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					         An easy way to make money…?
                           BY BEN ALLMAN
                         FUNKYGADGETSHOP.CO.UK


This article is divided into sections as follows:

   1.   Introduction
   2.   Basic cost
   3.   What is an overhead?
   4.   Calculating overheads
   5.   More overheads
   6.   The „big picture‟
   7.   Conclusions

Introduction

Someone once asked me: “What‟s the easiest way to make money
on eBay?” to which I replied: “Make sure your not loosing money on
eBay”. A very simple idea and yet many people selling items on eBay
seem to have no idea of how to make sure that they are not doing so.

This article is designed to make people think about the „bigger
picture‟ surrounding selling items on eBay either by auctions or on a
„buyitnow‟ basis.

The true cost of selling an item on eBay can be very hard to calculate
and is probably higher than you ever imagined.

Virtually everyone has sold something on eBay and made a loss on it.
Those who will succeed on eBay will realise this, and at least try to
make sure that it doesn‟t happen again. Many people will sell items at
a loss and fail to realise it.

Basic Cost

What is the basic cost of selling an item? I define the basic cost as
the cost of buying the item plus the cost of postage, easy enough. But
this is where a lot of people especially newcomers make the mistake
of thinking that their costs and overheads end.
You can tell this because the other day I was searching for something
or other and I came across an auction whereby a seller was selling
an item at 40p + 21p P&P. This is a loss making auction, and I will
use it as my example. A very simple formula is below:

Profit = Total Selling Price – Item Cost – Postage – Overheads

Everyone has to agree with that, so let‟s start with what we know
about our example auction:

Profit = 62p – Item Cost – Postage – Overheads

OK, next we have to take into account the fact that he has to post the
item. The auction advertises the postage as 2nd class and we have no
reason to doubt it:

Profit = 62p – Item Cost – 21p – Overheads
 Profit = 40p – Item Cost – Overheads

No great surprises so far, but now on to our next section:

What is an overhead?

Overheads can be split into two major categories: „Administrative‟ &
„Operational‟.

Administrative Overheads

This is where, on eBay, you gain on big businesses. They have to
pay for shops, a supply chain, electricity, accountants, shop rental
and so on. Most people are reading this will only have something in
the range of a cupboard or a garage in their house. But does this
mean that, for instance, your computer doesn‟t use electricity? Of
course not.

Operational Overheads

These are cost which relate more to the sale of an item and include
consumables, for instance an envelope, printer ink or a pen. For the
purpose of this article I am also going to include eBay & Paypal fees
in this category.

Calculating Overheads

Operational Overheads

What are the eBay fees for our example listing? Well the item was
being listed singularly so the listing fee would have been 15p. The
final value fee would be 5.25% of the final price, this works out at 3p.
So eBays take is 18p, not too bad? But it doesn‟t end there Paypal is
an eBay company and if you pay using it the seller is charged to
receive the money. Paypal is offered on this auction so the seller will
have to foot 20p + 3.4% for each sale. This works out at another 22p
for eBay making a total fee of 40p.

Profit = 40p – Item Cost – 40p – Other overheads
 Profit = – Item Cost – Other Overheads

So now you can see that even if the auction was for an empty (&
secondhand) envelope the seller wouldn‟t be making a profit.

But how bad a loss is it? At this point you will have realised that the
loss is at least the value of the item, but is the loss even greater?

So what overheads have we missed out? The envelope for one,
standard envelopes are about 3p if you buy 500, a jiffy bag could be
anything up to 50p or more. Let‟s assume that the item isn‟t
breakable and go for the 3p.

Administrative overheads

That leaves administrative overheads, 1001 miscellaneous things that
you have to have to sell something on eBay, to be fair most of these
things have people will have anyway, like a computer, printer, printer
ink, digital camera & electricity. Selling lots of things will rapidly
increase the rate at which printer ink is used, especially if you print
out every order and payment or delivery address. For simplicities
sake let‟s just ignore the rest and just add 1p for the ink needed to
write your customers address.
That just leaves one important overhead, you. If you were doing the
same job in an office you‟d expect £6 an hour right? So why should
you be any different?

So let‟s do a time breakdown:

      First you need an item to sell
      Then you need to list the item
      Then relist if it sells.
      You need to check for purchases
      Check paypal payments
      Cash cheques & postal orders at the bank
      Wait for cheques to clear
      Answer emails & questions
      Print or write addresses
      By some form of postage
      Put the item in the envelope
      Take it to a post box or post office
      Leave Feedback
      Then answer emails asking where the item is even though it
       was only bought yesterday.

The above works out at on average around 5 minutes per item, at £6
per hour that makes 50p.

The ‘Big Picture’

While the arguments at the end of last section may appear to mean
that you can‟t sell any item for less than £1.04 + P&P it is not strictly
true.

If you buy & sell hundreds of individual items you will soon find that
the average amount of time needed to (re)list and despatch an item
declines.

(For bulk sellers I would recommend Smartstamp from Royal Mail as
this allows printing postage along with Address and logo directly on to
an envelope. This beats writing addresses on envelopes and buying
sheets of stamps etc by a mile.)

The best way to calculate eBay and Paypal fees is using a simple
excel spreadsheet. A free excel spreadsheet for this purpose is
available from www.funkygadgetshop.co.uk/ebay.htm. You may
download and modify this spreadsheet as you wish.

Conclusions

A lot of people selling on eBay make several mistakes which can
cause them to sell items at a loss.

Ignoring Overheads not limited to:
    Envelopes
    Printer Ink
    Postage on Items (ingoing & outgoing)
    Electricity
    Your Time
    Paypal Fees (20p + 3.4%)
    Ebay Listing Fees (15p for a single item <£1 Starting price)
    Ebay Final Value Fees (5.25%)

Miscalculating Postage

Refunded & Returned Items

Finally, hopefully this article has made you want to go away and
figure out if you are making a profit or not, find out how much your
envelopes cost each and how much a week you really are paying in
paypal and eBay fees. If you already know the answers to all of these
questions then well done and I look forward to you reading my next
article.

Regards
Ben

				
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posted:4/10/2011
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