Online Auctions

By Entrepreneur Staff


Online Auctions Definition:

Virtual auctions on the internet. The seller sells the product or service to the person who bids the highest price. For sellers, online auctions open up new sales channels for new products and offer buyers favorable purchasing conditions.

Online auctions have effectively created a giant virtual marketplace where people can gather to buy, sell, trade and check out the goods of the day. They're enormously popular, high-traffic venues where you can begin selling product almost immediately, with...

  • No overhead or upfront costs
  • No sales staff or distributors
  • No website of your own
  • No initial investment (you'll pay between 2 and 5 percent of your final sale price to the auction site)

In this massive marketplace, the auction site that rules the game is eBay. According to the Neilson Ratings, eBay is among the top ten most-trafficked sites on the Internet. eBay leads the online auction industry with a more than 60 percent share of the market, while its closest competitor, Yahoo! Auctions, is only half its size. Auctions follows at a distant third.

The amount of traffic these sites attract make online auctions an ideal place to capitalize on readily available, widespread exposure. However, know this: The competition is fierce in popular categories, and your product can easily get lost among the hundreds of listings.

So whether you're selling a knick-knack or two or becoming a full-time baseball card dealer, there are a number of things you must do to harness the volumes of traffic heading your way and generate the highest profits possible:

Step 1. Select your site. First of all, you have to think about which online auction site you want to use. eBay is the obvious choice because of its reputation and the amount of traffic it receives. But different auction sites tend to cater to different markets. To determine which site is best for your product, check out the top three or four in your field--look at specialized auction sites as well as the big ones mentioned above. There are hundreds of specialized online auctions that cover the spectrum from antique books to business liquidations.

Check out item quantities and bid lists to see how much demand there is for your product. While you're there, you might even want to try bidding on a few items to get a feel for the process and the competition involved. (But don't ever bid on an item you don't plan to buy!)

Step 2. Choose your products. Are you going to sell unique, one-of-a-kind products item by item? Or do you have a product you can sell in quantity? Is there a demand for your product? (This is less of an issue for one-of-a-kind items.) What kind of profit margin do you expect to be making? (This can determine whether or not you'll have to sell in quantity.)

In the world of online auctions, niche markets are responsible for 43 percent of total sales. Not bad, hey? But don't disregard the remaining 57 percent that covers non-niche markets! The bottom line is, you can make money with both.

Collectibles are the bestselling items at auction sites, with computer hardware and event tickets in second place, and toys and books hovering around third. But while popular items may be easy for you to sell, you could also make a killing on a unique item with a high profit margin. Believe it or nor, people are making money hand over fist from specialty items like cigars and lobster.

Step 3. Look at listing options. The next thing you need to think about is how you'll sell your product. Auction sites typically offer a variety of listing options for you to choose from, including:

  • Regular listings. A regular listing is just that--you pick your category and your product gets listed in it. While this is the most common (and really the least effective) way to list your product, you should definitely start with this option. You'll want to see how your product does before you decide to spend money on featured listings.
  • Reserve price auctions. If you place a "reserved price" on your item, it means that you've specified the amount at which it should sell. This is done to prevent "auction sniping," which happens when bidders lay low until the very last moment, then grab your item without starting a bidding competition. Reserved price auctions can be to your benefit, but they may discourage bidders who are looking for the best deal.
  • Dutch auctions. Also known as "English auctions," these are one of the best ways for people selling in quantity to place their products because you can list multiple identical items at once in each auction. However, on eBay you must have a "feedback rating" (see Step 6) of 50+ and you must have been registered for more than 60 days before you can choose this option.
  • Featured items. On most of the larger auction sites, you can get your item rotated through the site's homepage as well as listed in the "featured items" section for about $20. For approximately $15, you can have your item appear in your category's "featured items" section, or simply at the top of the list. You can also have your photos displayed in a gallery for about 25 cents, or featured as a large photo at the top of a gallery for close to $20.

You also have the choice of listing your items for 3, 5, 7 or 10 days--and, of course, you always have the option to re-list at the end of this time. The standard option is a 7-day listing with an automatic re-listing for a specified period of time.

Step 4. Choose your category. Explore the product categories on the various auction sites to broaden your perspective of what goes where. While you're doing this, check out the competition in different categories and have a look at how much bidding is going on. Then do a search on similar and related products, determine which ones sell best, and see which categories they're in. You'll usually be able to pick one main category and one sub-category--use this method for both. And be sure to check to see how easily your product can be found using the site's search tools before you settle on a category.

Step 5. Create your ad. Once you've decided how and where to list your product, you need to turn your attention toward selling it. And that means you need excellent advertising. So think about your target market--who's going to buy your product and, perhaps more importantly, why. You need to grab their attention and motivate them to buy from you.

How? Well, first you need a very good title. It's really important that you're specific: Instead of saying "Doll" in your title, for example, say "Two-foot-tall dancing Elvis doll." Don't assume your bidders will understand you--make everything as clear as possible for them. And make it as exciting as possible, too. You'll probably have to pay a bit more for special formatting like bolding or highlighting ($1 to $2), but these can be a good way to grab the attention of potential buyers. Use exciting and convincing words that draw the buyer to your item: "Unique two-foot-tall dancing Elvis doll -- Collector's Edition."

The same techniques apply to your product description. Expand as much as possible on your product--obviously, there's only so much you can say about a baseball bat, but what if it's an original 1915 Louisville Slugger used by Babe Ruth himself in warm up? Try to create a story around your product.

Think about other ways you can motivate your bidders. Can you provide money-back guarantees, free shipping or bonus products? Tell them what you have to offer! And don't forget about photos! People don't want to buy what they can't see, and on average, they'll pay at least 10 percent more for an item that's accompanied by a photo.

Step 6. Establish trust. The best way to establish yourself as a trustworthy, reliable seller in an online auction is by having a good feedback rating. A feedback rating is a listing of customer comments, rated as positive (+1), neutral (0), or negative (-1). If you're not trustworthy, your feedback rating will warn other buyers to stay away from you. If you have a positive rating, you can increase your sales by as much as 7 to 9 percent (and this number will steadily increase as the feedback rating system catches on).

To ensure you get a good feedback rating, make sure you always:

  • List shipping costs (or additional costs) up front;
  • Deliver your product right away;
  • Deliver exactly what you've advertised;
  • Answer buyers' questions immediately; and
  • Always, always follow up with great customer service.

Step 7. Get exposure. You've put all this time and effort into creating a great ad for the auction site, so use it to your advantage! Draw more traffic to your own site by posting banners or links to your site on your ad. (Be careful, however, that you aren't using the ad primarily as a means of redirecting traffic--this is called a "signpost" and will get you kicked off the auction site.)

Unfortunately, while eBay will allow you to link directly from your ad to other items that you're selling on eBay, you can no longer post links to your homepage on your ad. However, you can still link to your site from your eBay "About Me" page--so be sure to take advantage of this option!

Most important is that you keep a list of all your buyers and e-mail them "thanks for purchasing" messages, new offers, complementary product information, and newsletters on a regular basis. Your best customers are your repeat customers--they'll be responsible for 80 percent of your sales! Once you get your name out there, you'll do nothing but profit by keeping it out there.

Step 8. Test! You should always be testing and tweaking your auction listings. Even if they're really good, you may discover that one or two simple changes dramatically increase your sales. Start by doing regular listings on two or three different auction sites, and, changing only one element at a time, test the following:

  • Ad copy and photos
  • Pricing
  • Timing
  • Different products

Once you've settled on the combination that works best, try out different auctioning options (Featured if your sales warrant it; Dutch if you have multiple products) to see which will sell more products for you at higher winning bids.

eBay reports that as many as 70 percent of the items listed for auction on their site result in winning bids, so if you're below or close to this percentage, keep working on it: With these tips under your belt, you can do much better.

Your ability to set prices that attract bidders, write compelling ads, choose the best categories that draw the most potential bidders, and ensure that your auction closes with the highest profit margin will have a dramatic impact on your success in the competitive arena of online auctions. But you need to educate yourself and test the waters carefully before diving in if you plan to be successful. People do make money through online auctions, so it's not unreasonable to think you can profit, too. Just proceed with caution. And market smart.

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