I came across some interesting information from BuySave on Steve Woda’s blog and though I would make some comments. In general the figures reinforce the notion that eBay is a very competitive marketplace and demonstrate the importance of selling through multiple channels.
BuySafe analysed the sales data from their top sellers which produced the following results – my comments in blue
1. Margins on eBay are very tight. Taking into account all costs of business, including listing fees, fixed overhead, product sourcing costs, etc, the average net margin on eBay is 8%. Product sectors such as cameras, cell phones and consumer electronics are particularly fierce with net margins falling to the 2-4% range.
This is quite a scary figure and demonstrates that eBay is a very competitive marketplace. I wonder if there is a BuySafe effect? Are Buysafe customers operating in cut throat marketplaces which require the use of a product like buysafe. It would be interesting to compare BuySafe data with a company like say ChannelAdvisor.
2. Net margins on off-eBay business are significantly higher than on net margins received on eBay. Of the 2/3 of merchants already diversified off of eBay, profitability nearly triples, as eBay net margins hover around 8% and off-eBay margins increase to 23%. Of note is that the average net margin for sellers exclusively on eBay is around 9%, while for merchants that have started diversifying off eBay, the net margins are only 8%.
It would be interesting to see the sources of the increase in margins. Is it because prices are higher or costs are lower. At Auctioning4u we find that our cost on eBay actually compare very favourably with PPC.
3. Diversification across non-eBay channels has become the norm. Merchants no longer view non-eBay channels as a “nice to have”. Rather, these channels are now critical and expanding parts of their businesses. Two out of every three merchants have already built non-eBay businesses, and the trend is accelerating very quickly.
BuySafes sellers are mainly the larger eBayers (average feedback >30K) and so it is not surprising that they have more diversified businesses. Still, these figures once again demonstrate the importance of selling through multiple channels.
Buysafe postulate the following reasons behind the data and reasons why sellers continue to sell on eBay
1. Fees too high? This does not appear to be the case. Excluding costs of goods sold, the fixed, overhead and variable costs are roughly the same for eBay and non-eBay sales. This would suggest that while listing fees may be high, they are offset by higher infrastructure and marketing costs required to sell off-eBay.
It would be interesting to see a comparison of cost of sale of promoting the same items on eBay and through other channels – anyone got this data?
2 Using eBay as a loss leader. Online sellers see eBay solely as a “loss leader” and/or lead generation tool. While it is difficult to measure the lifetime value of a customer acquired through any channel including eBay, online retailers clearly benefit from capturing customers through one channel and then migrating these same customers to a channel with lower service costs. In buysafe’s analysis, 25% of the merchants had active warranty and/or cross sales programs.
This is one of the main reasons why sellers should stay on eBay. eBay one of the most cost effective customer acquisition channels available.
3. Prices on eBay are less than off eBay. This seems to be the main reason for the lower margins. The adage that eBay is a mile wide and an inch thick is mainly true. Simple price comparisons between the prices found in comparison shopping engine search results versus eBay search results seem to indirectly validate pricing disparities. The Auction Trust Network recently published figures that suggested that off-eBay prices were, on average, 34% higher than on eBay.