If you are considering running a home-based business in online auctions, the chances are likely that you are drawn to the flexibility, profitability and excitement of these auctions.
When planning an online auction company, it is important to remember that, as with all businesses, there are several expenses that will reduce your overall profits.
Before you become too excited because you found an unlimited supply of widgets costing only $1, but will sell for $5, consider the overall cost of running an online auction business.
The Different Costs To Running An Online Auction Business
The Auction Site Fees
The majority of internet auction services will charge a specific rate for listing items for sale on the website, as well as a ‘final value fee’ which is a percentage of the selling price should the item sell. Moreover, there are other features you can add to an item listing such as bold print, gift icons, and highlighting. While these features are beneficial in making your item stand out each of the features presents with a fee. The options may make sense when selling goods with big-ticket prices, but if your items are below $25 it may be worth re-considering the situation.
The Credit Card Fees
It is always a good idea to accept credit card payments from customers when running online auctions. If the business is not large enough to be eligible for a merchant account, there are several other options available. Services such as Bidpay.com, PayPal.com, and CCNow.com, allow all users to accept electronic check payments and credit card payments.
It needs to be noted; however, that these services are free for buyers to use but a transaction fee will be taken from the seller’s (that’s you) proceeds. The transaction fee is typically a percentage of the overall selling amount with a small rate applied. Certain services will also charge a fee when the seller deposits directly into their bank account or to send a check.
The Inventory Costs
When considering the level of business profitability, it is important to consider the cost of the goods being sold. When calculating this cost, one must include the cost of the item with any shipping fees including handling fees and taxes when you obtain the products.
The Shipping Supplies
UPS and the US Postal Service provide shipping supplies free of charge dependent on the services a person chooses. Free supplies can be acquired from the post office for Express Mail and Priority Mail parcels. If, however, you discover that your customers prefer a less costly delivery option, such as Parcel Post, First Class, or Media Mail, it is recommended that you identify these items and cover the costs in shipping fees. The costs could include envelopes, boxes, packing materials, padding, and labels.
The Shipping Or Postage Expenses
In addition to the cost of physical postage, it is important to remember the cost of any special post services such as delivery confirmation with insurance.
The Auction Management Services
There are various resources and services available to help improve one’s ability to manage large volumes of auction items in less time. The services available help the listing of items, the tracking of listings, management of inventory, maintenance of sales records, and hosting item pictures. The majority of these auction management services charge a set monthly rate dependent upon the type of service being chosen.
The Interest And Finance Charges
When considering the costs of an online auction business, it is vital that credit card and/or loan interest amounts be taken into account. If using a credit card or loan to finance a business, the interest amounts can contribute greatly to the overall cost. Here is a good eBay seller guide that will make things easier and possibly more profitable.
The Special Equipment
The majority of people will choose to invest in equipment that they may not have when running a business, such as digital cameras, scanners or top-of-the-range computers. These items can be expensive and may be a high overall cost.
The Internet Service Provider
Many people in today’s society would have an internet service provider regardless of whether they are running a business or not. However, you must ask yourself if you are using a broadband service that is unnecessarily costly to meet your company’s needs. Always compare service providers when setting up a business to find the most cost-effective and suitable for your online auction company.
The Bank Charges
Have you considered opening a separate bank account for company expenses? If not, you should look into this. It is recommended that you consider separating personal and business costs, but also consider that maintenance of a separate account equates to further bank charges.
The Office Supplies
All companies, even the online ones, will require office supplies at some point. The office supplies costs can include printing supplies, paper, pens, paper clips, folders, and much more.
The Website Fees
While it is not necessary to run an independent store website, many successful online auction sellers do have these professional sites. If you are considering a separate website for your online company, it is important to look at the costs of the domain name, the hosting service, and the cost of subscriptions you might use. If you have a store on eBay, there will be a set monthly charge to maintain the store with listing fees and a final value fee applied to items sold.
The Legal And Business Expenses
If you opt to form a separate legal entity for the online auction business, it is necessary to consider associated legal costs including lawyer fees and legal forms.