Unless you spent the past few months in a cave, you've noticed that the U.S. economy has been caught in a freefall of historic proportions. From the local grocer to the gas station, to the news coming from Wall Street, it's difficult to remember a time when the economy looked so bleak. Let's not forget that even before this awful autumn began, sellers on eBay were reeling from the changes eBay put into place early this year.
Sure many had found ways to overcome the challenge of Detailed Seller Ratings, but margins are down, fees are up and customers are less plentiful than many of eBay's PowerSellers remember. Is it really all bad news and gloom?
That sort of depends on whom you ask. According to the Professional eBay Sellers Alliance (PeSA), eBay has climbed into the hand basket and is beginning to look around for the signposts explaining where it's going. In a Sept. 30 statement from PeSA we read, "Today eBay merchants have an increased level of business uncertainty due to eBay's poor execution of changes in many areas, including seller performance measurement, fees, site search, buyer activity and seller communication." This is a venerable group of eBay sellers, many of whom have been on the site since almost the beginning. If they're discouraged, what hope is there for the rest of us?
Well, as it happens—and has always happened—hope dies hard on eBay, and we've found someone who is not only doing quite well in these hard economic times, but is also willing to share what he's done this year that brought him a 30 percent increase in his business. That's an astounding number while everyone else seems to be faltering.
Steve Grossberg, 1busyman on eBay and president of the Internet Merchants Association, has made some changes to his business, but he's not complaining about the returns he's achieving. Grossberg sells video games and consoles. That's a category with very tight margins in any market. Grossberg knows what to do to stay competitive. For one thing, he limits the items he stocks. He carries 425 SKUs while his competitors may carry many times that. He runs 2,000 auctions while his competitors may keep 15,000 going. He feels the smaller numbers give him more control of his inventory and allow him a more efficient operation.
Grossberg also recognized pretty early on that he wasn't going to achieve his margins by stocking and selling new video games and equipment. He saw that the profits on those items were only about 20 percent—and that was before eBay fees kicked in. So he turned to closeout items and that has made all the difference. Because he deals in closeouts, he carefully watches his inventory, and never hesitates to slash prices on items that are not selling to clear the way for more profitable products. Grossberg tracks his profits down to the penny, using nothing more exotic than an Excel spreadsheet. He will look at his conversion rate in terms of how much inventory he has of that item. If the conversion rate is too low, and he has a lot of inventory, he will lower his prices to clear out those items.
Strive for the final value fee reductions you'll achieve through high DSRs, but don't count those discounts into your profits
On the other hand, operating a business based strictly on price wars doesn't work for Grossberg either. He's never found a profit margin in being the lowest priced merchant. Rather, he turns to the strengths he knows he can offer, which include great customer service and quick, efficient shipping. He ships every day, and expressed some surprise that there are still eBay merchants who ship just twice a week. He pays careful attention to customer service and gives exceptional attention to repeat customers. Grossberg has little patience for poor DSRs.
"If your DSRs are low, you're doing something poorly," he says. "You have to ask yourself, 'What's keeping me from being at the 4.7 or 4.8 level?'" He's at 4.9 on three of the criteria, for shipping he's close to a 4.8.
As an added bit of advice, Grossberg recommends you strive for the final value fee reductions you'll achieve through high DSRs, but don't count those discounts into your profits. He prices his items as though those discounts don't exist. Much of the rest of Grossberg's advice comes along with operating any successful business. In the first year of operation, he put every penny of his profit back into his growing business. Now that he's established and carrying $500,000 worth of inventory, he knows exactly how he spends his time. With every increase in efficiency he realizes increased profits.
Unlike many other sellers on eBay these days, Grossberg isn't a big proponent of diversifying. His goal is to own his category by providing the best products and the best customer service.
"Don't diversify until you've hit a brick wall in your own category," he says. Grossberg knows his category inside and out, which gives him a big advantage. If he were to diversify, he'd have that much more trouble staying in the top position in other categories. Instead, Grossberg tells us about some vacation real estate he's purchased in Cancun recently. That seems to be all the diversification he currently requires, and he gets no argument from us. Who among us wouldn't like to escape this awful autumn for a few days in Cancun?