Build an eBay Business Part 1
Develop a Business Plan
You don’t have to hire a $250-an-hour consultant to create a business plan for
you. Unless you are seeking funding from financial institutions (in which case,
see the “Getting Professional Help” QuickFacts later in the chapter), a business
plan can be simply a written statement, coalescing your vision and goals,
financial resources, and a description of the products you want to sell and the
customers you want to reach. Many experts today think that spending much
time on a business plan instead of getting in and experiencing what is needed
to sell your product is counterproductive; that is, the plan itself is not the real
value. Rather the planning itself—finding and working
through potential problems and obstacles you may
encounter is the value of a business plan. That said, the
plan offers a sanctuary to return to when you find yourself
buried in the trenches of day-to-day eBay selling. When
time is of the essence and decisions that affect the longterm
success of your business come up, it’s nice to be able
to dust off that business plan and refer to the principles
that got you going in the first place.
Planning Your eBay Business
Create a Business Plan
If you’ve never created a business plan before and are daunted by the prospect,
don’t let that stop you. Like many other first-time endeavors, the hardest part
is just starting. Start by creating broad strokes, and then fill in the details as
required by external sources (such as loan officers and vendors) and by your
own needs.
OUTLINE YOUR EBAY BUSINESS
So what are you really trying to accomplish by ramping up your current eBay
sales or moving your current traditional business to eBay? Three common tools
that businesses use to help clarify their raison d’être (reason to be) and where
they see themselves in the future can help you focus your ideas for a business
plan. In fact, coalescing your ideas into a few categories may be all you need for
a business plan that doesn’t require external financing. In The One Page Business
Plan by Jim Horan, these categories, along with a few others, could comprise
your business plan:
• The Vision Statement lets you dream on paper. Place your idealistic thoughts as to what you want your business to be into words, for example, “to create a presence on eBay recognized as the go-to seller for vintage women’s clothing.”
• The Mission Statement, at its core, describes the purpose of your business, for example, “to provide quality, interesting, and functional articles of vintage clothing.”
• Goals and Objectives list what you want your business to accomplish in specific, measurable terms, for example:
• Maintain a minimum of 100 items for sale on my eBay Store and 25 auction listings at all times.
• Reach PowerSeller sales volume within one year (see the “Becoming a PowerSeller” QuickSteps).
• Reduce returned items by 20 percent.
• Become a trading assistant in six months.
• Attend eBay Live!
INVESTIGATE RESOURCES
• Learn as much as you can from free resources, such as the library and government
or business Web sites. The Small Business Administration (SBA) (www.sba.gov) and
Entrepreneur.com, Inc. (www.entrepreneur.com) offer a plethora of information on starting
a business and creating business plans and include links to supporting resources.
• Practice writing a business plan by using tutorials. CIT Small Business Lending
Corporation (www.smallbizlending.com/resources/workshop/sba.htm), an SBA lender,
provides a two-part tutorial.
• Purchase business plan software or templates. Sample
plans get you going, and most packages provide
supporting documents and other assistance. Business
Resources Software, Inc. (www.businessplans.org) is a
popular choice.
• Gather all required documents and data.
Implement Your Business Plan
The business plan is a living document. You cannot simply click Save and
place the file four layers deep in your Documents folder, or pull the final
draft from the printer and file it away in the back of a file cabinet drawer. For
the document to be effective, it needs to be presented to others, periodically
reviewed by you, and assessments turned into actionable changes.
1. Review the plan internally and externally, with business professionals, such as loan
officers, SBA online counselors, and SCORE (Service Corps of Retired Executives)
volunteers, taking a look at it.
2. Before providing the plan to others whose money, resources, or assistance you seek,
create a professional presentation package:
• Create a cover letter to introduce the business plan to the recipient. Summarize
any prior communications and the purpose of your proposal.
• Create a title page that provides key information about your eBay business (see
Figure 1-2). Also, if your plan includes any information you consider proprietary, add
a confidentiality or copyright notice.
• Include a table of contents to help readers understand the scope of your plan and
assist them in navigating through it.
3. Post elements of the plan where you and your employees will be constantly reminded
of its underlying principles.
4. Update the plan whenever major changes occur or new ideas are brought forth.
5. Review the plan periodically to measure how close you are toward reaching your goals
and objectives.
DESIGNING A BUSINESS PLAN
The basic sections of a business plan are:
• The Business includes a description of your eBay business, marketing plans (see “Market Your Business” earlier in the chapter), your competition, operating procedures, personnel, and business insurance.
• Financial Data describes any loan applications, capital equipment and supply lists, a break-even analysis, and financial statements, such as a balance sheet, profit and loss projections (out to three years; by month the first year, by quarter for years two and three), budgets, and a cash flow report.
• Supporting Documents includes copies of a franchise (for example, Worldwide Brands X, an eBay drop-ship wholesaler), leases or purchase agreements for building space, licenses and other legal documents, letters of intent from suppliers, and résumés and personal financial data on all partners.
Market Your Business
As part of the business plan, or as its own plan, a marketing plan, along with a
timetable to carry it out, clarifies your big-picture marketing strategy, identifies your
target market (or audience), and helps you match your product to that audience.
Fortunately, eBay does a great deal to help its sellers make buyers aware of the
products and services they offer. You can distinguish your business by using
the tools provided by eBay, using third-party tools and services, and harnessing
your own creative efforts summarized in a marketing plan (see Chapter 2 for
specific selling strategies).
Apply a Marketing Strategy
The foundation of any marketing strategy is known as The Four Ps. The
following sections describe how to apply these to a potential eBay business.
DEVELOP YOUR PRODUCT
It’s always best to sell a product that people want. (It tends to increase sales!) In
order to determine what to sell:
1. Research your customer base (eBay members) and see
what people are buying:
thinking about selling.
• Check out What’s Hot on eBay (click Site Map; under
Selling Resources, click What’s Hot). You’ll see the
categories of merchandise that will be promoted by
eBay on the home page and via e-mails, as seen in
Figure 1-4.
about a product line so people come to rely on you as a
source of expertise.
3. Sell what interests you. The passion for your product line
will become evident in every facet of your business.
4. Sell what makes you money. The purpose of a for-profit business is just that, making a
profit. If you run the numbers and determine you cannot sell the product for more than
your acquisition, shipping, and overhead costs, it’s time to change products.
PLACE YOUR PRODUCT
eBay defines your primary sales channel, but there
are several ways you can leverage your eBay business
with other selling venues. Developing synergy
between your eBay business and a traditional retail
business, for example, allows you to combine the
two separate sales channels into a common profitgenerator.
PROMOTE YOUR PRODUCT
Promotion gets the word out about your product to your target audience. In
eBay, you have several promotional upgrades and features you can apply to your
listings (see Chapter 4 for general information and Chapter 10 for eBay Store
promotions). Examples of other promotional actions you can explore include:
• Use the cross-promotional feature available in eBay Stores to promote your auction
listings along with your Store inventory items as a PowerSeller (see the “Becoming a
PowerSeller” QuickSteps).
• Use eBay’s Marketing Tools found in My eBay to customize your responses to
buyers, such as Customize End Of Auction Emails or Custom Invoice.
• Enhance your About Me page, to provide in-depth information about you, your company, and your product (see Chapter 10 for information on creating an About Me page).
PRICE YOUR PRODUCT
Pricing strategies are not unknown to an eBay seller. Most of the same
considerations apply to selling an occasional item as to selling many. Whether to
set a reserve price, where to start a bid price, and whether to add a Buy It Now
option are familiar to anyone who has climbed the eBay selling ladder. And, as
we all know, there is no perfect answer—if there were, we’d all be doing it.
When pricing your product pay particular attention to the
shipping price. eBay is offering incentives for sellers to
have free shipping for the products they sell. Also, some
products, such as books, CDs, DVDs, video games and
similar products are limited in how much the seller can
charge the buyer for shipping. Investigate this thoroughly.
TIP:
To really dig deep into selling trends for a particular
product, such as patterns, market size, competition,
pricing and profit margins, and other marketing research,
consider subscribing to eBay Marketplace Research, a
market research company that provides advanced data
on market opportunities
TIP:
The About Me page is like free advertising for you as
a seller—an opportunity not to be missed. You have a
chance to give potential buyers information about you
and your business, your products, your policies, and
other selling information. You can even have a link to your
Web site on the About Me page (with several eBay policy
caveats). Chapter 10 describes how to create an About
Me page.
The marketing plan combines your product analysis and research into a
document that provides a road map you can use to implement actions, schedule
events, and quantify costs.
1. Target the plan to its audience. With a marketing plan used to procure financing, an
executive summary covering your marketing strategy should suffice. A more detailed
plan is needed for internal use and decision making.
2. Start with a narrative overview of your plan. Include a summary, a market overview as
you see it, your marketing strategy, and goals and objectives (see “Create A Business
Plan” earlier in the chapter).
3. Develop a marketing budget.
4. Set up a system to evaluate the effectiveness of the plan.
Choose a Business Entity
When you establish a business, government entities at all levels will want
to share in your success, from the $10 local municipality business license to
the double hit the federal government imposes on collecting Social Security
tax. The type of entity you choose will have serious tax, reporting, and legal
consequences, so take the time to consult with professionals and business
people to see what makes the most sense for you.
Establish Your Business Entity
Key steps in setting up your business entity are:
1. Choose a business entity based on several factors, including:
• Tax considerations
• Legal protections/liabilities
• Ownership issues
• Time involvement
a. (See the “Understanding Business Entities” QuickFacts for information on how
these factors are incorporated into various entities.)
2. Obtain an EIN (Employer Identification Number) or federal Tax ID number for your
entity by submitting an IRS Form SS-4. (Sole proprietors use their Social Security
numbers.)
3. Register your entity with your state department of revenue or analogous office. This will
also get you on board with state unemployment and Labor & Industries (L&I) offices.
(Sole proprietors don’t have to worry about unemployment and L&I.)
4. Understand the taxes and reporting required of your business entity—for example,
payroll (FICA, FUTA, and Medicare), federal and state income, state unemployment,
and sales. Know when each is due, and do not fail to file on time. (Corporate filings are
taken quite seriously by the IRS and other affected offices.)
5. Obtain city or other local municipality business licenses. Consider zoning laws—for
example, if you sell large items that require shipping trucks to pick up and deliver
goods.
6. Set up business financial accounts, such as a
checking account and credit/debit cards.
7. Join or subscribe to associations or other business
societies to be recognized as a viable business in
that industry.
UNDERSTANDING BUSINESS
ENTITIES
The typical business entities recognized by local, state,
and federal authorities include the following.
SOLE PROPRIETORSHIP
This is the simplest entity to establish for a single
owner, typically requiring only state fees to obtain a
business license to get a business started and few, if
any, recurring fees. Tax preparation is relatively easy, as
all income is treated as personal income. Easy setup
and maintenance is offset, however, by lack of special
business income tax benefits and exposure of personal
assets to business liabilities—for example, if your
company is sued, so are you.
PARTNERSHIP
Easy to set up and maintain, a partnership agreement
should be crafted to consider all eventualities, including
dissolution, departure of a partner (this can be tricky; it’s
good to think things through early), and management
control. The main difference between general and limited
partnerships is the classification and liability of members:
• General partnerships are comprised of two or
more members who share individual responsibility
for taxes and liability of the business concern.
• Limited partnerships provide for two classes of
partners: general and limited. General partners
share similar responsibilities to those in a general
partnership. Limited partners do not share in
the management of the partnership and are not
personally liable for any more than their individual
investments in the company.
CORPORATION
Corporations are the most expensive entities to create
and maintain (think board meetings, minutes, issuance
of stock, and so on), but can be bought and sold, either
privately or publicly (although this is not really practical
for an S corporation due to a limit on the number of
stockholders), and enjoy some favorable tax treatment.
Corporations are a separate legal entity and generally
shield owners (called shareholders) from personal liability:
• C corporations are what govern the largest
companies in corporate America. Not generally
associated with small startups, these corporations
are taxed at the entity level, and shareholders are
also individually taxed on dividends.
• S corporations provide the personal liability
protection of a C corporation but “pass through”
the corporation’s income to the shareholders’
personal tax obligation, avoiding the “double-tax”
issue. This is usually a better option for most
smaller businesses.
LIMITED LIABILITY COMPANY
A limited liability company (LLC) combines many of the
favorable tax treatments of a corporation with personal
liability protection and the management structure of a
partnership. The rules governing LLCs vary state to state,
so check with a tax or business professional in your area
to see if an LLC might be a better option in your case
than an S corporation. Key differences between the two
are that an LLC can be owned by non-U.S. citizens and
nonresident aliens, while an S corporation can be owned
only by U.S. citizens or permanent resident aliens; and
an LLC may have any number of shareholders, while an
S corporation is limited to 75.
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