If you are contemplating a home-based business in Internet auctions, you’re probably attracted to the flexibility, profitability and excitement that auctions can offer. When planning your auction business it is important to remember that, like all businesses, there are many expenses that add up and will reduce your profits.
Before you get too excited because you found an unlimited supply of widgets that cost you $1 and sell for $5, an impressive 500% markup, consider all of the costs of running your auction business.
Costs of Running an Online Auction Business
Here are the typical costs of an online auction business:
Auction Site Fees
Most Internet auction services will charge you a fee for listing your item for sale and a “final value fee,” which is a percentage of the selling price, if your item sells. In addition, there are many optional features you can elect when you list an item… features such as bold print, highlighting, gift icons, etc. These features help your item to stand out from the rest, but each feature has an associated fee. These options might make sense if you are selling items with a big-ticket price, but consider them carefully if your items are priced under $25.
Credit Card Fees
It is a good idea to accept credit card payments from your customers. If your business isn’t large enough to warrant a merchant account, there are many options available. Online services such as PayPal, Bidpay.com, and CCNow, to name just a few, enable anyone to accept credit card and electronic check payments. These services are often free for the buyer to use, but a transaction fee is deducted from the seller’s proceeds. Transaction fees are usually a percentage of the total amount, with a minimum fee applied. Some services may also charge an additional fee to direct deposit the money into your bank account or to mail you a check.
When determining your profitability, it is obvious to consider the cost of the items you are selling. However, when calculating your inventory costs, be sure to include the amount you pay to have the items shipped to you, as well as any taxes or handling fees you may pay to obtain the items.
The U.S. Postal Service and UPS provide free shipping supplies, depending on the services you choose. Free supplies can be obtained from the post office for Priority Mail and Express Mail packages. However, you may find that your customers prefer less expensive delivery options such as First Class, Parcel Post or Media Mail. Be sure to determine the cost of boxes, envelopes, padding or packing materials, and labels… and recover those costs in your shipping fees.
In addition to the actual postage, don’t forget the cost of special services, such as Delivery Confirmation and insurance.
Auction Management Services
There are many tools and services available that will improve your ability to manage a larger volume of auction items in less time. Services are available to help you list your items, track your listings, manage your inventory, maintain your records, and host your pictures. Most of these services charge a flat monthly fee based upon the level of service you choose.
Interest and Finance Charges
The interest on credit cards and/or loans used to finance business operations or inventory purchases should not be overlooked.
Many people choose to invest in equipment, that they otherwise wouldn’t own… for example, a digital camera, scanner, or top-of-the-line computer.
Internet Service Provider (ISP)
Most people nowadays would have an ISP whether they were in business or not. However, you need to ask yourself if you are using a more expensive broadband service to meet your business needs, when a $9.95/month ISP would suffice if you were not in business.
Do you have a separate bank account for your business expenses? (You should!) Be sure to consider the costs associated with maintaining a separate account.
These costs include paper, printing supplies, pens, folders, paper clips, etc.
Web Site Fees
It isn’t necessary to have your own web site or e-store, but many successful sellers at auction do have them. Be sure to consider the costs of your domain name(s), hosting service, and subscription services you might utilize. If you have an eBay store, include the monthly charge to maintain the store as well as the listing fees and final value fees applied to items sold in your store.
If you choose to form a separate legal entity for your auction business, consider the associated costs such as legal forms, filing fees, and lawyer’s fees.
These are the fees paid for the services of an accountant or lawyer.
Of course, we can’t forget taxes! Taxes can be a significant expense and will vary depending upon the form of your business.
There are many reasons that people choose to start their own home-based business. The interests, experiences and motivators for entrepreneurs can vary widely. However, the one thing that most have in common is the desire to make a profit. After all, there are not many people who would choose to work hard all year long, just to break even!
When planning your auction business and determining your potential profitability, be certain to consider all of the costs of doing business associated with the specific items you intend.