HOW TO START AN EBAY DROP OFF STORE
We started our eBay drop-off business in 2004. This was about a year after Auction Drop hit the scene and created a bunch of buzz around the eBay drop-off store concept. For about two years, eBay drop-off stores were one the fastest growing and hottest businesses to be in. Franchises like QuikDrop and I Sold It, started cranking out hundreds of franchise stores across the country in an effort to cash in on the hype.
After the hype wore off, many of the people that rushed into the business soon discovered that making money was not as easy as they were lead to believe. Stores were closing almost as fast as they went up taking people's hopes and dreams with them. Even Auction Drop, the one that stated it all, closed all of its stores and is no longer in the drop off business.
The drastic rise and fall of the eBay drop-off businesses causes one to question if the drop-off business is viable. The answer to that question rests squarely on the shoulders of the entrepreneur. A business-savvy person that understands how to grow a small business could be very successful. Someone that has never started a small business before will have to face a number of challenges, any of which could cause the business to fail.
The business model of an eBay drop-off store sounds very compelling. Many people have stuff lying around the house that they no longer need. They also don't have the time or expertise to sell those things. Why not bring all that stuff to an eBay drop-off store and let them sell it? Sounds like a win-win situation. Unfortunately, there are two problems with this business model. First, it is great if you find a customer that has lots of stuff to sell. But eventually, the customer runs out of stuff and doesn't come back. Now you have to find a new customer to replace the lost customer. This fact makes it difficult to grow the business. The second problem is the work is very labor-intensive. The more stuff that comes in, the more work you have to do. It is difficult to scale up this type of business. You need to find a supply of identical items to sell so that once you have finished the work of listing it for the first one, all you need to do is relist it to sell the rest of them.
Another issue to consider is the impact of local and state legislation concerning the eBay drop-off business. Traditional auctioneers and pawn shop owners view drop-off stores as a competitive threat. They have lobbied their political representatives to enact legislation to make life difficult for drop-off stores. Some states require drop-off store owners to get auctioneer licenses to continue their business. Other states require drop-off stores adhere to the same rules as pawn shops. This means you may have to take finger prints of the people bringing in merchandise, notify local authorities of the goods being sold, and hold the goods for 30 days before selling. Be sure to check the current and pending legislation in your city and state before you decide to open an eBay drop-off business. Otherwise you could be in for a rude awakening.
We closed our business at the end of 2006. Many factors led us to this decision, but it came down to the fact that after three years we were not making enough money. We could not afford the financial drain any longer. However, we learned a lot along the way and we would like the share what we learned. Hopefully we can help someone with their eBay drop-off store. If you are considering starting an eBay drop-off store, you will find some useful information here to help you make your decision.
EBAY DROP-OFF FRANCHISES
The reason for buying a franchise include: the instant recognition of a name-brand business, the franchisor's national advertising campaign, and a well-established business model with a predictable earnings stream. It make more sense to open a McDonald's rather than start a restaurant from scratch, assuming you could afford the franchise fees..
When it comes to eBay drop-off franchises, let's examine what you get:
- Do you get a recognized name brand? Ask your friends if they have heard of any eBay drop-off franchises.
- Do you get a national advertising campaign? All I have ever seen are ads on the internet telling me to open a franchise.
- Do you get a proven business model? The concept has not been around long enough to establish any track record. The fact that so many eBay drop-off businesses are closing is a strong indication that it is not easy to be successful in this business.
The key reasons for buying a franchise are not being fulfilled by any of the eBay drop-off franchises. Then why would you pay a franchise fee and a percentage of your revenue to a franchisor?
- They will tell you where to locate your store.
- They will give you plans for the store design.
- The will give you an instruction manual.
- They will give you a training course.
- They will provide eBay auction management software.
While there is some value here, you should be able to figure these things out for yourself. Save your money. By taking a look at the information presented here and doing your own research, you should have everything you need to know to start your own eBay drop-off store.
UPGRADE YOUR EBAY ACCOUNT
There are a few upgrades to your eBay account that you should consider to make operating your eBay drop-off store easier:
Become An eBay Trading Assistant
After you have been selling on eBay for three months, you can sign up to be an eBay trading assistant. This doesn't cost you anything and it will put your name into the directory of trading assistants. People looking for help selling their items on eBay can search the directory for the nearest trading assistant.
You can get some real good leads by being on the directory, but don't expect hordes of people to contact you. The directory is not widely used.
The requirements to become a trading assistant are fairly modest:
- Feedback score greater than 100.
- Positive feedback rating of at least 97%.
- Average 4 listings per month over the previous 3 months.
To sign up, click on the following link tradingassistant.ebay.com.
Open an eBay Store
An eBay store is an excellent way to sell inventory with multiple quantities and for those items that do not sell well with the auction format. The Basic subscription level is all that is needed for a drop-off store.
eBay Power Seller
You can't sign up to be a power seller. However when you have at least $1,000 a month in sales, eBay will automatically upgrade your account to be a power seller. Your account must meet the following criteria to be eligible:
- Feedback score of at least 100.
- Maintain a 98% positive total feedback rating.
- Active member for at least 90 days.
Once these goals are met, you get to have a icon displayed next to your user ID. There are five power seller tiers which are based on your average monthly sales volume:
There are some key benefits of being an eBay power seller. First, the feedback for a power seller is calculated differently. Normally feedback is calculated by dividing the number of positive feedbacks by the number of negative feedbacks from unique users. When you are a power seller, feedback from repeat buyers is also included. This will boost your feedback score when you have a lot of positive feedback from the same users.
A second major benefit of being a power seller is the eBay co-op advertising program. If you spend money marketing your eBay store and/or trading assistant services, eBay will reimburse you up to 25% of your qualified marketing expenses. There is a cap on how much eBay will reimburse you, which is based on your power seller level. This is a an excellent program, so don't forget to take advantage of it.
You must maintain your minimum sales volume for your designated power seller tier. Otherwise eBay will downgrade (or revoke) your power seller status.
eBay Trading Post
Just like a normal eBay seller can become a power seller, an eBay trading assistant can become a trading post. The requirements to become a trading post are quite demanding:
- Feedback score of 500 or higher.
- Have a least 98% positive feedback.
- Sales of a least $25,000 per month.
- A staffed drop-off location or store.
Once the trading post requirements have been met, eBay will upgrade your account automatically. A icon will be displayed next to your user ID in the trading assistant directory. You can use the trading post logo within your listings too. You also receive priority placement in some search results. If you can achieve trading post status, then your business is doing well.
When you are selling things on eBay, you need to have a good idea of the expected selling price. This information is necessary to properly set your customer's expectations about what their items will sell for. Overestimating the selling price will lead to angry customers. Underestimating the resale price may cause customers to refrain from selling the item.
Normally eBay provides two weeks for pricing history when you search completed auctions. For very popular items, there are usually enough sold items to accurately determine an average selling price. However, for more rare items, there may be few sold items or none at all. Estimating a selling price will be difficult in this case.
For $24.99 a month, you can subscribe to eBay's marketplace research service. This gives you up to 90 days of pricing history of completed auctions. You also have the ability to sort and graph the data. You can filter out items that did not sell and only show items that received at least one bid. EBay's marketplace research is an indispensable tool. See Marketplace Research for more information.
Automate Leaving Feedback
Once you start having a lot of sales, the task of leaving feedback for your buyers becomes a chore. If you don't leave feedback in a timely manner, buyers will send email requesting that you do. Reading and answering those emails will take up even more of your time. EBay's auction management software has a feature to automate leaving feedback for buyers. It is worth the subscription cost of $15.99 a month just for this feature alone.
You can set up Selling Manager Pro to automatically leave positive feedback when you receive positive feedback. If someone leaves a neutral or negative feedback, it will not leave any feedback so you can leave your own feedback. Selling Manager Pro can be configured with several feedback comments that will be randomly left to buyers. This gives the appearance that a real person is leaving the feedback. See Selling Manager Pro for more information.
SETTING UP YOUR STORE
If you haven't already established your business legally, check Start Your Business for some useful tips. You need to have all the legal issues of your business completed before you can open your store. Another legal document that you need is a seller's agreement. This is a contract between you and your customers. The purpose of the document is to state the services that you will be providing and protect you legally if the item doesn't sell for the expected price. Take a look at a sample of our seller's agreement. You can use it as a guide to create your own agreement.
Choosing Your Location
Choosing where to locate your eBay drop-off store is one of the most important decision you have to make. Here are some store layout suggestions to consider in order to determine if a prospective facility would work for you:
- Reception area to greet customers and to receive their items.
- Photography area to take pictures of the items to list on eBay.
- Listing area for weighing, measuring and writing the item description.
- Shipping area for packing the item for shipping.
- Storage area to hold items until they are sold and shipped to the buyer.
- Office area to handle other business activities.
The component that takes the most space is the storage area. This raises a question about where to locate your store. Do you want to pay for a retail store location where the majority of your space is used for storage? Or should you save on rent and locate the store in business/industrial park?
An advantage of having a retail location is the extra visibility and walk-in traffic it generates. Unfortunately, walk-ins don't usually have items that they want to sell with them when they are shopping. People may come in to learn more about how things work, but people need to plan ahead to bring items to the store. This fact negates the walk-in advantages of a retail store front. You do have the benefit of marketing to people going past your store if you are located in a high-traffic area.
By setting up your store in a business or industrial park, you can save a lot of money on rent over a retail location. You will have to market your business in your local community to bring customers in, as there will be few walk-ins. Considering you still have to market your retail location, you haven't really lost much. The downside to these types of locations is they may be located in hard to get to areas. Some locations can be very industrial and not very appealing to prospective customers. If you can't picture your mother going there to drop off her collectibles, then it is not the right location.
We ended up choosing to locate in a business park that had easy access to the freeway. It is important that customers can literally drive up and drop items off at the front door. Customers could also drop off large items in the back where we had a roll-up door. For example we had customers drop off large photographic processing equipment, medical equipment and furniture pieces. We wouldn't be able to accept those items unless we had a roll-up door in the back. Take a look at our floor plan to see how we laid out our store. We got a bigger space than we initially needed so we could grow into it. We did grow into it as the storage area was at times completely full with stuff lying around everywhere.
Purchasing Equipment and Fixtures
Luckily, setting up an eBay drop-off store does not require a large capital outlay. For around $10,000, we were able to buy everything we needed for our store.
This is where you greet your customers so you want this area to be aesthetically pleasing. Many eBay drop-off stores copied Auction Drop's reception area that looked a lot like a Fed Ex drop-off counter or airline baggage check-in counter. We opted for a more home-like feel with comfortable chairs and a wooden table for customers to put their items on. This approach gave our customers more of a personal relationship rather than just a business relationship. We purchased almost all of our decorations and furniture for the reception area at Pier 1 Imports. I must say that our reception area looked really nice and inviting for our customers. When we had more than one customer, people didn't mind waiting and reading the newspaper or brochures that we had available.
We only had space to handle one customer at a time. If you have the space, you may want to add a second station so you can handle two simultaneous customers. Each station should have a computer with dual monitors. This allows the customer to see the research that you are doing on eBay. You can purchase an inexpensive VGA video splitter to connect two monitors to a computer. A video card with two outputs will also work.
The quality of your photos can have a strong effect on your eBay sales. High quality photos can help you get better bids on your auctions. Poor photos will scare away potential bidders. Your customers will also see your photos and you want to impress them too.
Photography equipment recommendations: photography table, digital SLR with a general purpose lens, photography lights, and a backdrop stand with both a white and black backdrop.
You could spend thousands of dollars on this setup, but you can get what you need for under $1,500 if you shop around. The type of photography lights that you use can greatly affect your cost. Constant lighting is the cheapest, but can make your photography area quite warm. Strobe lighting, preferred by professionals, can be very expensive. Wolf Camera, also known as Ritz Camera, is the largest camera retailer in the United States. They often have great deals on camera and video equipment. Definitely check their prices before purchasing your equipment.
LISTING AND OFFICE AREA
This is where you will write the eBay listings and perform other business activities. Make sure you get a desk big enough to accommodate your computer monitor, your workspace and enough space to place a good sized item. When writing the description, you will want to have the item next to you.
There is no need to buy new office furniture. Look on Craigslist for used office furniture. You can find high quality used furniture for a lot less money than the cheap particle board stuff that you can get in the stores new.
The biggest expense in the listing/office section will be the computers. You will need at least three computers: one for the reception area, one for the office area, and one for the shipping area. More computers will be needed if you have employees helping you in the store. One of the lowest price and most dependable online stores to buy computers and electronics is newegg.com. I buy almost all of my computer equipment from them. It isn't even worth the time to try and find a cheaper store as their prices are always among the lowest. Check them out and you won't be sorry.
SHIPPING AND STORAGE AREA
Customers bring items that come in all shapes and sizes. You need to have a good supply of shipping boxes to accommodate all those sizes. You don't need to buy really large sizes as smaller boxes can be taped together to form bigger boxes. See Shipping Tips for more shipping-related information.
For the storage area, you need to place customer items in bins for safe keeping. Costco has a supply of Contico Tuff Crates with hinged lids. They stack and they are semi-transparent so you can see what is inside them. For smaller items, you can buy Sterilite hinged lid storage bins. These can be purchased at Walmart and they come in three different sizes. All of these bins are significantly cheaper than their industrial strength cousins that many retailers use.
When you buy shelving, make sure the shelf will accommodate the bins that you are using without wasting too much space. I made the mistake of buying a rolling cart that wouldn't quite hold three bins across. Holding only two bins was a big waste of space.
Marketing Your eBay Drop-Off Business
Once your eBay drop-off store is ready to be opened, you need to let people know about your new business. We discovered with traditional advertising that it is only effective within a 10-mile radius of the store. Any further out and the advertising results become very spotty. This is a very important factor when you are considering what type of advertising to use.
TRADITIONAL METHODS OF ADVERTISING
Small businesses usually advertise using:
- Yellow Pages
- Valpak coupons
The problem with the Yellow Pages is that there is no obvious category to advertise in. Do you chose consignment or auctions or something else? We didn't have much luck using the Yellow Pages.
Depending on the circulation of the newspaper, it can be fairly effective. You want to focus on newspapers that target your local area. The average age of people that read newspapers is going up. This happens to precisely the demographic you want to market your services to. Older people have more stuff to sell and generally are not computer savvy enough to use eBay.
We found Valpak coupons to be very effective on getting the word out. The first time the coupons went out we were inundated with phone calls. We had success using them for about three months. After that, the rate of phone calls dropped off quite noticeably. Once people have seen your coupon, there is not much benefit in sending it to them again.
Radio and Television advertising is very expensive and covers a large area. This is great for a big chain store, but a big waste of money for a small business. After you open several eBay drop-off stores, you might consider using radio.
DO IT YOURSELF ADVERTISING
If you are really on a tight budget, you can try some alternative forms of advertising. These methods are free except for the cost of materials and the labor involved:
- Put flyers on cars in nearby shopping centers
- Post tear-off ads on local community boards
- Drop off flyers in local shops and restaurants
- Give eBay how-to classes in your local library
- Advertise on Craigslist's small business section
- Add your business to Yahoo! Local
You get what you pay for. Don't expect great results using these methods.
By far the most cost-effective advertising that we found was Google Adwords. Many people have stopped using the yellow pages and reading newspapers. Instead, they are using the internet to find the information that they are looking for. Google has emerged as the method of choice for people searching for information on the internet.
Google allows advertisers to target their ads to a specific area. You can control how many miles from your store the ad will be shown. We set our coverage area to be a 50-mile radius around our store. Because of the targeted nature of the ads, we were able to bring in customers from over 20 miles away. We could not have done this with any other advertising medium without spending ten times the money. See our article about Internet Advertising for more details about internet advertising. Of course, you need to have a website to use Google.