First days – low revenues, low margins, go for lean
When we just started our eBay business, Victor and I were working on it on the side. We were still studying in University and the idea to sell on eBay was just a way to make enough income to afford our basic needs like paying (cheap) rent and having a beer once in awhile. Who thinks about paying for eBay seller tools at this stage, right?!
Money was very tight so we had to build our eBay business in the lean startup method, simply because we couldn’t afford to do it otherwise.
We didn’t spend a penny that wasn’t 100% necessary:
- We worked from home
- Had no employees
- Registered the cheapest possible legal entity
- Didn’t pay for any listing management services
- Learned some html and css just to be able to design eBay listings on our own
Since we never had the lowest prices or cheap shipping services, our net margins were 8% at best after you deduct eBay and PayPal fees.
Back then, we didn’t even take into consideration some of the most basic expenses that influenced our bottom line profit like the cost of returns, VAT and losses due to fraudulent activity, so our real profit was even lower.
Our total revenues in the first year weren’t high, mostly because we started selling on eBay without any previous experience in online sales nor in running our own business and we were not doing this full time. It took a while to make millions in revenue from our online business.
If you do the math, you realize that you can’t really afford to spend money on anything with low revenues and low margins, so you will try to make as much profit as you can just to be able to pay rent.
To illustrate this, here’s a quick example:
- Monthly eBay sales – $10,000
- Net margin – 8%
- Net monthly profit – $800
Even if that’s not your primary income, you will be very reluctant to shave anything from this amount if it’s not mandatory to keep your business alive.