advertise the store and wait behind the counter for customers to stream in. In
certain areas of the country and in the early days of drop store operations history, this "tactic" did
work. It is less likely to work each and every day however.
The average customer of an eBay drop store, franchise or not, is someone who is not tech savvy,
has no internet access, is elderly or is wealthy and has little time. Initially the pool of prospective
customers was much larger than it is today because more people now have internet access, more
people are familiar with eBay and eBay has made it much easier for people to list a single item on
their own. eBay classes are taught by certified eBay education specialists at retirement centers
nationwide and these classes are sometimes free. People would rather realize 100% of net profit
from a sale than 60 or even 50%.
The drop store owner is now on a mission to bring in customers.
He/She must have products to sell. If it become apparent that advertising and location simply do
not provide the traffic he needs, the store owner will try different tactics. Sometimes the franchise
will offer assistance in the form of "outside sales" seminars, conference calls and the like. These
sales ideas are offered as a way to show that the franchise is on the side of the store owner. (To
be honest, most employees of franchise operations are honest hard working people who want
nothing more than to help the store owners).
In the end these outside sales ideas boil down to selling cars, RV's and boats - all of which are
now precluded by eBay and some States as being illegal or unacceptable without special licenses
for each. The franchise failed to mention that a store owner may need a car dealer's license and a
boat broker's license or an auctioneer's license to operate a eBay drop off store and sell these
types of items. Business-to-Business is another source of income promoted by franchises, but
rarely do other businesses wish to split profits in the manner required to make the deal attractive
for the drop store owner. This leaves only household merchandise, collectibles and toys, generally
creating a garage sale type of atmosphere.
Processing becomes the key - reduce processing time, become more efficient, write shorter
descriptions, shoot less photos and speed up the process for each item. This only serves to
reduce the final sale price of those items.Store owners soon realize that selling any item worth
less than $100 is not worth the expense of processing that item. They react by turning customers
away with low value items. This is not always the wisest course of action because that customer
will never return and one never knows - they could have been just trying you with a small item
before bringing in a diamond ring.
Those rare occasions that high value items are presented are exciting to the store owner and
stressful at the same time. The store owner knows the customer will want what he/she has been
taught that diamond ring is worth. Unfortunately used diamond rings or other high value items are
not always worth what some may think they are. We all like to buy low and sell high but when we
buy high we really hate to sell low. eBay has a way of bringing reality to the equation. The store
owner must now attempt to coerce the customer into selling a high value item with a low starting
price and no reserve. Why no reserve? Because the store owner soon learns that items placed on
eBay with a reserve price rarely reach the minimum bid and the number of bids on items with
undisclosed reserves are are less than on items with no reserve at all. On eBay the game is to
start low and hope to sell high. The store owner must get his customer to buy in to that theory.
Some eBay drop stores do survive with perseverance, skill and entrepreneurial spirit...
These stores would have survived and possibly thrived without a franchise but going in, the store
owner did not know that he would have to find ways to make it work on his own. He purchased a
franchise and this usually implies the investment in a proven system which will yield dividends if
the system is followed. In most cases, in the eBay drop store business, if the franchise model is
followed and the store owner does no more than what the franchise recommends, the store will
not be profitable. The overhead, eBay fees, insurance, lease payments, employee costs and
advertising costs are a tough enough nut to crack on a net of 30% of the net profit from used
merchandise. Adding in a franchise fee, national advertising fee and royalty fee just makes the
entire business model collapse upon itself.
Franchises sell a name and a brand in most cases.
In this case the franchises were selling someone else's name - they sold the name and brand and
the cache of eBay. They did it with eBay's blessing in most cases, but they did it in a way which
was not exactly providing the value of a franchise.
When one purchases a franchise like McDonalds, they are reasonably assured that people driving
down the road who see the franchise sign will be familiar with that brand. When one purchases
any eBay drop store franchise, no matter the name, they are not assured of the same brand
recognition. They perceive a brand recognition for the eBay name, but that has little to do with xyz
franchise signage. The franchises usually tried to capitalize on the eBay brand with similar color
schemes or even by using the eBay logo in the franchise brand logo. This still does not make the
consumer recognition for that brand any stronger than it would if a store owner who did not
purchase a franchise used the same logo trick (which is not allowed by eBay) in their own non-
franchise store logo.
Buying a franchise is a big step, one which should include a great deal of your own research and
numbers crunching. Even if the idea of owning a franchise seems comfortable, be aware that it is
not a guarantee of success. Many people who have purchase eBay drop store franchises feel as
thought they were deceived into a purchase of a business model which never worked.
On the surface this is the truth, but it was not always the case. In the early days of the drop store
boom the concept did work and store owners realized gross sales months as high as $200,000 or
more. These numbers were widely leaked by the franchises because they helped sell
franchises...and because at the time they were the truth. Leaking these numbers was a big risk.
As a franchisor it is unlawful to share these numbers, but it was done on a consistent basis.
Times have changed for the eBay consignment business, the market has shifted, customers are
smarter and eBay is easier to figure out. Retail lease space costs have increased and insurance
premiums have doubled or more. The cost of doing business as a stand alone eBay drop store is
just too high. It is no longer a viable franchise model and only in very rare cases will it work for
non-franchise store owners with no other retail income.
What Will Save The Day?
Think long and hard about investing in this business model. If you currently own a franchise drop
store, you need to seek other opportunities, find new ways to bring in income, reduce your
overhead or increase your revenue per item. There are many options available but most store
owners are swamped with the grind of maintaining the process of eBay consignment to fully
explore these options.
For the owners of franchise eBay drop stores - only they can save the day. But if the franchise will
not budge on the fees or on restrictions regarding secondary - or actually primary - retail solutions
such as cellular (another iffy proposition) or some other form of retail, there is little hope of digging
out of the trap. The current situation was not foreseen by the store owners or the franchisors,
although the franchisors saw it sooner than the store owners in most cases. The situation remains,
in either case...
eBay consignment can work as a tool for another business. In my view, it is not a business model
which can support itself without some other form of business income. As a part of another
business, eBay consignment can be a very attractive addition to the overall picture. By using eBay
and consignment sales to boost revenue and provide customer service for another business entity
while increasing the worldwide exposure for that business through eBay stores listings and auction
listings of consigned or inventory products, eBay consignment can be utilized as a very good tool
for marketing. eBay consignment, if used as a draw to get new customers in the front door,
advertise an existing business in a new and interesting way, and to transition a brick and mortar
operation to Internet sales can be a very nice marketing program for almost any existing business.
As a hobby or part time income producer, selling for neighbors or friends, eBay consignment can
be fun and rewarding. But as a full time stand alone business model with no other income
streams, your efforts and money could be invested more wisely elsewhere.
Written by: Scott Pooler - All Rights Reserved - All Business Auctions
Scott Pooler
[http://www.allbusinessauctions.wordpress.com] - eBay Trading Assistant Journal
http://www.allbusinessauctions.com/blog - All Business Auctions eBay Business Blog
http://internetbusinessmentor.wordpress.com - Internet Business Mentor
Article Source:
http://EzineArticles.com/?expert=Scott_Pooler
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How to make Money wiith Ebay
www.info-on.us/eBay/
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