Who Wants to be a Millionaire?

If you raised your hand, take a cue from 7 savvy entrepreneurs who used eBay to build million-dollar businesses.

Think eBay is just for part-time sellers with too much clutter in their closets? Not anymore. In a few short years, these savvy sellers on eBay have gone from zero to millions of dollars in sales. Here's how they built lucrative online businesses.

Todd McGohan, 42, and Tim Stallard, 36
Proshop Warehouse
Dayton, Ohio
eBay User ID: proshopwarehouse
2006 Sales: $7 million
Projected 2007 Sales: $7 million
eBay Business: Golf clubs and accessories

Fore: Todd McGohan started selling on eBay in 1999 with his wife, Stacey, 36. Their business, The Guildmark Group, specializes in high-end watches, jewelry, coins and fountain pens. It generated $1.5 million in revenue in 2006.

The online business has always done well, but in 2000, when McGohan spotted the opportunity to make some additional money by selling merchandise a local pro shop was liquidating, he jumped at the chance to enter a new market. "I love deals," he explains. After paying $4,400 for the inventory and selling it on eBay for $5,700, McGohan knew there was a market for golf equipment.

Work the Phones: But what McGohan needed was merchandise, so he and his business partner, Tim Stallard, began calling small golf shops and pro shops and asking to buy their excess inventory. The pair sold more used equipment than new at first but have since demonstrated enough volume to gain their own relationships with manufacturers. Now 75 percent of their stock consists of new clubs.

Today, Proshop Warehouse runs about 3,000 auctions weekly, with average purchases yielding $170. They also opened a retail location in 2006, which has allowed them to do business with manufacturers that were previously off-limits to the online-only venture, and they have added $500,000 in incremental revenue to their bottom line.

Such dramatic growth and expansion has been possible for the company because McGohan and Stallard invested in automation, going so far as to design their own auction management software to avoid the fees most commercial programs charge. Says McGohan, "Automation has been a lifesaver."

Smart Tip: Always look for new suppliers and build strong relationships with them--these can lead to cheaper pricing. With margins getting slimmer in most industries, you need to buy your inventory for as little as possible in order to make a profit.

Corey Kossack, 23
Koss DVD
Tempe, Arizona
eBay User ID: kossdvd
2006 Sales: $1 million
Projected 2007 Sales: $3 million
eBay Business: New DVDs, iPod accessories and video games

Student of Opportunity: In 2004, Corey Kossack was a college sophomore doing some online shopping from his dorm room for a digital camera memory card. One of his stops was eBay to see if he could find a deal. Although he says he "always thought of eBay as a place for people to get rid of junk," he found someone selling hundreds of memory cards that day. This was clearly a businessperson, not an individual selling castoffs from their personal collection, and it changed Kossack's thinking about eBay. He saw a business opportunity and wanted in.

Nichecraft: Recognizing the need to carve out his own niche, Kossack decided on DVDs. He reasoned that there are always new titles coming out, creating an ongoing demand for the product, and most DVDs are the same size and weight, which makes the process of packing and shipping them much simpler.

However, "finding suppliers was difficult," he says. By calling major distributors from the study room in his dorm, Kossack eventually got his foot in the door. But he says the sales terms at the outset "weren't very good," mainly because his sales volume was low.

Profit-focused: That soon changed as Koss DVD's sales volume increased. In its first year in operation, the company sold $500,000 worth of DVDs. But what has kept the business on course has been Kossack's focus on profitability, not sales. "Sales volume isn't all that's important," he says. "What's really important is profit."

While most businesses focus on the top line--sales--Kossack has paid equal attention to keeping costs down. One change to the company's shipping process, replacing the bubble envelopes it had been using with a lightweight alternative, shaved 0.3 ounces off each package's total weight and saved the company $10,000 in its first year.

From the start, Kossack has tracked each order's profit margin carefully, taking note of all the factors affecting profitability to make constant improvements. But in 2006, recognizing how important such calculations could be for any eBay business, he paid another student to create software and used the new formulas to replace his manual calculations. Since then, he branded the software ProfitBuilder and is selling it commercially.

In addition to automating his profit tracking, Kossack has renegotiated deals with his suppliers based on his company's track record of growth and success. He's also expanded his product line, from 1,000 DVD titles to 10,000, and added video games and iPod accessories to his store. He says, "We're becoming more of a superstore."

Smart Tip: Be sure to research your intended industry thoroughly to understand what margins are typical. You will be better armed to negotiate with suppliers, and you can confirm upfront that your business can be profitable.

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Marcia Layton Turner's work has appeared in Woman's day, Health and Black Enterprise. She is based in Pittsford, N.Y.

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This article was originally published in the May 2007 print edition of Entrepreneur with the headline: Who Wants to be a Millionaire?.

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