6 Steps to a Successful Online Auction Business

Going once, going twice: Online auctions make it easier than ever to sell products online. So what are you waiting for?
Magazine Contributor
15+ min read

This story appears in the September 2002 issue of HomeOfficeMag.com. Subscribe »

If you talk to just one eBay business owner in your lifetime, you'll be instantly infused with his infectious joy at finding he could start a successful business using the ubiquitous auction service. Now multiply that excitement by about 5,400, and you may come close to understanding the pervasive--almost evangelical--energy that ran rampant through this June's eBay Live!, the first-ever eBay convention that took place in California. Prospective eBay sellers and current Shooting Stars (a distinction awarded at certain levels of feedback) mingled with eBay staff members and suppliers like FedEx and AuctionWatch.com; maniacally collected the trading cards eBay produced for the event (for later auctions, of course); attended classes like Basic Selling and Customer Support; and perused the areas set up for specific eBay categories like Motors and Media.

Why did 5,400 people travel--many crossing distances of thousands of miles--just to mingle? Why are successful business owners so gushingly positive about their eBay experiences? The main reason: It's almost too easy. Anyone can sell something on eBay. You don't need a storefront; HTML skills, though handy, aren't required; and you don't need a merchant account to accept payments. You really don't need anything but a computer, an Internet connection, a printer and a digital camera. And with more than 420 million items up for auction and gross merchandise sales averaging $38 million a day in 2001, you know there's an audience out there for products.

But there is a difference between a part-time amateur seller and a successful business owner. If you aspire to become a Power Seller and really make this a successful, full-time business, you've got to get serious and treat it like a business. You need to understand the profit margins on your products. You have to appreciate the importance of customer support. You'll need to look at every aspect of your process as you grow to discover where you can streamline to save money and time and improve the way you serve your bidders.

So start out right. Do your research to decide if an auction site is the right place for your new business. In this article, we're primarily focusing on eBay--not because it's our favorite, but because it is the industry leader, and many auction maxims, like the importance of customer service, are universal. There are other options to choose from--Yahoo! Auctions, Amazon.com Auctions and uBid are just a few--so before you begin, do some research to truly find your perfect home. And now, read on for the 6 steps to starting an online auction business.

How to Start an Online Auction Business


Step 1: Familiarize Yourself With the Auction Environment

Before you sell anything, buy yourself a little present. "That way, you get to know how the system works," explains Marsha Collier, author of Starting an eBay Business for Dummies and a frequent instructor at eBay University. Bidding on an item not only puts you in the shoes of your future customers, but it will start boosting your feedback rating on the site. You don't have to spend a lot of money. There are some very low-cost items to be found on eBay--postcards, CDs by bands no one has ever heard of; even beads.

Spend time surfing eBay, looking at the auctions of items you might sell. Which ones are getting the bids? What key words do they use? Do they have gallery photos that show up when bidders browse categories or search listings? Collier also suggests you search completed items (you'll find this option in advanced search) to see what items actually sold and for what price. This will help you determine if the products you're interested in have a market and a big enough profit margin on eBay.

Spend time in the Help section, too. This is where you'll start to understand the different types of auctions, the many features you can use when listing items, the rules and regulations of the site, the levels of feedback and what you can do when something goes wrong.

Finally, do some research on your own. Selling on eBay may be a cinch to set up, but good business sense is what guides you in the long term. Take advantage of business books, sites like ours, eBay guides like Collier's, and eBay's own resources, such as the aforementioned Help section and eBay University. eBay is genius at customer service and wanting to help their sellers succeed. Yes, it's self-serving--if they help you succeed in business, they'll get more money in their own coffers. But hey, you need all the help you can get, so why not go to the source?


How to Start an Online Auction Business
  • Step 1: Familiarize Yourself With the Auction Environment

Step 2: Find a Focus

This is very likely your most important step of the process--where you decide what type of business to start. eBay is really just a sales outlet, like the mall or a catalog. Your real business is what you decide to sell on eBay.

Most folks find their inspiration in something they have experience with. PowerSeller Joshua Mandell spent his free time and extra money collecting baseball cards, and found once he started selling cards on eBay, he could better support his hobby/habit. "After six months of casual selling on eBay, I realized the potential for profitability, " says Mandell, who handles the ordering, sales and marketing, while his partner, Sabian Craig, does the shipping, customer service and inventory. Today, he averages 1,500 to 2,000 auctions each month and has sold to bidders in more than 35 countries.

Kathleen and Raymond Manning also had stock just waiting for eBay. Raymond had been looking to unload the inventory from video rental stores he'd owned during the 1980s and '90s, but thought brokers' offers for the videos were too low. Kathleen, a former banking VP, was laid off during a bank merger, began looking up some of the video titles on eBay and discovered the perfect market. "I have since sold thousands of tapes," says Kathleen, who works out of their Phoenix home. "During the past two years, my inventory has continued to grow as my husband--a true 'scrounger' as he likes to call himself--brings me more and more items to sell. There is truly an abundance of 'gold in the hills,' and our only constraint is time." To escape that constraint, Kathleen has recently enlisted her teenage daughter for help.

Once you begin browsing your closet and hobbies for things to sell, return to that completed item search. "Do research on the particular item you plan on selling, even if you only have one," suggests Collier. "See what it sells for, so your expectations aren't high in the sky." Collier provides this example: She recently inherited a Dwight D. Eisenhower commemorative plate. Thinking this was eBay gold, she looked it up. "It was worth six bucks," laughs Collier. "Not wanting to sell it for $6, I put it aside as something I'll sell in the future."

So if you think you think you've struck auction gold--for example, found a store clearing a particular item at dirt-cheap prices--do your research before you buy the lot of them. You may find out you can only get 25 cents more, which won't be worth your time, money or effort.

How to Start an Online Auction Business
  • Step 2: Find a Focus

Step 3: Set Up Your Office

It doesn't take much equipment to get started on the site, but what you do have, you need to organize well. First, you need a decent computer with a fast Internet connection--DSL or a cable modem will make a big difference when you're uploading photos to your auctions. Then you'll need a digital camera and possibly a scanner. Photos sell auctions--that's all there is to it. Going digital is the easiest, and, in the long run, cheapest option. Collier suggests, of course, going to eBay to find a discounted camera. Scanners can work if you're selling two-dimensional products, such as Mandell's baseball cards. And a good printer and office software suite is vital in any business.

Next item of business: Your storage area. When you're selling just a few items, it's easy enough to stack them on an empty closet shelf. But once you get into high volume, you've got to get organized or you'll go nuts and lose time and money to your inefficiency. In Collier's eBay classes, she suggests enlisting an army of those clear plastic boxes you can get in several sizes at any discount store. They keep items clean, fresh-smelling (you'll notice many auctioneers tout their "smoke-free" households) and easily accessible. Place photos on the outside of the boxes for easy recognition when a customer e-mails a question about one of 75 items you have up for auction.

Now we come to what will surely be your favorite task: Shipping. It may be boring, but it's an extremely important aspect of your business. Streamline your shipping so items get sent out in a timely fashion--all the better for your feedback rating. And you want to watch your costs so that: a) you don't eat any costs; b) you don't inflate S&H so much it sends bidders running. The USPS is a candy store for eBay users, as so much packaging is available for free and even delivered to your house. Visit here to stock up. A postal scale may prove to be a worthwhile investment so you can avoid lines and buy postage online.

The Business Side of Your eBay Business
There is a whole other category we didn't discuss here due to space limitations, and that's making your business a real business--meaning all the vitally important red tape, including business licensing, business structure, taxes, bookkeeping, etc. For more information, read How to Legally Establish Your Homebased Business.

Last but not least: Your photo area. Devote a small table to this task. Collier suggests if you sell clothing or jewelry, used mannequins will prove their worth. Dress up your items; don't just toss them on the carpet or prop them against a wall that should've been re-wallpapered in 1973. An empty box and a piece of material do wonders as a pedestal. And if you really want to get fancy, consider some lighting as well.



How to Start an Online Auction Business
  • Step 3: Set Up Your Office

Step 4: List Your Auctions

Now it's time for the nitty-gritty. You've done your research to determine if there's a market for your product and what you should expect to get for your tchotchke. Let's start a bidding war.

First things first: Your titles and descriptions. Your titles and gallery photos are what entice a bidder to view your auction. A lot goes into this--you can use all caps sparingly to make certain words jump out, carefully choose key words to attract searchers, or even pay extra for eBay goodies like highlighting ($5 a listing), bold type ($2), gallery photos (a mere quarter to have your photo show up on listings pages--this is Colliers' favorite bargain) and more. Again, go back to those "completed items" searches to see what's worked for those who've gone before you. And remember that every extra you get cuts into your bottom line, so be sure they're worth it.

As for descriptions, do your research on each and every item and lay out your terms as simply and thoroughly as possible so you're a pleasure to do business with. "You have to write your descriptions thoroughly. Describe the good parts--and the bad parts--of whatever the item is. Because what sells your items on eBay are your titles and your descriptions," says Collier. "That's the most important thing--it sets you apart from other people."

This is also where you're going to set prices. Again, eBay offers several options for your auction, including:

  • Fixed-Price Format. Bidders can buy the item at the price you set immediately, no auction at all.
  • Reserve Price Auctions. You set the lowest amount--the reserve price--you're willing to accept for your item. Your opening bid may be below this, and bidders will be told if they don't reach your reserve price, which isn't disclosed unless you do so in your description.
    Your To-Do List
    What really happens on a day-to-day basis for an online auction entrepreneur? Read A Week in the Life to find out.
  • Dutch Auctions. If you have several of one item, you can sell them as a Dutch, or multiple, auction at either a fixed price or as an auction. If you do it as an auction, bidders can choose the amount and price they want. They can only be outbid if the total price (number of items bid on multiplied by bid price) is higher. All winning bidders pay the lowest successful bid.
  • Buy It Now. This gives bidders the option to buy your item at a set price without having to wait for the auction to end. But when the first person bids, the option disappears. So for instance, you're selling a glass bowl with an opening bid of $1, but your Buy It Now price is $5. Someone can pay $5 and end the auction, or they can bid $1.50, and the Buy It Now option disappears.

Of course, each option has some restrictions and fees. You can also choose to have auctions of different duration--3-, 5-, 7- and 10-days. eBay, if nothing else, likes to provide lots and lots of options for sellers. Explore these in the Help section. As you sell more and more items, you'll discover which formula works best for you.

How to Start an Online Auction Business
  • Step 4: List Your Auctions

Step 5: Customer Service

eBay is all about the "f" word: feedback. "The feedback rating is the core of the community, " says Collier. "Buying something from someone with a high positive feedback rating is always desirable from a buyer's point of view." It's also what separates the little guy from big companies. "People say that all the big retailers are starting to sell on eBay, so what chance [does the little guy have]? But there's no way a big company can give the customer service you can. [If a customer asks them a question about an item,] they have to go look for it in a big warehouse or read about it from a description. You can go over to the shelf, look at it and give the details. As an individual, you have a leg up on the big companies, especially if you specialize in a particular item you're very, very comfortable with."

eBay: Taking Care of Its Own
There were a few announcements at eBay Live, but one of the most exciting for many business owners was the upcoming implementation of a health-care program. "Many sellers have left behind their traditional businesses or employment and come to eBay to sell full time," says Kevin Pursglove of eBay. "That's good for eBay and good for them, but in many instances they've left behind their benefits package. We're looking for ways to leverage the power of the eBay community to help sellers qualify for possible health-care programs." Click here for more information.

What exactly entails customer service on eBay? A few things, starting with your auction itself. Listing your S&H and payment policies upfront makes it easier to do business with you. Accepting several forms of payment can also ease customer's concerns. When someone e-mails you about an item, answer quickly, thoroughly and courteously. And of course, when someone wins a bid and completes payment, send the item out as soon as humanly possible, if not sooner.

Joshua Mandell mails his products all over the world, sends out monthly mailings to his loyal customers about his products up for sale, offers money-back guarantees, and basically bends over backward to make sure he pleases his customers. "If a person has a good experience, they'll tell a couple of people or maybe nobody. If that same person has a bad experience, they will tell everybody," says Mandell. "You must serve the customers with 2000 percent of everything you have at your disposal, or they will not come back. If you do, they will come back again and again!"

Kathleen Manning also values her customers, and reflects it in her customer service. 'There is a true sense of community with eBay--an atmosphere of honesty and doing the right thing," says Manning. "I treat each of my buyers with courtesy, quality and customer service. You can't go wrong with this philosophy."

How to Start an Online Auction Business
  • Step 5: Customer Service

Step 6: Growing Your eBay Business

As you add more and more auctions, you'll find yourself deeper and deeper in terms of time commitments to eBay. And if you want to keep your feedback rating high, you need to keep on top of auctions, promptly processing payments, answering e-mails and shipping out items. So how do you do it? Here are some of the ways eBay businesses handle their growth:

  • Add an eBay Store: Basically, this is your own storefront within the eBay system where you can establish your brand, and, as Collier says, "set up your virtual shingle on eBay." You pay a monthly $9.95 fee and a $.05 insertion fee for an item--whether you list one or 100 of said item. But store items don't show up as auctions unless you pay the auction insertion fee--and all auction items do show up in your store. Decide carefully where you want to showcase items so you can make the best use of your fees.
  • Invest in auction software. There are a variety of programs on the market that will help you save time by automating your auction process, from sending out end-of-auction e-mails and uploading photos to tracking buyers and keeping inventory. All will take a chunk of your bottom line, so research thoroughly to determine which best serves your needs. See Auction Resources for more information.
  • Become a Trading Assistant. This program allows experienced sellers to sell items for other users for a fee. Of course, there are restrictions regarding your feedback level before you're allowed to become a trading assistant.
  • Move out of your home. It sounds almost too good to be true, but it happens often enough: eBay sellers become so successful they move into warehouse space and hire employees. This may or may not happen to you--and you may or may not welcome the idea--but it's definitely an option to be aware of as your business grows.
How to Start an Online Auction Business
  • Step 6: Growing Your eBay Business

Auction Resources

There are a variety of resources designed to make your life as auctioneer a bit easier. Here's a roundup of some of the resources out there:


Software & ASPs

Web Sites

On Entrepreneur.com

  • Our eBay Start-Up Center features all our coverage on starting an eBay business, plus an exclusive excerpt from our start-up guide, How to Start an eBay Business.


How to Start an Online Auction Business
  • Auction Resources

Editor's Note: All prices quoted for eBay services were current as of press time. Please check eBay for any price changes in the future.

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