Setting up Your Own eBay Dropshipping Business

The eBay Seller's News, March 23, 2009, Volume 9, No. 5

eBay Tips, Tools, News and Resources for the Professional eBay Seller
by: Skip McGrath

In This Issue:

Musings

1. Setting up Your Own eBay Dropshipping Business
2. eBay Listings Climb in The Face of Slowing Economy
3. eBay Marketing Calendar
4. How to Make Extra Money (or build a business) With eBay Motors
5. Tax Stuff eBay Sellers Need to Know
6. New eBay Wholesale Sources for March 2009

"I would not say that the future is necessarily less predictable than the past. I think the past was not predictable when it started." 
~Donald Rumsfeld

Musings

Do you sell merchandise in an eBay store where buyers have a choice of size, color, options, accessories and other specifics? Many sellers create separate listings for different colors and sizes. For example: If you have three identical shirts in small, medium and large and they each come in Red, Blue and White, then you have to list a total of 9 items and pay a listing fee on each one. Wouldn't it be nice if you could just create one listing and the buyer could select their size and color from your eBay store?

Last month I told you about The eBay Configurator. This is a program that allows your customers to order a product exactly the way they want it (color, size, accessories, etc.) from right in the listing. Several readers complained that it was too expensive. When I gave the folks at eBay Configurator your feedback, they realized their basic offering was great for really large sellers but needed to be scaled back for small sellers. So you may want to look again, as they have created some lower price options just in case you don't have a mega-store.

In the last issue I told you about some hot categories selling on eBay that were actually doing better in the recession. Several readers asked me for specifics. So here are a few:

• Classic toys (Lego, Lincoln Logs, Barbie, etc.) - The whole category of used toys is doing well, but be careful of anything made in China in the past few years as there are all sorts of recalls
• Used clothing - especially hot items include plus sized clothing, almost any brand name jeans and almost all types of Western clothing or accessory
• Baby Stuff - The US Census Bureau reported that last year was the biggest birth year in the history of the country. This has started another baby boom. But they also reported that births by single mothers were at an all time high -over 42%. As single moms have less earning power that married moms they are shopping for bargains. Again be careful of anything from China.
• Coupons are hot. eBay has some rules about selling coupons you should read first.
• Crafts, craft supplies, board games and jigsaw puzzles. People are spending more time at home. Many of the classic games are selling very well. One lady in our town makes a ton of money selling jigsaw puzzles she buys at garage sales for almost nothing.
• Auto Parts and Accessories on eBay Motors. People are keeping their cars and fixing them up instead of buying new ones.
• DIY - Just like cars, people are doing it their selves rather than buying new.

The Taxman is Coming to eBay. Article number 5 below is about income tax stuff eBay sellers need to know before tax day on April 15^th. But there is also the issue of sales tax --and if you sell on eBay the taxman is coming for you.

Several states are looking for ways to force eBay and other internet sellers to collect and pay sales tax on out-of-state shipments. They are being supported by lobbyists from large retailers such as Macy's, Target and others. They already got to Amazon. For the moment they are concentrating on large internet sellers -but they look at eBay and the $45 Billion worth of goods sold each year and are trying to find a way to force you to collect and pay sales tax when you ship something to their state.

Ever have an auction that's amassed a ton of watchers, and wished you could leverage that fact to help incite bidding? WatchCount.com offers an attractive "watcher counter widget" you'd drop into your listing to boast the item's Watch Count, which is essentially a vote of item popularity amongst the eBay community. They also have a few other fun, insightful, and free services: you can finally see how many watchers those eBay Pulse listings have accrued, as well as many other items in any sub-category.

While the site's layout could use a little Spring cleaning, WatchCount.com is eBay certified and offers "Most Watched" eBay search capabilities you won't find on eBay itself. Moreover, at the moment it seems eBay is the only thing keeping Google from ranking WatchCount.com at #1 for the phrase "eBay Most Watched".

Big Retail is trying to kill off eBay sellers. The same big retailers who are pushing for states to collect sales tax from you, are also lobbying congress to enact new legislation to keep us from selling brand name products under the guise of preventing the sale of counterfeit and stolen merchandise. Here is a link to a blog post I did about this topic last week.

Be sure and read the post and follow the links to contact your congressperson. This is important! Unfortunately my congressman, Rick Larsen, has already been bought off by the lobbyists and is supporting the legislation, but it's not too late, as most of the congress is not yet on board.

Let's get started with this month's articles:

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1. Setting up Your Own eBay Dropshipping Business

Dropshipping is a great business model. You list and sell a product, then when the buyer pays you, you pay the manufacturer or distributor for the product and they ship it directly to your customer. Sounds great -if it only were so easy.

The problem comes in finding reliable dropshippers who will ship products at a price where you can make a profit. We do about 50% of our business with dropshipped products, but it took us a long time to find products and suppliers that would give us good pricing -and provide great customer service to us and to our customers. All of our suppliers are specialty suppliers. (These companies are out there if you take the time to do the research). When you look for a dropshipper, the actual manufacturer or a specialty distributor will almost always be the best source.

The big general dropshippers just don't have the pricing and service models that we have found that worked. One of the biggest problems with general dropshippers is their cost basis is too high to finance, purchase, store, package and ship merchandise. So the wholesale dropshipped price to you is much higher than if you purchased a case or a pallet of the goods in quantity.

Late last year, Amazon announced a service called FBA - Fulfillment By Amazon. The way this works is you purchase your merchandise in bulk, have your wholesale supplier ship it directly to Amazon's warehouse. Then when you sell an item on eBay, or your website, you simply go online and tell Amazon where to ship it. They pick the item from your storage area, pack it and ship it directly to the customer. You now have your own dropshipping operation.

There is also a new operation that can provide this service and they are a bit more competitive than Amazon and are integrated with eBay. The name of the company is Shipwire. Shipwire has several warehouses in the US and Canada, so your shipping costs can be minimized. They also have a warehouse in the UK that allows you to access the European market. (This solves the problem of poor DSRs on overseas shipments).

Shipwire is offering a free trial for my readers. You can send them 6 items that they will store and ship on demand for you -- Completely free so you can see how it all works and make sure their service is reliable.

Pricing is based on volume and is very competitive. The starter package buys you 8 shipments per month so this also works for small sellers. Also, you will save on shipping costs because of Shipwire's volume discounts with shippers. And by locating your goods in several strategically located warehouses, you save when you ship from the warehouse nearest the customer. These savings can often offset the drop shipping service fee.

Here are some of the benefits of using Shipwire:

• You can purchase wholesale merchandise in quantity at much better prices than most dropshippers will charge you -often as much as 25% less.
• No hassle with merchandise storage or shipping. Just have your wholesale supplier ship direct to Shipwire's warehouse.
• Save money and time on shipping, handling and packaging costs
• Full record keeping and tracking
• Warehouses located in Chicago, Los Angeles, Toronto, Vancouver, Nevada and the UK
• Integrates with PayPal, eBay, shipping carriers and your shopping cart.

Click here to read more about Shipwire's dropship program and to get your free trial.

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2. eBay Listings Climb in The Face of Slowing Economy

Despite the slowdown in the economy, eBay's total listings climbed back to almost 30 million after dipping to around 25 million in January but are still down from the 32 million level reached in December.  Considering this economy that is not too bad.

Sell through rates (STRs) are not doing great -but not all that bad either. In fact they are higher than I would have predicted. Total STRs ran just under 40% during the Christmas season, spiked up to 43% in January as sellers cut prices and are now hovering around 41%.  Auction style STRs are running around 54% with BIN or Fixed Price listings hovering around 21%.

This data comes from Medved at http://www.medved.net/cgi-bin/cal.exe?EIND

So you may wonder why eBay did not report better results last week at their annual meeting. The reason is the fee cuts they have made. They weren't actual fee cuts, but rather temporary fee promotions that eBay keeps extending.  This is what industry observers call a lack of pricing power --the inability to command higher prices. This is not so good for eBay, but great for sellers.

The promotions that were extended included the 5¢ listing fee for media, the double-fee discounts for PowerSellers who use free shipping and free subtitle for all sellers who use free shipping. These promos were announced last October to continue through January. Then they were extended through March and now they will run until June. I don't think eBay will continue these past June as promotions. Instead, I suspect they will announce a new fee schedule that will contain some of these discounts.

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3. eBay Marketing Calendar

Has a holiday ever snuck up on you and you realized too late that you should have been listing items around the holiday for the past two weeks?  Or did you launch items ending on Sunday the week before Superbowl Sunday?  Here is a marketing calendar of important dates for eBay sellers

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4. How to Make Extra Money (or build a business) With eBay Motors

A lot of people only think of cars when they think of eBay Motors. But in fact a lot of eBay sellers make good money selling parts, accessories, posters, stickers, after market power items, vintage goods and much more.

Paul McCann is an experienced eBay Motors seller who purchased my info products course: How to Create and Sell Information Products on eBay and the Internet. After reading my course, Paul wrote an eBook called: Complete Easy Guide To Selling Successfully on eBay Motors.

Paul's book provides tips on how to generate cash during these tough economic times selling not only vehicles, but a variety of products on eBay Motors. eBay Motors gets over 12,000,000 visitors a month. Over 3,000,000 cars sell on eBay Motors each year and you don't have to sell just cars.  An auto part or accessory sells on eBay Motors every second.

The Complete Easy Guide To Selling Successfully on eBay Motors shows you how to find inventory, both vehicles and parts.  Like me - Paul McCann isn't one of those guys who just writes about stuff.  He is very experienced and shares his secrets from 9 years selling online and on eBay Motors and the years he has spent in the automotive world.

Since Paul contacted me to review his book, I asked if he would come up with a special offer just for my readers. He agreed to provide free access to all of the resource material which is currently only available on two CD's that come with his larger program when you buy it. So you can just purchase the basic eBook and you will get the complete bonuses fro m the expanded system. Here is what is included in the bonuses:

1.       Quick Start Guide to the book

2.       Business start up Guide

3.      Special Report - Riches From Niches

4.      Collection of forms required for selling vehicles

Click here to read more about Complete Easy Guide to Selling Successfully on eBay Motors

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 5. Tax Stuff eBay Sellers Need to Know

The Treasury Secretary, Tim Giether, may not need to pay his taxes but unfortunately the rest of us do -and that includes profitable eBay sellers.

So if you have a big tax bill this year, the good news is that's because you made a profit -but the bad news is that you may need to come up with some cash in April.

Technically speaking you own tax on any profits you make -but realistically, the IRS looks the other way on any income under the amount of $600.  So if you just dabbled in eBay and sold a few things and your profit (sales amount less the cost of the goods) was less than $600, the IRS will basically treat you the same as someone who made $600 from a garage sale -they will ignore you. (Even if you made less than $600 you may still want to file for business tax -See below for the reason)

However, if your total profit exceeded $600 for the year (2008) then you should file a Schedule C, Business Profit & Loss form with your taxes.  This is a form you can download free from www.IRS.gov where you list what you sold and all of the expenses involved in selling. (Note: If you are incorporated or an LLC, please ask your tax guy for the correct forms).

You start by figuring out your total sales, and then you subtract your direct costs such as what you paid for the merchandise, any inbound shipping or handling costs and any taxes, duties or fees.  This is called your gross profit.

Now you look at your overhead -also known as expenses. This will help you determine your net profit -which is what you owe taxes on.

Expenses include the purchase of any business equipment (computer, digital camera, printer, etc) and your supplies such as ink cartridges, paper, other office suppliers, your telephone costs, ISP, Cable or DSL fees, eBay and PayPal fees, shipping and postage costs, insurance, car expense (you can deduct the miles you drive to the post office), professional fees (for example what you pay your tax preparer or bookkeeper, webmaster, eBay store designer, etc.) and advertising expense (PPC or any other costs).

You can also deduct any travel such as trips to trade shows, eBay Live or other related business travel and an office in the home deduction.  And, don't forget, if you bought one of my books like The Complete eBay Marketing System, that is a deductible business expense too.

This is just the basic list -I am sure I overlooked a few things. This is why you should use a CPA or tax preparation firm. My CPA furnishes me with a check list of expenses and deductions so I don't forget anything.

But what if you made a loss during the year?  This happens to some people -especially folks who started their business late in the year.  Let's say you started your business in November. You went out and spent money on computers, digital cameras, office supplies and merchandise to sell.  By the time you got started selling you were able to sell $2500 worth of merchandise by the end of December. Assume the goods you sold cost $1500 and your other start up expenses came to $3000. If you do the math that gives you a loss of $2000.  Even though you did not make a $600 profit, you should still file a Schedule C because that $2000 loss can offset other income you made from your job (or a spouse's job) if you worked during 2008. If your family income was in the 28% tax bracket, this would save you $560 in taxes.

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 6. New eBay Wholesale Sources for March 2009

Since I mentioned specialty dropshippers, I have tried to include a few in this issue's wholesale source list. But remember, even if a company drop ships, you can buy products from them more cheaply if you buy in bulk.

Some of these suppliers will require you to fill out a registration form on their website to get access to their wholesale pricing.

Safety Technology is a wholesale source and dropshipper for personal safety devices such as pepper spray and stun guns.  You can find better pricing on these items elsewhere, but these are typical dropship prices and there are some people making money with them.

Simple Distributors is a wholesale distributor for a variety of products including wholesale leather jackets, wholesale handbags and more and they will dropship.

Kinetic Cookware sells a large line of steel, cast iron and Glasslock pots and pans and pot racks and some electric appliances.

Plum Island Silver Company is a leading wholesale silver jewelry supplier. They have one of the largest selections of silver jewelry in the world.

Sourcing Map is a large importer of electronics and cameras and accessories and they will ship in small quantities.

Regal Gift is a wholesale gift company specializing in gifts for the garden. Open an account at this link to log in and see their information.

Dovetail Woodworks : Outdoor Furniture, Dovetail Woodworks, Inc. of Connecticut is a Manufacturer, Wholesaler and Retailer of Quality Cedar Outdoor Furniture. Folding Adirondack Chairs, Tables, Ottomans. English Park Benches, Garden Benches, Planters, Patio, Lawn, Deck, Porch, Yard, Garden, Wood Outdoor Furniture, Assembled using Stainless Steel Hardware or mortise & tenon Joinery

ZoloWear makes baby slings, pouches, and carriers for hip parents.

Sootheze  Aroma Therapy and luxury spa products. Neck wraps, teddy bear gifts. Sootheze home health, heat therapy and aroma therapy products provide soothing relief.

The Pelican Bib is the world's original molded pocket bib. It's ergonomic design is comfortable for babies/toddlers, and the deep catch-all pocket holds even the worst of spills. The bib is recyclable and safe for children: lead-free, PVC-free, BPA-free and phthalate-free. Recommended for ages 3 through 6.

Cartanna International Sales Inc. is a wholesale supplier of lawn and garden products including Hanging Baskets, Horticultural Cedar Baskets and Planters, Genuine Oak Whiskey Barrels and California Wine Barrels, Hardwood Dollies  Stapled and Glued for Extra Durability and Strength Old Fashioned Bushel Half Bushel Peck and Half Peck Woven Baskets.

See you in April

Skip McGrath
The eBay Seller's News

P.S. If you missed the last issue, click here to read it.

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