|eBay Basics Tested|
|Wednesday, 26 May 2004|
Topic: eBay Basics — How to Determine if eBay is a Good Marketing Channel for Your Products
We recently released the recording of our eBay clinic. You can listen to a recording of this clinic here:
In previous reports, we have looked at a variety of pay-per-click (PPC) and comparison shopping engines. With a few exceptions, we have found that these two marketing channels can be effective for a number of different product types and price margins.
But what about eBay -- does this undisputed leader in online auctions represent a viable marketing channel for your retail business? Or is it prohibitively expensive for many products? How can you determine if eBay is right for you?
This report will answer these questions and offer a number of insights into running an effective eBay campaign.
Will eBay Work for You?
To understand the potential effectiveness of eBay as a marketing medium, we should compare it to other popular marketing channels such as PPC engines and comparison shopping sites. Which of these channels provides the most profit potential?
Consider the following campaigns on a PPC Engine (i.e. Google AdWords or Overture) and Comparison Site (i.e. DealTime or PriceGrabber):
What You Need To UNDERSTAND: In the three hypothetical campaigns above, the gross profit at three price points is weighed against the PPC costs. We have chosen price points of $45, $150, and $700 to compare these channels to eBay, below.
In Campaign A, comparison sites are not profitable because of the higher CPC. We often find this is the case for small average orders or a low gross margin.
These charts were created using a special Excel spreadsheet that we developed for the purpose of calculating the potential effectiveness of pay-per-click and comparison engines.
You can download that spreadsheet here:
The spreadsheet allows you to plug in your own "average order price" and "gross margin" and then provides your "break-even conversion rate" and predicts your potential profit based on an actual conversion rate that you can modify.
Keep in mind that the above campaigns are highly idealized in order to provide a clear illustration of potential profit, which we will compare to eBay below. The 3.00% conversion rate remains static throughout the three campaigns. In real campaigns, your actual conversion rate may vary greatly.
KEY POINT: The conversion rate of PPC and Comparison engines will often vary significantly. In general, comparison engines tend to convert at a higher rate for most products. You can plug your actual conversion rate numbers into the spreadsheet above.
Now consider these same three price points (with the same 20% gross margin) on eBay:
What You Need To UNDERSTAND: eBay's pricing structure is much more complicated than PPC and comparison engines, which simply charge a per-click fee. Insertion Fees are charged whether your item sells or not. Final Value Fees are assessed based on the actual selling price. The table above was also created using our eBay pricing guidelines in the spreadsheet above.
The fees involved with eBay listings can eat into profits significantly, especially when auctions close unsuccessfully.
* Final Value Fees are charged as a variable percentage of the final sale price. This fee for these auctions is based on 5.25% of the first $25 plus 2.75% of the remaining price (up to $1000). eBay's fee structure is covered in detail at: http://pages.ebay.com/help/sell/fees.html
If you think of these campaigns in terms of "unsuccessful sales", then eBay becomes prohibitively expensive much more quickly than PPC or comparison engines. In an unsuccessful PPC or comparison sale, you simply lose the per-click fee; in an unsuccessful eBay auction, you lose the entire insertion fee.
For example, a $45 item selling on eBay would become unprofitable if it failed to sell just five times. If it sold on the sixth attempt, your fees would total $9.06 and would exceed your gross profit.
KEY POINT: Your top priority should be making sure your eBay items actually sell. Pay close attention to the "sell-through rate" of all your eBay listings. In the following section, we have listed eight guidelines for creating successful eBay campaigns.
EIGHT GUIDELINES FOR SUCCESSFUL EBAY CAMPAIGNS
Many of these insights come from our research partner Chris Chenault from:
Chris's experience on eBay is a testament to how successful eBay campaigns can be, if they are optimized for the right kinds of products with the right margins.
Generally, our examples and recommendations above are based on fixed-price eBay listings. The performance of "true auctions" is usually much more difficult to predict, but can be successful for certain rare or unique products.
One positive final note is that eBay continues to grow 50% or more each year. If you can carve a niche for yourself in this market, you can create a significant auxiliary income stream that will grow along with your business.
RELATED MEC REPORTS:
Yahoo! Stores Changes:
Comparison Search Engines Tested:
Google AdWords Tested:
Marketplace Manager Tested:http://meclabs.com/cgi-bin/pl/pl.cgi?mmm
As part of our research on this topic, we have prepared a review of the best Internet resources on this topic.
These sites were rated for usefulness and clarity, but alas, the rating is purely subjective.
* = Decent ** = Good *** = Excellent **** = Indispensable
Auction Intelligence ***
Marketplace Manager ***
HammerTap Manager **
Timber Creek Software **
AAA Seller **
eBay Seller Central ****
Auction Listing Tools ***
eBay Community Discussion Boards ***
Marketing the eBay Way **
Auction Reporter **
Soyouwanna Use eBay **
Guide to eBay for Sellers **
eBay Selling Tips **
Auction Software Review **
eBay Useful Information **
eBay Business the Smart Way (Book) **
The Official eBay Bible (Book) **