Way back in 2008, I started selling tires on ebay as a way to get rid of overstock, older stock, or otherwise stock that needed to go away. At that time, ebay was still a fairly affordable way to sell your product, and there were only a hand full of tire dealers on there.
For a year or two, ebay was working fairly well. I was able to sell off the extra product that I needed to and made a little bit of money doing it.
I'll pause here by saying that I have been a member of the ebay community since 2003, selling items as well as buying. Way back, ebay was much more balanced as far as being fair to both sellers and buyers. They have changed a number of things in the last year and a half, that makes it much more advantageous to be a buyer, rather than a seller.
I have been a power seller (now called top rated seller) on ebay for a over 3 years, but it has gotten so difficult to be competitive and make a decent profit. Here are some ebay and tire business economics.
Despite popular belief, the tire dealers are not making huge profits on selling tires. Those with brick and mortar stores, depending on the area may make 12-15% gross profit on the sale of a new tire. If they are in an ultra competitive market, where there is a tire store (especially a chain store) on every corner, like here in the Atlanta area, that figure is more like 10%. Most brick and mortar retailers make their money on service work. Because online retailers have to be near the price of the brick and mortar our gross margins are more like 8-10%
Now ebay economics. For our example lets use $400 set of tires with $60 shipping and a 9% margin. About 9 months ago ebay decided to stick it to the sellers (the ones that provide all of their revenue, by the way) again by reworking the way that they were charging final value fees. Final Value Fees or FVF are a percentage of the final auction price. Ebay's sales commission of sorts. Prior to April 2010, they charged this FVF on the price of the auction only. From the example above, the FVF would be paid on $400 At that time, the FVF was approximately 5.5% of the sale price. Apparently ebay thought that buyers were getting taken advantage (really ebay was the one getting taken advantage of) because a seller would charge a very low auction rate, and a very high shipping rate. So in April, to combat this unfairness to the buyers, they reduced the FVF slightly but started charging it on the final auction price AND shipping. Of course the reduction in FVF was usually not enough to offset the charge being applied to shipping, especially in the case of us who are selling larger items that costs quite a bit to ship. Thus, more revenue for ebay.
A side note, Ebay is the second wealthiest shopping website only after amazon.com. Furthermore amazon (along with providing a place for e-retailers to sell their items) also is a retailer themselves. I.E they buy and sell goods for profit. In 2010 ebay have revenues of nearly $9.2 BILLION to provide web space to list a product for sale. That equates to every man, woman, and child in the USA giving ebay $30.
This fee change is the one that sent many ebay sellers (including myself) over the edge. It has driven many of us to open our own e-commerce sites, as I have done, sell on other sites that charge, such as Amazon.com, or list on sites such as craigslist. Ebay, has chipped, and chipped, and chipped away at our profits, and we have had no choice but to pass the costs on to you, the buyers.
Back to our example from above. If I sold a $400 set of tires with $60. I would pay:
listing fee: $2.00
8% on the first $50 = $4.00
4% on the next $410 = $16.40
Total fees: $22.40 - $4.08 (ebay has been so kind to offer top rated sellers 20% of the FVF back at the end of the month if we maintain Top Rated Seller status)
so Ebay fees = $18.32 ..
Then I get to pay another 2.3% to paypal (you guessed, an ebay company) for processing your payment $460 * .023 = $10.58
Grand total of Ebay revenue $18.32 + $10.58 = $28.90 or an effective rate of 6.2% of the $460 transaction.
Remember I'm making around 9% on the $400 (I try not to make money on the $60 shipping charge, and many times I lose. We'll assume shipping was exactly $60)
TOTAL PROFIT : $400 x 9% = $36 - ebay $28.90 = $7.10 we are not getting rich.
I know this is really starting to sound like an Eeyore moment.. "woe is me, the little man can get ahead" It's not like that at all. Great for ebay for being a successful company, and they've done it in a little over 15 years.
What I am saying is, if ebay keeps going up on their fees, it cannot fit into my business plan. I have been selling tires online for 3 years and have literally of thousands of customers. That person may be you.
The last tidbit about ebay. They have worked very hard, and probably spent millions of dollars to make sure buyers don't contact sellers and try to bypass baying thru ebay. If that person is a first time buyer, than great, I completely agree. It's like a real estate agent getting a potential buyer to sign an agency agreement, so that the buyer doesn't bypass the agent and thus their commission. I have no beef with that. My plea is that if you are coming back to me to buy another set of tires because I provided a good product at a good price, and gave great service while doing it, it's not ebay's business. You are my customer, not theirs. You will save money by contacting me directly. In the example above, there is a $28 spread, you buy for $14 less, I profit $14 more and we're all happy.
Incidentally this is not just me. If you bought something from any legitimate store on ebay before, look them up and buy directly from them as a repeat buyer.
Until then, I continue to list on ebay. After all they are the most visited shopping website. I don't agree with a good portion of what they do, but at this point, I can't not use them.
Thanks for reading this article.
