Start An eBay or Online Auction Business
Selling on eBay continues to be one of the more popular ways to make money online, though very few people are getting rich with an eBay business alone.
Many Powersellers don’t make enough profit to cover their costs.
However, if Fred Sanford were alive today I’m sure he’d be earning his ripple money by selling quality junk on eBay.
While it’s also true that one man’s junk is another man’s treasure (I have a garage full of treasure to prove this point), your chances of building a profitable business selling “junk” on eBay (or anywhere else, for that matter) are slim to none.
While there is a lot of junk/treasure for sale on eBay, it is typically sold by individuals who have “I break for yardsales!” bumper stickers on their cars and not serious business people.
For serious entrepreneurs, however, selling on eBay can be a good way to start a new business if you are willing to put in the time and energy required to make the business a success.
eBay is also a good option for existing businesses to expand their reach by selling online.
Everyone from small used car dealers to giant companies like Dell Computers have discovered that eBay is an excellent place to hawk their wares simply due to the huge number of folks who visit the eBay site on a daily basis.
Nowhere else on earth will you find such a large pool of potential customers.
Consider these numbers:
• There are nearly 69 million eBay users who spend $59 million every day.
• Most eBay sellers are home-based businesses that sell everything from porcelain dolls to locks of Elvis’ hair to $100,000 Mercedes convertibles to $5 million dollar vacation homes.
• Every minute of every day more than 150 new items are listed for sale, more than 500 bids are placed, and seven new people register to shop on eBay.
• At any given moment, eBay is conducting some 12 million auctions, divided into about 18,000 different categories.
• About two million new items are offered for sale every day, and 62 million registered users scour the site to find them.
• One company is grossing more than $5 million dollars a year selling brand new pool tables on eBay. Their eBay store is so profitable that they have closed their retail location and now sell solely online.
That’s right, $5 million dollars from the sale of pool tables: proof that you can sell just about anything on eBay if you know how to do it.
Be aware, however, that eBay is no magic bullet. As any eBay Power Seller will tell you, building a profitable eBay business takes hard work and requires long hours, and often the financial rewards do not make it worth the effort spent.
When it comes down to the mechanics of it all, running an eBay business is no different than running a brick and mortar business.
You still have the same considerations regarding product selection, inventory purchasing, product pricing, inventory management, order processing, fulfillment, customer service, etc.
You must also consider the legal and accounting aspects of the business. Just because you’re selling online does not mean that Uncle Sam won’t expect his piece of the pie.
Revenue generated by an eBay business is just as reportable and taxable as revenue generated from a brick and mortar store.
And if you sell to customers within your state you may also be responsible for collecting city, county or state sales tax. This is discussed in detail later in this section.
One of the biggest obstacles to building a successful eBay business may be the stiffness of the competition.
Many sellers sell identical items and the price wars often get ugly, but that’s to be expected in a free market place, which is exactly what eBay is.
You may be the only store in town that’s selling that one of a kind, custom made just for you, broke the mold after they made it, Dale Earnhart Memorial Bobble Head Action Figure (Earnhart fans would string me up if I called it a Doll), but do a quick search on eBay and you’ll probably find a hundred others just like it.
So, can you build a profitable business selling on eBay? Certainly, thousands of people have done it and so can you.
Here are a few tips to help get you started.
Sell Quality Products
Don’t sell junk! Leave the knick-knacks and fake leather jackets to the less informed. You should offer only quality products at a fair price.
Research The Competition
Once you have your product in mind, don’t invest a dime on inventory until you have spent some time on eBay to see what the competition is doing. If you want to sell motorcycle helmets, for example, you should look at current auctions to see how many others are selling similar helmets and what prices they are charging.
This step is vital since you may discover that you can’t compete with current sellers on price or there is simply no market for what you have to offer.
Many people believe that the more items they have for sale on eBay the better. They will invest thousands in inventory and spent hundreds on listing fees (yes, eBay charges you to list items for sale and collects a final fee if the item sells). Those are the folks that usually end up with ten thousand Ginsu knives forever in their garage.
Test, Test, Test
A fair portion of eBay auctions result in no sales, so it’s best to test the waters before jumping in with both feet.
List a few items and see how they sell. If an item doesn’t sell, list it at least twice more. Some items might not sell the first time, but may the second or third, then sell steadily from then on.
If an item gets no bids the first time, consider adjusting your price or your terms. If an item sells well, keep it in stock and then experiment with another item.
Do Your Homework
eBay is too broad a subject to be covered fully here, but there are a multitude of books available that can help you start an eBay business. In fact, I bet you’ll find most of them for sale at this very moment at eBay.
Paying Taxes On eBay Income
With so many people selling on eBay these days this is a question I get all the time. To many eBay sellers the thought of running an actual business is about as appealing as getting negative feedback, so they go out of their way to convince themselves that selling on eBay is really “just a hobby” and therefore, should not be susceptible to income tax laws.
While you might think selling on eBay is just a hobby and the extra money you’re making is not reportable as income, depending on the circumstances, the IRS just might disagree with you.
The IRS rules are clear: you must pay taxes on all personal and business income and that includes money you make selling on eBay.
In its most basic sense, the IRS rules mean that if you buy a vase at a garage sale for $10 and sell it on eBay (or elsewhere) for $20 you made a $10 profit and therefore must report it as income and pay Uncle Sam his fair share.
In reality, if you are a casual seller who only sells a few items on eBay every now and then it’s doubtful the IRS is going to lose much sleep over the few bucks you make.
However, if you consistently sell on eBay the IRS may deem your activities to be business oriented and you will be required to file a Schedule C and claim the income.
The IRS uses a number of factors to determine if a hobby is really a business. These factors include:
• Do you carry on the activity in a business-like manner? If you conduct your eBay activities in a business-like manner, i.e. you keep business records, track profit and loss, keep a separate checking account, etc. then whether you think so or not, your hobby is really a business.
• Do you spend considerable time working on your hobby? If you put considerable time and effort into your eBay sales, the IRS may contend that you do so for profit and not fun. It seems the folks at the IRS don’t believe in doing things strictly for pleasure. My guess is, neither do you. If you weren’t making money selling on eBay I doubt you’d bother getting up at 4 a.m. to hit all those yardsales.
Then again, maybe you would… :o)
• Do you depend on income from your eBay activities for your livelihood?
If so, it’s a business, not a hobby. There are a number of other factors the IRS uses to determine if a hobby is really a business, but that covers the basics.
You can learn more at the IRS website at www.irs.gov.
What’s eBay’s take on all this?
eBay is vehemently opposed to anything tax related (especially the forced collection of sales tax, which is a whole ‘nother issue). It’s understandable that eBay is not a fan of the IRS since trying to enforce tax rules on buyers and sellers would undoubtedly be detrimental to the way eBay does business.
eBay does not does not issue 1099 tax forms to sellers, nor does it report seller’s sales figures to the IRS. eBay considers itself a facilitator, i.e. they provide a marketplace in which buyers and sellers come together to do business.
However, since eBay is not directly involved in the transactions that take place between buyers and sellers, it would be impossible for eBay to report sales figures.
Furthermore, eBay does not track if a seller actually gets paid by the buyer, so they have no idea how much money actually changes hands, making it impossible for eBay to issue accurate 1099s to sellers.
On the bright side, if you do sell on eBay as a business you can deduct a number of business expenses, including the cost of inventory, listing fees, shipping, envelopes, packing materials, etc.
You might also be able to deduct things like the purchase of a computer for business use, office space (even if it’s a home office), office supplies, and more.
I’m not accountant (nor do I play one on TV), so please do not take any of this as tax advice or legal opinion. Talk to your accountant if there’s any doubt as to whether you should or should not be paying taxes on your eBay earnings.