Specifically, is Selling on eBay worth it?
Is eBay Selling Profitable?
Is Ebay worth it? This is a common question these days with everyone looking to make a little extra cash. After all, who couldn’tit all depends. “Well, thanks for nothing there guy,” is probably what you’re muttering to yourself right about now. But really, it does depend on a lot of different factors, all of which aren’t so cut and dry or easy to answer accurately through a simple search of the eBay website alone. Let’s clarify and be more specific (and get to the true money question) by modifying the question and exploring, “is selling on Ebay worth a person’s time and effort”.
Let’s approach and address, “is selling on Ebay worth it” with specifics. What I will do is take a completed eBay auction from my personal account that reflects all the recent fee changes since March 2011. This completed auction transaction took place in August, 2011. All the recent changes which eBay featured in its 2011 Spring Seller Update are applicable. Again, these fees and experiences are for the average seller. I am not an eBay store owner nor am I an eBay PowerSeller. I will break down all the stated costs that were applicable to the completed auction and, more importantly, all the real costs associated with this eBay auction transaction.
(All figures and calculations are in US dollars)
Real World as Example
Description: Buttons, large vintage lot of 54 cards, 150+ buttons
Final Price: $15.50
Sale Type: Auction
Let’s start by examining the listing itself. I chose this auction as example because buttons are an item that many people have around the house. Also, a lot of people would quickly consider selling some old buttons on eBay. This lot of assorted buttons didn't weigh much either (a critical factor in answering "is selling on eBay worth it", keep reading). Note the final price of $15.50. That amount is by no means high, but many would consider that a nice price to fetch for some ordinary item that is just collecting dust. There were no hidden treasures in this button lot either (trust me). In other words, these were old (vintage) buttons that I just needed to get out of the house. This auction listing serves as a great example of a typical eBay auction that anyone looking to pick up a couple extra bucks would quickly consider.
This auction listing utilized one of eBay’s free 50 auction listings. In an attempt to gain more eBay listings and generate more sales, eBay offers each account free auction listings each month. Accounts now get their first 50 auction listings for free regardless of starting bid amount. So, there were no eBay insertion fees for this auction listing. Pretty nice—so far.
Note that I offered free shipping on this auction. Why offer free shipping? It was mainly a marketing decision based upon the latest eBay fees calculations. Let me explain, as of their Spring 2011 Update, eBay now adds all shipping charges into the final value fee calculation. What this means is that if a seller charges shipping fees, those shipping fees are included in the auction’s final sale price. The result is that the listed shipping charges are added to the final value fee (FVF) calculation. That’s right; eBay now applies fees to the total amount of the sale. Any and all listed shipping costs are included in the total sale amount.
The new eBay FVF calculations force the issue of offering free shipping. Before the update, I would have probably noted a simple shipping fee of $3.50 which would not have been hit by any FVF and would have helped defray shipping costs. But, taking into account the new eBay policies and calculations coupled with the reality that I knew the item would probably sell for less than $25 dollars, I offered free shipping to entice bidders and create more auction action.
Thus far, the initial analysis of this typical eBay auction reveals the first subtle change and implied cost increase from the latest eBay tweaks. All eBay sellers should quickly note that your shipping costs, since the eBay Spring 2011 Update, are now included in the eBay final value fee (FVF) calculation. This results in a higher base from which to calculate the FVF. Higher calculation base means higher eBay final value fees.
The eBay Fees
Let’s discuss the obvious fees first. The eBay Spring 2011 Update details the fees that would apply to this auction at nine percent. The button auction that I am using as example would apply a 9% FVF to the final auction price of $15.50. The FVF calculation results in a $1.40 FVF. So the first applicable fee to the button auction example comes in at $1.40.
eBay FVF: $1.4
The eBay fees are obvious; after all we’re eBay sellers. So what’s with the PayPal fees? Well, in reality if you use eBay and actually want to sell on eBay, you’re going to take PayPal. Yes, I know, it’s your business and you can do what you want, but…not really. Reality is that eBay transactions are pretty much all done utilizing PayPal. Yes, eBay owns PayPal and it operates as a unit of eBay. Welcome to the real world!
Sure, anyone that sells on eBay can try to buck the eBay system and process their own transactions or even take money orders. The fact is that eBay strongly urges buyers and sellers to transact through PayPal by offering protection. What this means is that most sellers that don’t transact through PayPal are open to being stolen from. Then, eBay strongly urges buyers to utilize PayPal. Buyers that don’t use PayPal for payment are warned that they face exposure to sales fraud. Basically, if you use eBay—PayPal gets used as well. Sure, you could still use your credit card and get protection straight from the credit card company (fraud liability protection), but good luck finding eBay sellers that accept credit cards outside the PayPal system. Again, reality steps in. PayPal makes eBay transactions smooth and easy. For smooth and easy transactions you use PayPal. Smooth, easy and “protected” transactions through PayPal carry fees. The base fee for any buyer payment PayPal transaction in US dollars is a thirty cent fee. Gift transactions (which are free) aren’t allowed for eBay payments.
PayPal transaction fee: $0.30
Now, when calculating PayPal fees one also has to consider the means by which the PayPal transaction is completed. Did the eBay buyer use cash or credit? The example button auction transaction was completed using a credit card. The buyer used their credit card and processed their payment through the PayPal system. There is a fee to the seller for this (remember smooth and easy?). That fee is 2.9% of the transaction amount. The button auction above ($15.50) was hit with a PayPal processing fee of 2.9% which results in a .45 US fee.
PayPal base fee: $0.30
PayPal processing fee: $0.45
PayPal fee total: $0.75
Fees + Fees
Up to this point the eBay auction generated a total of $2.15 in fees. If we run a simple cost calculation (cost of doing business) up to this point we find that $2.15 in fees against a sale of $15.50 results in a cost rate of 14% (13.87% to be precise, eBay rounds up so I do as well). Is selling on eBay worth it? As of right now, this example auction is sitting at a 14% rate in eBay and PayPal fees. Remember, we still haven’t taken any time to wrap and ship those buttons.
Those Buttons Gotta Go!
Reality's costs impose more hits to all eBay auctions and our example auction's profits. Ah, yes, shipping. Shipping isn’t really a hidden cost since eBay sellers all know they must actually send their auctions to their buyers. But, shipping costs take their toll and exact a heavy cost on eBay sellers considering is selling on eBay worth it. Our button auction fees now stand at $2.15 in eBay and PayPal fees combined. That’s a 14% fee rate. We now have to account for shipping. For the button auction example I chose the first-class United States Postal Service (USPS) rate. That was the least expensive (lowest) rate through the local post office. The USPS first-class rate was $3.24.
But wait, there’s more to shipping than just the obvious shipping rate. In regards to selling on eBay and whether selling on eBay is worth it all credible factors must be considered. Remember that PayPal protection? How will you be certain your package ever got to the buyer? More importantly, how do you know that the buyer will not file a dispute through PayPal for the item not being shipped?
In order to protect the transaction and be covered by the PayPal seller protection, you must ship using delivery confirmation. PayPal will only extend seller protection to sellers that use delivery confirmations. Purchasing a delivery confirmation serves as proof that you did ship your auction. Delivery confirmation also helps to find shipped items while in transit. USPS delivery confirmation costs $0.80. Yes, that's an additional cost incurred due to the PayPal system.
USPS first-class rate: $3.2
USPS delivery confirmation: $0.80
Shipping total: $4.04
Gone, but not Forgotten
Cost of Doing Business
Whew, the buttons are finally gone and all those pesky fees are paid. So, is selling on eBay worth it? Let’s add it all up:
eBay Final Value Fee (FVF): $1.40
PayPal transaction fee: $0.30
PayPal processing fee: $0.45
USPS first-class rate: $3.24
USPS delivery confirmation: $0.80
Total costs: $6.19
Numbers don't Lie
The total cost for the average seller on eBay for our button auction example (free eBay auction) is $6.19. Run the profit analysis on this eBay auction and you quickly find that the sale carries with it a hefty 40% cost to do business. Remember that there were no calculations recorded for seller time spent listing the auction, packaging supplies or time spent shipping (wrapping package and waiting in line at the post office). Analysis of the button auction reveals that for the average eBay seller to clear a $10 profit, an eBay auction must sell for well above $15 and cannot be heavy (remember shipping costs are weight based).
Selling on eBay
So is selling on eBay worth it? For the average person, selling typical items on eBay as opposed to a garage or yard sale is probably not worth it. Analysis of the obvious and transparent fees demonstrates that there can easily be a hefty 40% headwind facing many average sellers on eBay. The above example illustrates the cost structure that is working against the average seller straight out of the gate. This is not to say that there aren’t items worth selling on eBay, but for the average person with items that will fetch less than $25, there are better and cheaper alternatives to eBay. Once dissected, the latest fee structure and cost reality makes answering the question, "Is selling on eBay worth it?" easy for the average person to answer for themselves.