What Type of Business Do You Want to Run?

The first question to ask is the most important: What type of business do you want to run? Or, put more pointedly, what types of merchandise do you intend to sell on eBay?

You see, you can't just sell "stuff" on eBay. That's not a real business; that's an online garage sale. No, you have to determine what kind of "stuff" you want to sell. And you probably want to specialize.

How Much Money Do You Want to Make?

Knowing what you want to sell is one thing. Knowing how much money you want to make is another. And, unfortunately, sometimes they don't match up.

Start from the top down. For your business to be successful, you have to generate an income on which you can comfortably liveunless, of course, you're looking for your eBay business to supplement an existing income. In any case, you need to set a monetary goal that you want to achieve. This number will determine how many items you need to sell.

What you don't want to do is set up your business first and then ask how much money you'll make on it. Successful businesses start out with a specific goal in mind and then work toward that goal. Unsuccessful businesses open their doors (figuratively speaking, of course) without knowing where they'll end upand, more often than not, end up going pretty much nowhere at all.

Let's work through an example. You've talked it over with your family and decided that you would be extremely happy if you could quit your current job and generate the same income from your eBay business. You currently earn $30,000 a year, so this becomes the financial goal of your eBay business.

That $30,000 a year translates into $600 a week, on average. (Figure on 50 working weeks a year, giving yourself 2 weeks of vacation; also keep in mind that certain weeksaround the Christmas holiday, especiallywill generate more sales than others, which is why that $600/week is an average.) Now you have to determine how you're going to hit that $600/week target.

We'll also assume that you've already decided what types of items you want to sell. For the purposes of this example, let's say that you're selling gift baskets. Based on your research (primarily by looking at sales of similar items on eBay), you've established that you can sell these gift baskets for $20 each, on average. So you do some quick math and determine that you need to sell 30 of these $20 gift baskets every week to reach your $600/week goal. (That's $600 divided by $20.)

Stop right there! There's something wrong with this calculation. Can you figure out what it is?

Here's the problem: This simple calculation fails to take into account any of your expenses! That $20 per item represents your gross revenue, not your net profit. So we have to go back and figure out the costs involved with the sale of each item.

The first cost you have to take into account is the actual cost of the merchandise. Let's say that you pay $5 for each gift basket. Subtract that $5 product cost from your $20 selling price, and you have a $15 profit for every item you sell.

Altogether, these nonproduct costs can add up to 1015% of your total revenues. Let's use the top figure15%and subtract $3 for each $20 sale.

Now let's do the math. Take your $20 selling price, subtract your $5 product cost and $3 for eBay-related fees, and you have a net profit of $12. To generate $600 a week in profit, you have to sell 50 gift baskets. (That's $600 divided by $12.)

That's not the end of the math, however. Based on additional research, you determine that only about half of the eBay auctions in this category end in a sale. So to sell those 50 items, you have to launch 100 auctions every week, half of which will end with no bidders.

That's a lot of work.

Now you need to start thinking about the options available to you. What if you could find a better-quality gift basket that you could sell for $40 instead of $20? Assuming you could keep the rest of your costs in line, that would cut in half the number of auctions you have to run every week. Or what if you decided you could live on $20,000 a year instead of $30,000? That would reduce your financial nut by a third.

You see where we're going with this. By working through these types of details ahead of time, you can fine-tune the amount of money you expect to make and the amount of effort you have to expend. Want to make more money? Then find a higher-priced (or lower-cost) item to sell, or plan on listing a larger quantity of items every week. It's all relatedplan where you want to go; then you can figure out how to get there.

How Much Time Can Youand Do You Want toDevote to Your Business?

Now you're at a point to ask if all this work seems reasonable. Taking our previous example, can you physically manage 100 item listings a week? Can you pack and ship 50 items a week? And, more importantly, can you realistically sell 50 items a week? Are there enough potential customers to support that sort of sales volume?

Of course, if you're selling more expensive items (or, more precisely, items that generate a higher dollar profit), there's less work involved. Let's say you're an artist and think you can generate $200 in profit for each painting you sell (at an average selling price of $250 or so). At these prices, you need to sell only three items a week to hit your $30,000/year target. (That's $600 a week required profit divided by $200 profit per item.) And, since each piece of artwork is unique, you might have a higher close rate than you would on a lower-priced commodity itemso you might have to list only four items a week and ship three, which won't take up too much of your time.

On the other hand, if you're selling less expensive items, you'll have to do a lot more sales volume to hit your desired income level. For example, if you're selling $5 computer cables that generate a $3 net profit, you'll have to sell 200 cables per week to make your nut. (That's $600 a week required profit divided by $3 profit per item.) And that's a lot of items to sell.

The point is that you have to realistically estimate the amount of work involved to run your eBay business, and then determine if you have that kind of timeand if it's worth the effort to you. If you have only a few hours per week to spend, you might not be cut out to be a high-volume seller. (Unless, of course, you're selling very high-priced/high-profit items.) If you're willing to put in the hours, however, higher income can result.