eBay & Amazon - The shipping of physical things.

Do people make money on eBay and amazon.com? Yes. Can you? No, probably not.

"Why is that, Zack?" you ask. Well, I'm glad you asked. It is because of the nature of physical things. Yes, you can sell non-physical items on eBay, but eBay's pricing structure makes this a viable option only for certain niche products, which we'll discuss in other posts. So let's talk about the selling of physical items. We'll talk about eBay first.

Your basic problem is that eBay doesn't want you there. eBay wants to become the bargain basement version of Amazon. To do that, they need large wholesalers as sellers, not small (i.e., less than 7 figure) businesspeople like you and I. To discourage us, eBay has been raising fees, capping shipping and handling costs and generally changing the rules in favor of the buyer (buyers can no longer receive negative reputation, which has already raised the rate of buyer fraud). You can check out the current fees here:

• http://www.powersellersunite.com/ebayfeechart.php

To summarize, eBay (and PayPal, the now mandatory payment processor) take at least 12% of any sale under $100 and not less than 7% of any sale above $100. If you item sells for under $10, then the figure is more like 20%, and we haven't even considered shipping.

Right here is the problem. You are competing with brick-and-mortar retail stores. eBay is asking for the full retail margin and then you have to ship the product. You're not going to be able to compete on volume, because as soon as volume builds for some product, Amazon will stock it, and you may as well go fish for a new niche. So you're going to have to aim for

1. a product with modest sales volume and to which you have local access for true wholesale rates (i.e., 20% of retail), or
2. clones of trendy items shipped from China.

Both of these scenarios are opportunities to make money. However, both require significant effort. This is not a bad thing. There should be some barrier to entry to your niche to deter newcomers.

The first requires effort because you need to dress like a salesman, go knocking on factory doors, smile, shake hands and smooth talk a good deal. However, once established, you should be able to turn this into a steady income stream. There's also very little risk. You're not going to keep 10,000 cubic feet of inventory on hand. Just enough to make sure that shipping times are reasonable. We'll talk about drop shipping in a moment.

The second requires effort because you have to establish relations with a manufacturer in China, and you have to deal with customs. Chinese manufacturers are actually surprisingly reliable, although you'll need to be careful in the current economic climate, but customs is capricious at best. While average factory-floor-to-customer times are 14 days, customs can hold shipments for months without explanation or recourse. A 14 day delivery time is already pushing things these days, so any custom's trouble will kill the deal. This is lethal on eBay, where negative reviews wipe out your sales and trigger selling bans from eBay itself. So to keep your eBay store open, you need to have product in your warehouse before you list it on eBay. So you better not have misjudged how trendy an item is, or you'll be taking a loss as you desperately dump the item at any price.

So drop shipping from China is possible ... just risky. Let's back up a little. What exactly is drop shipping? That's where you take the order, send it to the factory or a first tier wholesaler (the drop shipper), the customer pays you, you pay (hopefully less) to the drop shipper, and the drop shipper ships the item to the customer. Pros: you never see the item or packing tape, just the profit margin. Cons: the customer complains to you when the shipment is late, or if they want a refund.

More cons: if you aren't dealing direct with the manufacturer, your drop shipper can go out of stock at moment, killing your eBay sale. If you aren't dealing direct with the manufacturer, your drop shipper will likely compete against you on eBay. Why wouldn't they? Even if they aren't competing with you on eBay, the shipment to your customer will likely include a catalog of the products your drop shipper offers, lowering the probability of repeat sales. If you're not dealing direct with the manufacturer, your profit margin, particularly after shipping and handling costs, will likely be non-existent.

To be plain: the cons generally outweigh the pros, unless you're lucky enough to find a manufacturer or primary supplier who will blind drop ship for you. Blind drop shippers put your name on the shipment and promise not to put a catalog in the box with the product. It looks like you are the manufacturer. Deals like this are golden.

I haven't even mentioned that, as a new seller (less than 100 sales, less than 6 months old) PayPal will automatically hold your payments for 21 days, and may suspend withdrawals from your account for 90-180 days if you are successful at selling your items. These are some pretty severe financial risks to take. You have to pay up front for the items, and you may not see any income for 6 months. To be fair, I've probably been hearing from squeaky wheels, some of whom are not above questionable activities, but these 3 and 6 month suspensions seem to be a very real risk. PayPal will eventually pay however, which is more than can be said for some of the alternate payment processors.

So just a morass of issues if you are going to try and sell more than bric-a-brac. You really just have to plan to make no money for the first 6 months, with an eye to preparing for profitable opportunities after that. Quite an investment and, to be honest, not one that is going to be yielding great returns without high effort and a good dose of luck.

Amazon is supposed to be a little better, when they graciously allow you to compete with them, but their payments have nice long delays on them as well. Again though, they do pay eventually. Many sellers have talked about success with craigslist and good old fashioned print ads, however, these options generally limit you to a local rather than national market. This may actually be beneficial if local competition isn't too fierce.

I'm not excited by physical products as a means of wealth generation. I'll likely establish an eBay and Amazon presence just in case I can take advantage of these marketplaces in the future, but right now the prospects seem too thin to make this area a focus.

For the next few posts, I'll review the blogs and links I've been adding to the right sidebar. Some of them are quite worthwhile. Others have interesting features you might not notice at first.