Setting a Pricing Strategy
The first thing you can do to affect the results of your
auctions is to set an initial bid price that attracts the maximum number of
bidders. It's a tricky process, though. Set your price too high or too low, and
you could end up with disastrous results.
Think about it. If you set your minimum
price too high, you might scare off potential buyers. If you set your minimum
price too low, you'll probably get more interested bidders, but you might end up
selling your item for less than you want or than what it's worth. You have to
determine the starting price that attracts the maximum number of bidders while
ensuring that you eventually cover your product costs and generate the highest
So what's the right starting price? It all depends on your
pricing strategy, which we'll examine next.
Set It Low Enough to Be
To a customer, a lower price is more desirable than a higher
one. Think about it. If you see two similar items and one is priced a dollar
lower than the other, you're going to be attracted to the lower-priced item.
For that reason, I like setting a price that's low enough to
get some interested initial bidding going. That could be as low as 99 cents, or
at the very least competitive with the lowest starting bids on similar
merchandise also for auction on eBay.
On the other hand, you shouldn't set the initial price so low
that it won't eventually rise to the final price you think the item can really
sell for. If you think the final selling price will be $100, setting the initial
bid at a penny might leave too large a gap to be bridged.
So how do you know what the final selling price will be? Well,
you don't for sure, although the research tools discussed in Chapter 2, "Researching Your Business Model," can help
you get a pretty good idea of what to expect.
At the very least, you want to be sure you're not setting the
starting bid higher than the final selling price for similar items. If you do a
search for completed auctions and find that Star
Wars DVDs have been selling between $10 and $12, don't put a $15 starting
price on the similar discs you want to sell. Ignore precedence, and you won't
get any bids. Instead, gauge the previous final selling prices and place your
starting price at about a quarter of that level. (That would be two or three
bucks for our Star Wars example.)
If you want the best of all possible worldsa low initial price
and a high selling floorconsider using a reserve price auction. Learn more about
reserve pricing in Chapter 1, "So You
Want to Start an eBay Business..."
...But Don't Set It So Low That
It's Not Believable
A low initial
price is good, but it's possible to actually set the starting price for an item
too low. That's because if you set too low a
minimum bid, some potential bidders might think that something is wrong with the
item. (It's the old "if it's too good to be true, it probably is.") Although you
might assume that bidding will take the price up into reasonable levels, too low
a starting price can make your item look too cheap or otherwise flawed. If you
start getting a lot of emails asking why you've set the price so low, you should
have set a higher price.
With an ultra-low starting price, you also run the risk of the
final selling price not making it up to the level you'd like to hit. Sometimes
the difference between here and there is just too great for your bidders to
Make Sure You Recover Your
Another factor in setting the starting price is what the item
actually cost you. Now, if you're just selling some junk you found in the attic,
this isn't a big concern. But since you're running a real eBay business and
selling a large volume of items for profit, you don't want to sell too many
items below what you paid for them. Many sellers like to set their starting
price at their item costso if the item cost you $5, you set the minimum bid (or
reserve price) at $5, and see what happens from there.
...But Not So High You Pay Too High
a Listing Fee
Of course (and there's always another "of course"), if you set
a higher starting price, you'll pay a higher insertion fee. Here's where it
helps to know the breaksin eBay's fee schedule, that is. Table 20.1 shows the fee breaks as of August 2006.
Table 20.1. eBay's Insertion Fee Breaks
$500.00 and up
Let's think about
what this means. At the very least, you want to come in just below the fee
break; coming in above the fee break will cost
you an unnecessarily higher fee. For example, you probably want to list at $9.99
(which incurs a 35-cent fee) and not at $10.00 (which incurs a 60-cent fee).
That extra penny could cost you 25 cents!
Obviously, it's in your best interest to minimize any and all
fees you have to pay. If you're almost positive (based on completed auction
activity) that your item will sell in the $20 range no matter what you price it
at, price it as low as is reasonable. And rememberif you set the starting price
for anything under a buck, you pay only a 25-cent listing fee!
Make Sure You Can Live with a
What happens if you set the starting price at $5 and you get
only one bidat $5? Even if you thought the item was worth twice that, you can't
back out now; you have to honor all bids in your auction, even if there's only
one of them. You can't email the bidder and say, "Sorry, I really can't afford
to sell it for this price." If you listed it, you agreed to sell it for any
price at or above your minimum. It's a binding contract. So if the bidding is
low, you better get comfortable with itit's too late to change your mind
Go with a Fixed Price
The closer your eBay business is to a traditional
bricks-and-mortar retail business, the less comfortable you're going to be with
the whole online auction thing. If you sell large quantities of a single SKU,
and if you're used to selling each item for a specific price, consider forgoing
the auction process completely and listing your items on eBay for a fixed price.
Alternately, you can run all your auctions with the Buy It Now option to spur
quicker sales. More and more eBay sellers are using eBay as a fixed-priced
marketplace; you can go strictly fixed price too, if you want.
So What's the Right Price?
As you can see, there's no one set "best" pricing model. Some
sellers set a start price equal to their desired selling price; others like to
start much lower and let the price work its way up over the course of an
auction. Some swear by 99-cent initial pricing; others would never set their
prices that low.
Myself, I typically set the initial item pricing at 2550% of
what I think the final selling price will be. (That's higher than how I used to
set it; as more sales are moving to the fixed-price
model, the gap between listing price and selling price is narrowing.) But you
should come up with your own pricing strategy, based on sales over time. You're
the best judge of your own eBay prices!