The Economics Of Low-Value Lots On Ebay

The Economics of Low-Value Lots on ebay

A number of times, the question has arisen of selling (what are probably) low-value items on ebay.

[recent_example] https://goscf.com/t/39839 [/recent_example]

Let's say an item yields Two American Dollars on ebay, before shipping & taxes.

How does that break-down into initial listing fees, completed sale fees, PayPal fees, etc.

Yes, I know I could rut about & find all this out for myself, but I can't be the only curious party, and some of you know this pretty much off the top of your head(s).

TIA, Cheers,

/s/ ikeyPikey

My experience on ebay is:

1) Final value fee is 6% (this is for all stamp final values)
2) PayPal fees are somewhere between 2.5% - 5%, depending upon final value (higher percent for lower final values), and also depending upon seller PayPal subscription
3) Lot listing fees for auctions depend upon seller subscription levels (anywhere between Free to 20c)

So, a worst-case auction low lot cost for, say, a $2 final value may be: 12c + 10c + 20c = 42c (not including shipping/tax/etc.)

PayPal has a transactional fee of 30c, so it would be 2.9% + $0.30 on the payment. That can make the cost of selling inexpensive lots prohibitive (you lose money on something that sells for $0.31.) Another angle to consider is that not offering free shipping generally relegates your lot to page 2,384 of the search results (so yet another cost to add -- the cost of shipping & packaging -- assuming you want to get any bids.)

On a related note, it will be interesting to see what changes take place once John D. is formally removed as CEO of ebay. Talk about a vote of no confidence... Hopefully some of the more ridiculous policies and pricing philosophies will change for the better.

Ouch, you're right Ken, I forgot the additional 30c that PayPal tacks on - pretty key for small final price lots!

In the same way a stamp catalog lists a minimum value for a stamp dealer to handle a stamp, ebay calculates the cost of a transaction for them. Every transaction costs them money to support; salaries, logistics, and tangible costs such as buildings, hardware, software, electricity, etc. are all included in this number.

If we were to go out and develop a business plan to open a new online auction site to compete with an ebay this number would certainly be an important thing to know. Once in business, we would use this metric to understand how efficiently we were operating at any given time. And without doubt we would set our pricing based upon this number.
Don

There are 2 types of Paypal accounts. A regular one and a Micropayments account. For any item selling for up to $11.5 it makes more sense to use a Micropayments account. The fees with this type of account are .05 per transaction plus 5 percent of the sale. So for a $10 transaction you are looking at a Paypal charge of 55 cents. On a regular or Macropayments account the Paypal fee is 59 cents.

For a $5 transaction the comparison is 30 cents vs 45 cents. So at the $5 transaction level you are paying Paypal 6 percent with Micropayments and 9 percent with a regular account. Note that you first need a Paypal business account which can then be set up as a Micropayments account. Many sellers have 2 different Paypal accounts and then set up their ebay listings with the appropriate Paypal address depending on the expected realization.

Bob

I was not aware of the micropayment option. Most of my transactions would fall in the range where it would be advantageous. Regarding a business account, do you actually need to be a registered business to upgrade to that type of account? Or could one just use their own name or make one up on the spot?

You can also convert a Premier account to Micropayments. If you have only 1 Paypal account, you can only have 1 type of fee schedule regular or Micropayments.

Bob

This begs the question: register with who(m)?

Corporations need to incorporate, of course.

Sole proprietors Doing Business As (eg Joe's Motors) will, in general, need to file a DBA declaration locally and/or publish a notice in the newspaper. Kinda Old School, eh?

If you are obligated to collect sales tax, and do not want to pay sales tax on things you buy for resale (from people who are obligated to collect sales tax from you), you will need a state-level Resale Certificate.

If you are paying wages subject to Social Security, and in a few other circumstances, you will need a Federal Tax ID.

I don't see eBait asking for any of these things, but that's me.

THANK YOU to everyone who contributed to this thread.

Cheers,

/s/ ikeyPikey

I believe that labor and cost of goods are more significant than ebay or PayPal fees. While it is possible to sell relatively inexpensive stamps on ebay at a high mark up, the cost of labor is still prohibitive. If selling duplicates in a stamp collection, the cost of labor may not matter, but there is still the opportunity cost. Most stamp dealers have to make choices and try to work on stamps likely to bring in the most revenue for the least amount of time spent. Even if the mark up on more expensive stamps is less, cash flow is important because quickly returning cash to the business makes it possible to purchase new stamps or collections.

When ebay instituted the tracked shipping requirement, I stopped listing fixed price items at under fifteen dollars on ebay. I have a few less expensive items listed on bidStart, because first class mail can be used instead of the more expensive first class package. The ebay shipping requirement has divided sellers into two groups. Top Rated sellers have higher shipping costs and a 20 percent final value fee discount which tilts the playing field sharply in favor of more expensive stamps. Non-top rated sellers can mail items by first class mail but do not receive the discount. Unfortunately, the two strategies cannot be mixed in one account. While I maintain a second selling account, I rarely use it. Auction strategies are a bit different, depending on the market. I start most stamps at $9.99 or else place them in a group lot. (I start railroad color slides at six dollars because bidding is more active than for stamps and many buyers bid on more than one.)

My belief is that fixed stamps selling for less than twenty five to fifty dollars are not really profitable, but I offer them to help attract new buyers. When I dropped less expensive stamps, sales volume dropped in half but revenue declined by maybe less than ten percent. For any stamp dealer working on more expensive stamps has to be the priority. Getting rid of less expensive stamps in bulk or lots is also important. At some point, available storage space will fill up or the floor will collapse, so a balance between selling the best stamps and getting rid of the rest must be found.

Clark

All very true but for me it is my buying cost that means the most to me as a low cost item seller.

"Many sellers have 2 different Paypal accounts and then set up their ebay listings with the appropriate Paypal address depending on the expected realization."

So you need two different email addresses to do this? Is setting up 2 different paypal accounts something that is easy to do?

"So you need two different email addresses to do this? Is setting up 2 different paypal accounts something that is easy to do?"

You need 2 different email addresses... 1 for each Paypal account.

Easy? Depends on what your definition of easy is. I was able to figure it out by reading through the results of a few Google searches. Paypal certainly does not lay it on a plate for you. If they really wanted to be accomodative, then they would just have a graduated fee structure that recognized that taking 12% off the top of a low value sale is akin to usury.

Bob

They actually allow up to 8 different ebay accounts linked to a single PayPal account. As mentioned you need separate email addresses but once you have everything in place you simply login to your PayPal account, click on the "Profile" tab and "Add" the email address to your PayPal account.
Don

Don,

Correct. If you have 2 Paypal accounts, 1 Micropayments and 1 Regular/Macropayments, you need 2 email addresses. From the ebay side it is different. The bottom line is that you can use 2 or more Paypal addresses with 1 ebay account.

This does create some problems. The real complication comes in if a single auction(if set up as a micropayments auction) realizes more than you anticipated, you will end up paying the micropayments rate. Or conversely if you set up an auction with an optimistic outcome(using your macropayments account) and it bombs.

Even more complicated is if you sell multiple micropayment auctions that add up to a "macropayments" amount. Then you have to try and cut the posse off at the pass and send a new invoice(note that ebay allows you to change Paypal destination on multiple purchases) with your macropayments invoice. This can be handled manually... but it requires that type of intervention. Again a complication that would not be necessary if Paypal was not trying to gouge low price transactions with their fees.

Bob