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Step One: Create a Business Plan

This chapter is from the book

In this chapter

  • Thinking it through—before you start

  • Why you need a business plan

  • How to create a business plan

  • The components of a winning business plan

  • Writing the plan

Before you can start your eBay business, you have to determine just what type of business you want to start. Yes, you know that's it's going to involve selling (lots of) stuff on eBay, but what kind of stuff are you going to sell? And where are you going to get that stuff? And just how are you going to manage the selling and shipping of all that stuff? And, if everything goes well, how much money do you expect to make—versus how much money you have to spend?

When—and only when—you can answer all these questions, then you're ready to start building your new business. Until then, you're just fooling around. Not that there's anything wrong with fooling around, of course—that describes millions of typical eBay sellers, most of whom do just enough work to make a little money. But if you want to make a lot of money—if you want to run a true business on eBay—then you have to do your homework and figure out where you want to go and how you're going to get there.

This act of figuring out what kind of business you'll be running is best done by preparing a business plan. If that sounds terribly formal and complicated, don't stress out—it doesn't have to be. The plan for your business can be as simple as some bullet points written out in longhand, or as sophisticated as a professional-looking desktop-published document. The key thing is to set down on paper the details about the business you want to create, and then follow the steps in your plan to build that business.

Thinking It Through—Before You Start

The key to planning your eBay business is to sit down and give it some serious thought. You don't want to rush into this new endeavor without thinking through all the details. While it is possible to stumble into eBay profitability, the most successful sellers know what they want to do and how they want to do it. In other words, they have a plan for success.

The easiest way to begin this planning process is to ask yourself a series of questions. When you can comfortably answer these questions, you'll have the framework of your business plan.

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?

For some sellers, the answer to this question is easy—especially if you already have a product. For example, if you're an artist, your product is your artwork. If you make hand-sewn quilts, your product is your quilts. Your business is based on your product; your plan is to use eBay to sell your artwork or your quilts. Everything you do from this point forward is designed to accomplish that goal.

If you don't already have a product to sell, answering this question will take some serious thought—and not a little work. 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.

Maybe you're a comic book collector; you probably have a large collection of your own, as well as continuing access to new items from other collectors. Your plan, then, will be to create an eBay business based on the selling of collectible comic books. Or perhaps you have a source for handmade gift baskets. That's your business, right there—selling gift baskets on eBay.

Or maybe you base your business on the way you acquire merchandise, rather than a specific category of merchandise. Perhaps you specialize in acquiring items at estate sales. Your eBay business would be the selling of items acquired at estate sales. Or maybe you acquire large lots of liquidated merchandise from distressed wholesalers. Your eBay business, then, would be the selling of liquidated merchandise.

If you don't yet have a source of merchandise—if you could, in fact, sell anything on eBay—then you have to decide what type of merchandise you want to sell. That involves determining the type of item you want to work with (smaller and lighter is good, for shipping purposes; cheap to acquire but commands a high price from bidders is also good) and then finding a source for those items. This probably means doing some research as to what sells well on eBay and where that merchandise can be obtained.

The point is that you have to know what you're going to sell before you can figure out how to sell it. That's why this step is so crucial to putting together your business plan.

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. (This is why planning is important—so you'll know what works before you're hip-deep in things.)

Start from the top down. For your business to be successful, you have to generate an income on which you can comfortably live—unless, 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.

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 fifty working weeks a year, giving yourself two weeks of vacation; also keep in mind that certain weeks—around the Christmas holiday, especially—will generate more sales than others.) 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.

But that's not your only expense. You have to pay eBay for every item you list, and for every item you sell. If you accept credit card payments, you'll pay a percentage for all purchases made with plastic. And if you avail yourself of an auction management service, you'll pay for that, too.

Altogether, these non-product costs can add up to 5–10% of your total revenues. Let's use the top figure—10%—and subtract $2 for each $20 sale.

Now let's do the math. Take your $20 selling price, subtract your $5 product cost and $2 for other expenses, and you have a net profit of $13. To generate $600 a week in profit, you have to sell about 46 gift baskets. (That's $600 divided by $13.)

That's not the end of the math, however. Based on additional research, you determine that about only about half of the eBay auctions in this category end in a sale. So to sell those 46 items, you have to launch 92 auctions every week, half of which will end with no bidders.

That's a lot of work.

Now is when you 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 related; plan where you want to go, then you can figure out how to get there.

How Much Time Can You—and Do You Want to—Devote 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 close to a 100 auctions a week? Can you pack and ship almost 50 items a week? And, more importantly, can you realistically sell almost 50 items a week? Are there enough potential customers to support that sort of sales volume?

If you plan on making eBay a full-time activity, you'll have eight hours a day, five (or six) days a week, to devote to managing your auctions. If, on the other hand, your eBay business is only a part-time job, you'll have less time to spend. Think it through carefully; can you reasonably expect to do what you need to do to reach your desired level of sales?

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 time—and if it's worth it to you. If you only have a few hours per week to spend, then you might not be cut out to be a high-volume seller. (Unless, of course, you're selling very high-priced items.) If you're willing to put in the hours, however, higher income can result.

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