Thursday, May 22, 2008

eBay is Like Crack to Sellers!

My eBay "habit" began in 1999 and for the first 6 years I was in heaven, but in Dec. of 2005, I had to make a decision. Was I going to try and restructure my business, for the 2nd time in as many years; after all it was still generating nearly $350K a month in cash (no profit mind you). Or, would I quit cold turkey and deal with the inevitable crash and burn when the crack (cashflow) stopped.

I actually had three options:
  • I could sell my business for whatever I could get. It made sense to put my sales on top of a lower cost structure and my brand was one of the best on eBay. I actually had a buyer, but the deal fell through at the last moment.
  • I could restructure and try it one more time, hoping I could stop the bleeding and grow my website. The problem with this, was I was upside down in the business and didn't see any way I could turn it around in less than 2 years. I looked down the road 2 years and saw no future as a media seller, so I asked myself, why would I work that hard and for free just to be in the same place 2 years later - but that crack (cash flow) was real tempting.
  • I could shutdown and try my hardest to keep the damage to a minimum. Had I actually seen a future selling "new" media items online, I would certainly not have shut down. 

Well, if you know my story at all, you know what decision I made.

Now 2 1/2 years later I'm seeing fellow sellers in the same predicament as I was. Many of them have restructured their business once already and tried to ween themselves from the "crack pipe" called eBay. You can't just turn the cash flow off without repercussions, restructuring sucks and it effects not only you and your family, but your employees and vendors. The eBay high is no longer there but you just can't turn it off.

Many have tried to ween themselves off and been successful; there are so many more options available today then when I shut down. Many sellers are still smoking the crack, thinking that somehow this is all going to get better, denial seems to be rampant. They say I am not an addict.

Many are still making it work but can't grow and they are fine with that. After all the crack (cash flow) is for recreational use only.

Over the past 3 years, I'm guessing, there have been tens of thousands of "come to Jesus" moments, when sellers had to address their eBay addiction and make a decision. Maybe what is needed is an intervention to shake them up to the realization.

I made my decision in Dec of 2005 and though it was the most painful decision I've ever made in my life, it was the best decision I ever made.

Online selling is not the problem, but reliance on a marketplace is. IMO, sellers need to take stock of their eBay business, admit they are addicted and begin a program to get of the "crack".

Maybe "Cold Turkey" is not the way to go, but sellers need to take a long hard look at their business and see if they can break free of the eBay addiction. Maybe what's needed is ESA or "eBay Sellers Anonymous" where they can stand up with other eBay addicts and say "I am an eBay addict", I need help.

Just my 12%

17 comments:

Cliff said...

A more positive spin would be to call it a passion instead of an addiction.

I admit, there's a fine line.

Randy Smythe said...

Cliff, I just didn't feel positive this morning.

I just think many eBay sellers, not all, are in denial.

Scott Pooler said...

Randy,

It is an addiction and it happens on both sides of the fence. Buyers have their addiction stories too!

Great Post My Friend! Glad to see you have found your peace with it all. I can relate and I know you are better off now than ever...

Keep up the great blogging!

Scott

Henrietta said...

Absolutely, like the man said, making money is easy, making a profit not so easy. Hopefully this will open some eyes.

Anonymous said...

Randy,

I get your meaning. The "crack" isn't using ebay per se; it is making your living year after year, merely on the cash flow from an ebay business.

The denial is the hope that somehow things will turn around and that you will actually show a real profit (i.e.- money that is yours to KEEP, not just cash flow. An actual profit).

Loads of sellers out there are in this boat.

Where does any product catagory have to go once the pricing bottom has been reached? Selling below anybody's best actual wholesale cost with shipping/handling as the only profit place is a business model that isn't built to last. Not for a 3rd party ecommerce seller. Some of the veteran big guys, like eforcity, will last for awhile, but it's a business model best left for companies with the biggest muscle from the outset (Southwest Airlines, Costco, Sams Club/Wal-Mart)....this, unfortunately, is why ebay is doing deals with big guys like Buy.com. They aren't going to offer those kind of deals to any longtime sellers who've already been paying ebay's full rate card for years. No way.

I saw the writing on the wall for my little ebay venture in 2005 and pulled back. Randy, I think you made the right move. Better to keep moving forward and use your experience that way.

Stephen

Rich said...

A well-sustained metaphor Randy.

Anonymous said...

So you had sales of 350k a month and didn't think maybe to raise prices? Just a little?

I think you people overvalue how much people care about price. All of you. Newsflash: you don't need to be the lowest price to make the sale on eBay, Amazon, or anywhere else. This is baloney.

Just last week I raised prices (not shipping prices) across the board by a dollar. (Because of the new postal increases and thinning profit margins). You want to know what happened? Our sales went UP!

I think this is because people perceived our items as having a higher value than the lower-priced competitors. 30 years of Wal-Mart have taught us that just because something is cheaper doesn't mean it's better.

All you people playing the price game need to wake up and realize that, before your profit margins are so low you go out of business.

Anonymous said...

Well...the new seller dashboard will wean a lot of us off ebay. I have a 10 year record of 100 percent feedbacks (400 in the last 12 months) and 5.0 DSR's across the board. Now out comes the seller dashboard and I discover ebay has my DSR's at 4.0 down to 4.6! There's no winning here. I can't even get views on my listings. So, hands down addicted or not - I can't afford to simply feed ebay and get nothing in return. Poof!

LS said...

The new default search setting has pretty much killed my sales. I keep getting low shipping cost percentages- 4.5 right now, which makes me almost last. the problem is, my shipping costs are so low that much of the time they aren't even covering my postage costs.

I've always hated the expanded feedback and now they've made it so much more important than it should be. I have over 5K positives with a 100 percent positive rating, but I have to ranked last? That's the sign of a broken system.

Anonymous said...

To this anonymous poster:

"I think you people overvalue how much people care about price"

I sell new wholesale DVDs. At any given time, 200 or more other sellers all have the exact same titles up. 90% or more of the time, the lowest priced seller will get the sale. There is no perceved value brand proposition with these kind of products.

It was that way in 2004 and it still is in 2008. Ask Scot Wingo at Channel Advisor which of their many ebay clients get the sales; it is those with the lowest price.

Not every commodity item will fall prey to this but most everything in the new wholesale media catagory will. I'm sure higher pricing would actually work with say, toner ink cart replacements-hey, if it costs more, it must be better, right?

When you have a full-time business in these overcrowded catagories to run, price becomes the only real way to make meaningful sales happen.

This is the way it is at ebay, it is often not the same at Amazon. But that's a different cost structure and a different sales channel altogether...
Stephen

Anonymous said...

Stephen,

I understand where you and other media sellers are coming from. My answers is two fold:

You mentioned that there is no perceived brand proposition with media. While that may be true, there IS perceived brand proposition with brands, brands like your store. You can always get more money for your products if do it creatively. I don't know your market so I can't say a whole lot about it, but what I do know is that very, very few companies can survive playing the price game forever. (Why would you even want to?) From my experience, playing the price game in an oversaturated market gets you:

- A dead-end circle where company A lowers prices, so company B follows, until nobody is making any money at all. (Randy was this what happened to you?)

- The "bottom-feeder" bargain-hunting customers (dead beats who complain and email more often, driving your customer service resources to the brink)

If everyone is playing the price game in media, then be bold and raise your prices by a dollar. Just try it. See what happens when you raise prices by just one dollar. I think you will be surprised.

Anonymous said...

Collectibles (REAL ones), Business& Industrial surplus were completely immune to this syndrome. And both are traditionally purchased by better buyers, with bigger budgets.

I'd still be bopping along today if keyword seach ending soonest, rather than Best Match, were still in place.

It doesn't matter... now we're ALL out in the street.

Anonymous said...

Randy, I am in the situation you describe. Selling a few hundred thousand a month on eBay and making little (if any) profits.

How do I know when it's right to shutdown and move on? Can you give some concrete examples of warning signs that would cause you to shutdown?

If you were, say, $100k in dept and making $10k a month in profits on eBay sales, would you stay or shutdown?

What about only $5k a month in profits?

If eBay NARU's my account for 'Poor Seller Performance', VERO's, or any other reason, my cash flow is gone and my business may crash.

Knowing that you've been through this before... what is you guidance?

-Addicted

Randy Smythe said...

Addicted,

It isn't a simple question and probably not sometning that should be shared on a blog.

I would be more than happy to speak with you about it via e-mail.

rksmythe at yahoo

Good Luck!

Randy Smythe said...

Anonymous,

A number of things were responsible for my business failing, pricing was certainly one of them, mostly because I didn't trust my brand enough to set me apart.

I changed my model to deal with the competition, because I wasn't growing, when I probably should have maintained my model and cut back my overhead and looked for growth somewhere else.

My biggest mistake was relying on one marketplace and starting my website a year too late.

Randy Smythe said...

Stephen,

Yeah, eBay really is not the "crack" they are the "crack pipe" or the "pusher"

Cashflow is the "crack".

The first thing eBay does "as the pusher" is give every seller 30 day terms on their fees, so there is always plenty of cash in your account.

so, then when it comes time to pay the eBay bill, the seller ends up paying with a credit card for an additional 30 days, but many are not using an accounting software or a bookeeper so they don't account for the eBay payment until it is actually paid to the credit Card company.

There is plenty of cash in the Paypal account and the seller only concerns themselves with the eBay fees when they have to pay the credit card bill and there is always plenty of money in the account to do that.

All the while, they paid month #1 eBay fees which are the lowest because they were just starting up, but they still owe month #2 and they are now listing Month #3's listings. Getting braver all along to list more.

Then you add terms from vendors where you get paid immediately and pay your vendor in 30 days and the seller has the feeling that their business is thriving becasue they have all this cash in their business.

The way I did it was to consiously use terms with both eBay and my vendors to speed up the growth of my business. This plan always worked if I grew sales each month.

My plan was to grow to $10 million in sales with 30 days worth of debt and then sell it to a bigger company and they would assume the debt.

Nice plan in theory, then competition moved in and stopped my growth and I had to come up with another plan.

Steve Antony Williams said...

Once you finally get away from eBay, it suddenly dawns on you just what a crappy place is to sell .... You need to stop making excuses for eBay, step back and take an impartial objective look. Like I say you suddenly see just how bad a venue it is.