Determining Your Business Model

Determining Your Business Model

You canand probably shouldspend a lot of time researching a variety of products and product categories. The more information you have, the smarter you'll be about what does and doesn't sell well in the eBay marketplace.

The whole point of doing this research, however, is to help you make a decision regarding what type of merchandise you want to sell in your eBay business. Generating loads of numbers is fine, but it's what you do with these numbers that really matters.

When it comes to determining the model for your potential eBay business, here are some points to consider:

• Is this a big product category? You don't want to peg your business hopes on a category that's prohibitively small. How many auctions are listed every week, on average? Is there enough business in this category to generate an acceptable income? (I like to look for categories that have at least 50 listings a week, on averageand more if they're low-priced categories.)

• Is this a hot product category? Size isn't everything; you also need to look at the percent of auctions that close successfully. A category with a low close rate is "soft"that is, customer demand is low, compared to product supply. A category with a high close rate is much hotter, which means that a larger percentage of customers want the products that other users are selling. Hotter is better. (I like to look for a close rate of at least 60%and the higher, the better.)

• How much revenue can you generate? Is this a high-priced or a low-priced category? The amount of money you make depends not only on the number of auctions you can run (and close successfully), but also on the final selling price of those items. Taking our earlier example of golf jackets versus digital cameras, you have to sell a lot more $20 items than you do $160 items to generate the same amount of revenuealthough selling that $160 item may be more difficult than selling a corresponding $20 item. Which pricing strategy do you prefer? When you're just starting out, choosing a higher-priced item might make more senseyou'll have fewer items to list, manage, pack, and ship every week, although you also have to take into account how much profit you make on each of the items. If you make the same $1 profit on each item, you're better off selling the lower-priced one!

• Is the category growingor shrinking? Here's a good reason to track a category over an extended period of time. There's an ebb and flow to the various product categories on eBay. Some categories get hotter, some get colder, and some are fairly constant in their sales. Track a category's sales over time and you can get a sense of whether that category is on the upswing or the downturn. Obviously, getting in on a rising sales curve is better than jumping into a once-trendy category that's nearing the end of its product life cycle.

When you're deciding on a business model, you need to take all these factors into account. But, as you'll soon learn, there is no one right model that suits everyone. Some sellers prefer a constant flow of low-priced products. Others prefer selling the occasional high-priced item. Some prefer selling the same type of item week-in and week-out; others prefer a bit more variety and being able to jump on and off product trends over time. So all this research is just a tool in helping you decide what type of business you want to run. Do your homework to find the model that you're most comfortable with.