What is eBay and how does it work?
If you’re researching how to start an eBay business, you’ve come to the right place.
Ebay is an online shopping and auction website that allows people to buy and sell used or new products, either as a business or as a way to clear out clutter and make a bit of extra cash doing so.
While the site is free to use, eBay does charge a per-item insertion fee and a final value fee, as well as fees for any additional but optional features used. We’ll go into this in more depth later.
How to start an eBay business: 7 steps to follow
1. First, decide what to sell on eBay
One of the first things to consider when determining how to start a business on eBay is deciding what you’re selling. Figuring out what to sell isn’t something only aspiring eBay entrepreneurs need to do; anyone wanting to start a business needs to figure out the same thing. What service or product is a good fit for you, for your location, in the long-term, or at the moment because it’s selling like hot cakes?
As you work through the process of deciding what to sell, remember to keep things like shipping and storage costs in mind. Mailing a USB drive is a whole lot easier than a billiards table. Furthermore, if you’re thinking of selling fragile items, consider the extra packaging costs and the potential for breakage.
That said, you’re free to sell pretty much anything—well, almost anything. Ebay does have a list of things you cannot sell, or that have restrictions. It’s worth familiarizing yourself with these items as they do include things such as art, event tickets, and gift cards.
A good starting point
If you’re not sure what to sell, it’s a good idea to think of what you love and what you know. Do you have a hobby? Perhaps you’re an avid collector of Polaroid cameras and you know everything there is to know about how the products have developed over time.
We suggest picking something you know because an important part of selling on eBay is knowing what the market for these items looks like.
- Are they in demand?
- What do people looking for them consider before buying?
- What do they typically sell for?
- How should you describe them?
- Where should you list them?
- Do you know where to get ahold of them at an affordable price so that you can resell for profit?
Of course, this doesn’t mean you can’t pick something new. If you’re a great researcher and are looking for a new hobby, perhaps now is the time to branch out.
Tip: If you love doing market research, Terapeak is worth a try. It make things even easier. You can use Terapeak to get ahold of inside information on how shoppers are behaving, and how products are performing on eBay, Amazon, and Alibaba. You can try it free for 30 days, or pay $7.49 per month for a personal package, and $14.99 per month for a professional package.
Popular products on eBay
Ebay has a great section on “what to sell” on their site. Electronics, fashion, and collectibles are consistently listed among the most popular categories.
Popular selling items in electronics in 2015 include:
- Game consoles
- GoPro cameras
- GPS navigation systems
A word of warning regarding electronics: If you’re just getting started, it might be good to stay away from them for a while, especially if you’re selling second-hand electronics. Figure out how the site works before you have to deal with complaints and returns, regarding faulty monitors, keyboards, or hard drives.
Popular selling items in fashion in 2015 include:
- Wedding dresses
Popular selling items in collectibles in 2015 include:
- RC cars
- Lego sets
- Action figures
- Playmobil sets
- Stamp collections
- Trading cards
2. Pricing your items on eBay
Fortunately, there’s a lot of literature on this subject. Performing a simple eBay search should give you a good idea of ballpark figures. However, sometimes prices may vary wildly—some sellers prefer to list items with fixed prices while others prefer to start with a much lower price and run their sale as an auction.
Tip: Use eBay’s Advanced Search feature to find out how much an item you want to list has sold for in the past.
Don’t forget that eBay’s default search method is “Best Match,” which takes into account both the item’s shipping price and its list price. The combined price is what really matters.
As with a real-life store, you’ve got to make sure your products are easy to find. The best way to do this is to balance your shipping and list price to ensure it’s fair, and to keep your seller rating high. A fair price will make it more likely that your results come up higher when people look for items like yours.
Tip: If you want to increase your search visibility, you can experiment with eBay’s “reserve price” settings. Basically, you’ll be able to set a low price but at the same time, set a reserve price, so that if your reserve price is not met when people bid on your item, it will not sell for the lower, front-facing price. To set a reserve price you will need to pay a small fee per item.
3. Business basics for starting an eBay store
What you need to know about starting a business
Operating an online store, especially one that’s so easy to set up, does not mean you are exempt from all of the legal requirements a “normal” business has to meet. In fact, as soon as you start selling a lot on eBay, or turning a regular profit, the IRS will classify you as a business, and you will need to meet all the requirements a normal business has to meet.
If you do intend to run a business, even if you’re not yet making regular sales, it may be worth formally registering your business. It costs very little and will keep you in the clear. This will include:
- Registering your business name
- Obtaining a Federal Tax ID number
- Obtaining any federal and state licenses or permits
- Deciding on a legal business structure
Broadly speaking, there are four legal structures or business formats. For some people, picking a form of business is straightforward; for others, a consultation with a lawyer is necessary.
If you’re relatively comfortable handling these processes yourself, you can go through a company like LegalZoom, which helps hundreds of small business owners prepare legal documents for business incorporation and the likes.
However, if you’re at all unsure about which one will best suit your needs, we strongly advise consulting with a legal professional. If you can, look for someone that’s a member of your local Chamber of Commerce.
Here’s a brief overview of each business formation, with a little bit of information regarding their suitability to your eBay business, as well as things you may want to consider.
1. Sole proprietorship
This is the preferred type of business for many individuals running either a part-time or full-time business on their own and is often the legal structure first-time entrepreneurs pick. It’s the simplest form of business and is incredibly easy and affordable to set up.
You can run a sole proprietorship from your personal checking account and can deduct many of the expenses related to the running from your state and federal taxes.
The risk associated with a sole proprietorship is that all business liabilities are linked to you personally. If you default on loans, or have outstanding debts, you could lose your personal assets.
Forming an eBay partnership with one or more people can be a very productive way of making money on this platform. It may start out with an oral agreement, but a formal written agreement should always be created; consider all duties, possible disputes, restrictions, and provision for worst-case scenarios—i.e., “What happens if…”
The partnership itself must file Form 1065 to the IRS, and the profits are taxed based on individual returns (established by terms stated in the written agreement, or by percentage of ownership).
Legally, each partner is responsible for themselves and each other. Any lawsuits that occur can potentially involve all or both of you, so be sure that partners are aware of their duties and any legalities that may surround them.
A word to the wise: Ebay states in its User Agreement that you may not “transfer your eBay account (including Feedback) and user ID to another party without our consent.” So, if your partner decides to back out, or you go separate ways and want to start separate businesses, if you haven’t made it clear from the start who gets the account, you may be looking at starting from scratch or undergoing a heavy legal dispute. This is one agreement you should probably read.
3. Limited Liability Company (LLC)
As the name suggests, the liabilities of Limited Liability Companies are generally not passed on to the owners. This means that the owner or owners’ liability does not extend beyond the amount they invested in the company. In terms of taxation, however, the owners or members are all liable.
In order to establish percentages owned by respective members, an operating agreement should be put together. In all likelihood, you will also need to submit Articles of Organization forms when getting your business set up.
When taxes are due, profits and losses are calculated for individuals based on their percentage ownership or investment. The Form 1065 must still be filed to confirm proper income reporting by members. The LLC itself can reduce the tax paid by members by paying as a corporation and keeping some profits in-house.
This is a legal entity operating entirely in its own right. As an employee owner you cannot take money from the company bank account for your own pleasure. It must be for an officially accountable purpose. The positive side is that you get a regular and reliable salary—providing your company is successful.
There are two types of corporation you can set up: S or C. The former allows profits to be passed to your own tax return, and the latter files its own tax returns, and you are officially an employee.
The state in which you set up your corporation will determine how much tax you pay and the rules you must follow. You should make yourself aware of tax rates in your state, and never set up a corporation before you’re totally aware of exactly what it means, and the implications for you as an individual owner and employee.
4. Listing your items on eBay
In terms of taking payments, you will need to offer at least one electronic payment option. Most listings allow for PayPal, Skrill, ProPay, merchant credit card, and payment upon pickup. In general, eBay does not allow a seller to accept or advertise purchase by personal checks, bank transfers, cashier’s checks, or money orders.
Getting set up to sell
Before you can list any of your items, you’ll need to set up a seller account. The process is simple and straightforward and eBay will guide you through it all. Once you’re set up, take some time to familiarize yourself with your “Seller dashboard.” Sometimes eBay has good promotional offers that run for a limited period of time.
Creating your listing
To create your first listing, log into your eBay account. Click the “My eBay” link in the top right hand corner. This will take you to your Seller Dashboard.
Once you’re on this page, you will see a vertical navigation on the left side of your account. Click the “Sell an Item” link. Ebay will guide you through the rest of the process.
Now that you’re in the process of selling, you can focus on creating your actual listing.
If you begin the process of listing your items, you will notice that before you enter any information, eBay gives you the option to choose between a “simple listing” and a “more detailed listing.” To save yourself time, choose the simple listing.
In order to sell your items and maximize your chances of getting seen, you will need to include:
- A strong title and description (pick something people will be searching for)
- Additional information about specific aspects of the item (some categories allow for this)
- The condition of the item
- Pictures of your item (the higher the quality, the better)
- A selling format (auction-style, fixed price, or classified ad)
- A listing duration (most auction listings last for seven days)
- A starting price (see our tips above on pricing your items)
- The payment methods you’ll accept (see our explanation above)
- Your shipping costs and locations
- Your return policy
Before you click the “list” button, we advise you preview your listing so that you see how it will appear to potential buyers.
Here’s a preview for a listing we’ve put together.
Quick tip: Try the Turbo Lister Program, a free program that allows you to list a number of auctions all at once.
5. Get your eBay HQ set up
Now you’ve taken care of basic legal details (of course, only if you are sure you will start an eBay business), including registering your business name and getting ahold of a Federal Tax ID number, you’re ready to build your eBay headquarters.
For most people, this is going to be a “work-from-home” type of venture, but for some, especially those sellers that move a lot of goods, getting warehouse or storage space may become increasingly important.
The thing is, the more you sell, the more confusing things are going to become. You need a good record-keeping system to ensure you’ve got inventory and that you know where things are, and a good storage system.
Storing your eBay stock
Depending on what you sell, some good items to stock up on that will make storing goods easier include:
- Plastic or steel shelves
- Clear plastic boxes (if you’ve got a lot of stock) with clear labels
- Plastic Ziploc/snack bags (good for smaller items)
We recommend clear storage boxes, so that it’s easy to see what you’ve got on hand.
Keep track of your inventory
Whether you prefer to use a paper notebook or a software program, there’s no doubt about it—keeping a record of all your inventory is important, especially as your business grows and as it becomes more important to keep good records in case the IRS ever looks into things.
The best way to keep track of a lot of inventory is to invest in a good bookkeeping system. QuickBooks is a favorite for many eBay sellers as it easily integrates with your eBay account, meaning that you don’t have to spend any time copying things over manually.
An essential part of your HQ is “the shipping department.” In order to ensure a smooth-running operation, you’ll want to make sure you’ve got everything you need readily available, especially if you’ve promised to ship items fast.
A good list of items to have on hand includes:
- Something to clean up packaging with—a sticker removal product like Goo Gone or un-du, or simply WD-40
- Bubble wrap
- Shipping tape
- Styrofoam packing peanuts
- Plastic bags and trash bags (good for wrapping larger items and for waterproofing)
- A variety of envelopes (including the handy bubble mailer envelopes that keep items safe)
- Boxes (check out your local USPS store for more info)
6. Should you set up an eBay store?
If you’re going to be listing a lot of items each month, an eBay store is a good idea, if for no other reason than because it will save you money.
Normally, when you list items on eBay, you are doing so as a member of the general public and you do not need to commit to any monthly fees.
With an eBay store however, you are required to pay a monthly fee. You can decide on a package that best suits your needs and keep costs relatively low. At present, eBay offers three store packages:
- A Basic store will get you 150 free listings (and cost as little as $15.95 per month)
- A Premium store will get you 500 free listings (and cost about $49.95 per month)
- An Anchor store allows for 2,500 free listings (and costs $179.95 per month)
A store is a good idea if you don’t have an eCommerce website and you want a more personalized place to direct people to. It’s also a good idea if you sell a lot of similar products. People may want to browse and see what else you have.
Africa Direct’s eBay store is a great example of a store that operates as a website in micro. Given that it’s so easy to purchase on eBay—many people already have their card details saved and linked with PayPal—it’s more likely that someone will buy from your eBay store than from an eCommerce website they may not trust, or that requires them to get up and find their credit card.
As you can see from the image above, you do get to add a personal touch to your store and there are plenty of designs to choose from and to tailor to your needs.
7. Ebay legalese and stuff you ought to know
Running a business isn’t supposed to just be hard work; you’re supposed to enjoy it too. One of the things that can get in the way of this is not knowing the rules you should be playing by.
In order to keep problems to a minimum, you’ll want to familiarize yourself with eBay’s values, understand what you can and cannot sell on the site, know what to do when your competition doesn’t play fair, and of course, what to do about a “difficult bidder” or a buyer who doesn’t pay.
Each of these problems has been covered in depth by eBay, so we’ll include the most important links to each one here:
- Know eBay’s values and honor them
- A list of prohibited and restricted items
- Ebay’s profanity policy
- What to do when a buyer doesn’t pay you
- What to do when you can’t follow through on a sale
Now go and master selling!
Once you’ve mastered selling on eBay, there are a number of other things you can do to help get your eBay merchandise out the door even faster. From hosting a garage sale to renting a table at a local flea market, your opportunities to move your stock abound.
If you’ve got any tips to share with us on how to start an eBay business and how to do well selling on eBay, be sure to let us know in the comments below!