Why Ebay is expensive

Many retailers find that Ebay is a very attractive way of reaching new customers and selling items online. Whilst this has the large benefit of attracting new customers who will hopefully shop with your again, you need to consider the considerable cost of online retailing with Ebay.

Ebay cost overheads are not always apparent. It is quite possible to sell many items on Ebay and feel quite happy about the whole thing, and then suddenly find a bill for several hundred pounds at the end of the month. It is quite possible to discover you've made loss on selling some items, or that your net profit has been considerably eroded.

The important thing to remember is that you are reaching customers that you would not otherwise reach. If the cost of doing business on Ebay is justified by gaining a new customer who will come back and shop with you in a different channel, then you don't have a problem, however, almost every retailer I know who has tried to sell on Ebay has given up after a few months when they realise how large the bill can be at the end of the month

The costs of ebay are as follows:

• Listing Fees - varies with start price, but between 15p and £1.30 per item. More charges for other listing options. You pay this regardless of whether the items sell.
• Final Value Fees. Depends on value, but averages around 6-7% of the final value item.
• Paypal fees - most Ebay purchases are settled by Paypal which takes its own cut. Typically 3%, plus 20p per item.

All this can add up! Let us take a typical month as an example. I sell items on Ebay that sell for an average of £50, plus £10 postage cost. My gross margin is 30% (i.e. the cost price is £30). I list 200 items per month, and sell 100 of those items each month. I do not make any money on the postage.

• My gross profit is £1255
• I start each auction at £25, so the listing fee for all 200 items is £100
• The final value fees are about £3.67 per item, so a total of £367.
• The sales are £5000, plus £1000 postage, so a total of £6000 through paypal. Paypal will take £194.

The the total cost of all the fees is a massive £661. That is pretty much half your profit. You margin now collapses from around 30% to a tiny 14%. We haven't even taken into account returns. A couple of returns and the margin can easily fall another point or two.

As you can see, selling on Ebay can be very expensive. Whilst the listing costs can be improved by lower start prices, the paypal and final value fees are unchanging.

Many retailers will say that it is better to make a small profit rather than no profit at all, but the large fees charged by Paypal and Ebay can often result in you selling stuff at an overall loss when you take into account your shop overheads.

Ebay is a fantastic way of reaching new customers, but eats into your margin. Be careful!