October 21, 2004
When the Price Is a Penny, What Profit?
By LISA GUERNSEY
ANS of John Wayne, take notice: On eBay last week, a search of the actor's name in the movie category returned more than 2,000 items. Many had opening bids of less than $1 and included offers to "Buy It Now" for just a few dollars. But one, a VHS tape of "Flying Tigers," had a particularly intriguing "Buy It Now" price: $.01.
That's one penny. One cent. One forgotten coin in the family of small change that lives under the floor mats in your car.
The deal will probably not surprise avid users of eBay, since other examples turned up, too. Last week, for 1 cent, people could forgo the auctions and immediately buy emergency cellphones, leather holsters, battery chargers, stuffed toys, insulated lunch bags, cigarette lighters, foot jewelry, earrings made with cubic zirconia, CD's, software and movies. A search on "Buy It Now" items using the keyword "DVD" turned up 265 items for 1 cent.
So let's do some math. To list the item on eBay costs 30 cents. To attach the "Buy It Now" label costs another nickel. Putting aside the cost of using the PayPal service to collect payment and less tangible costs like time and labor to ship the goods, the seller is 34 cents in the hole even assuming the item sells.
Hani Durzy, a spokesman for eBay, points out that only a fraction of 1 percent of eBay's items are sold this way. Marsha Collier, the author of "EBay Bargain Shopping for Dummies" (Wiley Publishing, 2003), warns that such sellers may be trying to skim off some profit by inflating the shipping costs. High-volume eBay vendors known as power sellers who specialize in high-value items like rare coins or antique cars wave away the 1-cent deals as too cheap to be worthy of contemplation.
But deep in the nooks and crannies of the infinitely variable and sometimes bewildering world of eBay, there exist sellers who think that the seemingly nonsensical makes sense. Something about the peculiarities of the auction site, with its accommodation of overstocks, liquidators, bulk buyers and makeshift basement storage, leads sellers to resort to penny sales. What gives?
Robin Kay, a power seller in Egg Harbor, N.J., is the person who decided to list the John Wayne movie for its implausible price. She runs a business called Nancobbler's Movies and More, which exists solely on eBay. She started in 2001 as a movie enthusiast and collector who bought and sold a couple of movies at a time. Now she sells 250 movies a week and as many as 500 a week around the holiday season - all new, and most up for bid for $5 to $15. She has received positive feedback from more than 13,000 buyers representing 98 percent of her customers.
She purchases her inventory from wholesalers, and explained that the John Wayne VHS tape was part of a shipment of 28 boxes of DVD's and videotapes that arrived last year. "There were movies stacked so high I couldn't see beyond them," she said. Most of her boxes are stacked in four 20-by-20-foot storage units that she has rented to supplement the space in her garage.
Most of the movies from those boxes have since been sold, but until the final 10 minutes before the auction closed, "Flying Tigers" had not flown anywhere. As she has done before, she said, she decided to sell it for a penny to make room for new merchandise. Her penny sales, she acknowledged, are all business losses.
The "Flying Tigers" movie, by the way, carried a shipping charge of $5.98. Ms. Kay said the costs break down this way: $1.43 for postage, 50 cents for a bubble-wrap envelope and as much as $1.89 for delivery confirmation (a common way to head off disputes about delivery). She said the remaining $2.16 covers the cost of using PayPal (53 cents in this case) and the cost of using eBay (30 cents plus 25 cents for posting a photo). The leftover $1.08 helps her cover the cost of storing it and getting it to the post office while providing some cushion to absorb the listing fees for items that never sell.
To get good deals on DVD's, Ms. Kay explained, she often negotiates "take all" deals from wholesalers, who require that she accept boxes of old VHS tapes along with the newer movies.
"Last year," she said, "someone offered me a great product, but I had to buy 1,200 of them, and I needed 1,200 of them like I needed a hole in the head."
But buy them she did. In that case, she sold more than half of the stock at a profit, she said, enabling her to survive even if she had to sell the remainder at a loss.
Another example of a 1-cent sale last week was the SafeGuardian One-Button G.P.S. cellphone, a phone that enables users to call a live assistant 24 hours a day. Clayton Communications, a company in San Diego that also sells medical alert products, listed the item, and in an interview, Thomas Franks, the president, gave several examples of its usefulness. "I had a subscriber stuck on a boat in middle of the lake," he said, "and he used it to call the boat rental place."
But the description of the phone on eBay, whose sale price included shipping, made it clear that it was essentially a freebie in exchange for signing up for a monthly service plan. (A two-year agreement, for example, cost $29.95 a month.) So far, Mr. Franks said, the phone has been sold mainly through the SkyMall in-flight magazine, where purchasers are offered a month-to-month calling plan if they buy the phone for $1.99. Mr. Franks said he was using the heavy traffic on eBay to test whether people might be interested in getting the phone free but signing up for a contract instead.
But one can only speculate on other sellers' reasons for offering products for pennies.
Consider the seller identified as Afford-Sales, who was offering cubic zirconia diamond stud earrings last week for 1 cent and charging $4.99 for shipping. The seller did not return requests for comment. But Ms. Collier, the eBay expert, took a look. She pointed out that the seller, who she assumed was a man because of his merchandise, had received only two feedback responses (both positive) and had opened his account just a few months ago. He had opened a store on eBay called Afford Penny Sales, which listed a leather vest, a leather cap, pellets for a BB gun, pocket knives and a food processor for prices ranging from a dollar to $9.99. Other 1-cent items included a lighter shaped like an alien with green flashing eyes.
"He's so new," Ms. Collier said. "He's running those items to draw sales."
Mr. Durzy, the eBay spokesman, would not comment on the motivations behind 1-cent sales. But he did describe some practices that eBay considers a violation of the rules. Manipulating feedback is one. On eBay, having a good reputation is the key to strong sales. So a seller might try to make items look like bargains, in hopes that buyers will be so happy that they will give positive feedback.
Inflating shipping costs is another no-no, partly because it can be used to circumvent eBay's fees. For every item sold on the site, eBay takes a small commission of the final value. If the sales value is only 1 cent, and the real value of the item is hidden in exorbitant shipping costs, eBay doesn't get its cut. "There's a principle involved," Mr. Durzy said. "Yes, each individual cut we take is very small, but there are millions of transactions happening."
Sellers who engage in these practices, Mr. Durzy said, are usually discovered quickly by watchdogs among eBay users and reprimanded by eBay. If the violations continue, he said, they could be kicked off the site. In a cursory search last week, the highest shipping charge to be found on 1-cent "Buy It Now" items was $29.99 for a box of 200 cellphone adapters said to weigh 15 pounds.
Meanwhile, a small but influential group of auctioneers is trying to gain attention for an entirely different type of sale on eBay: an auction that starts at 1 cent, even if the items are worth hundreds or thousands of dollars. One auctioneer is Joe Cortese, a power seller in Pittsfield, N.H., who goes by NobleSpirit on eBay. He has sold rare coins, stamps, antique vases and vintage collectibles, all of which started with 1-cent bids, yet went for thousands of dollars at the auction's close. His philosophy is that by starting the bidding at 1 cent, he can let the eBay marketplace do the work of determining the value of an item.
Mr. Cortese said he had listed Ming vases worth thousands of dollars, "and we've sold them for pennies." In some cases, buyers who might have recognized their value weren't paying attention, he said. Losing that much money can be painful, he said, but in the long run, bargains attract more customers. It's possible, of course, that newcomers to eBay may not see the distinction between 1-cent "Buy It Now" sellers and 1-cent auctioneers. And this worries Jay Senese, who sells CD's on eBay with his wife, Marie. On eBay they are known as JayandMarie, an ID that has gained an international reputation for selling hundreds of CD's a week, each one opening with a 1-cent bid.
"There are people who use 1 cent as a come-on," Mr. Senese said. Buyers quickly learn, he said, that the real price might be hidden in the shipping charges. "It kind of hurts me," he said. "If people are seeing items and thinking, 'It must be a scam, it must be on the shipping,' " he added, they may decide to not even look at his inventory.
Those concerns might be negated if selling 1-cent "Buy It Now" items turns out to be an unsuccessful strategy anyway. Many items listed last week never sold at all, even those listed by reputable sellers with legitimate shipping charges. And what about the other movies in Ms. Kay's shipment of 28 boxes? Is she still trying to get rid of them?
"I have 442 of them right now in my garage if you're in the market," she said.
posted on October 21, 2004 03:42:49 PM
Let's take a little closer look at the math...unless I am missing something she has a nice little profit built into the shipping:
The article says:
The "Flying Tigers" movie, by the way, carried a shipping charge of $5.98. Ms. Kay said the costs break down this way: $1.43 for postage, 50 cents for a bubble-wrap envelope and as much as $1.89 for delivery confirmation (a common way to head off disputes about delivery). She said the remaining $2.16 covers the cost of using PayPal (53 cents in this case) and the cost of using eBay (30 cents plus 25 cents for posting a photo). The leftover $1.08 helps her cover the cost of storing it and getting it to the post office while providing some cushion to absorb the listing fees for items that never sell.
$1.43 for postage
$.50 for bubble wrap
That comes to $1.93 which I agree with.
Now, she says up to $1.89 for dc...I don't know where she is coming from with that total. Online it is 13 cents and I'm not even sure what it is at the PO but I know it isn't $1.89.
So, she has $1.76 and $1.08 profit built in there for a total of $2.84 on the shipping.
That's not a lot and I wouldn't want to sell for that, but we all know most of the movies go for lots more than starting bids so she recoups all listing expenses and makes at least $1.50 (probably more) after paying for the movies (assuming they cost her $1.34 each). $1.50 x 500 = $750 profit a week even if they all sold for a penny.
OK, I did that in a hurry so if I made a mistake I'm sure someone will come along and point it. LOL
posted on October 21, 2004 04:46:47 PM
Lindajean -- I was thinking the same thing.
But ... If we look at it this way, 1 cent auctions attract attention. It's a great marketing strategy, especially if you have a store or website to divert those that are looking at the 1 cent auctions to.
Not to sound like I'm picking on her, but I think that is where Fluffy made her mistake with 1 cent auctions. She was trying to make up the profit on shipping, but didn't have a store.
Correct me if I'm wrong, and I don't have time to check, but do the other sellers listed in the article have an ebay store or website that they could be diverted the attention to?
posted on October 21, 2004 04:48:04 PM
You are right Lindajean, $5.98 shipping is TREMENDOUS profit...
1 cent for the item
5.98 for shipping
5.99 incoming revenue
30 cents listing fee
1 cent FVF (I assume they round up, I've never sold anything for a penny)
52 cents paypal fee
25 cents mailer (she can't be that stupid and sell 500 movies a week, which is lower than my volume, and pay 50 cents) - You can even do better, but I will round up to 25 cents
13 cents delivery confirmation. Again, anyone doing volume will find ways to reduce costs, nobody selling that much is going to fill out forms and pay 55 cents when they can do it electronically for 13 cents.
5 cents misc. - Costs money for paper, toner, etc.
$1.42 media mail
That's $2.68 to mail this item, and a grand profit of $3.31 on a penny auction. It will be higher as some pay with money order, and that is a huge difference.
Whoever wrote that article is CLUELESS. She isn't just moving out cheap material, she is actually making a good profit.
Friends don't let Friends say stupid things like Friends don't let friends vote Republican!
posted on October 21, 2004 05:33:01 PM
it would be if you were like JayandMarie and sold 250 cds a week and made that much off each cd.If you only sold one-no
posted on October 21, 2004 06:01:56 PM
500 items x $3.31 = $81,380 per year - Plus this seller is selling things at higher profit levels. The point is that it really isn't a losing proposition like the article states, if you have the process down well, you can move quantity and make some money...
Friends don't let Friends say stupid things like Friends don't let friends vote Republican!
posted on October 21, 2004 06:13:13 PM
maybe my calculator is wrong but for 500 items @ $3.31 - I'm coming up with a total profit of $1,655. - not $81,380. Where did you get that figure and how?
posted on October 21, 2004 06:39:13 PM
Just for the record, GG has decided that if she can't make $100 per auction, she is not going to play. Wish we could all be that picky...
posted on October 21, 2004 06:43:19 PM
ltray -- be nice! Now, wouldn't you like to earn a higher profit per item without having to sell 500 to get the same amount for ONE? Of course you would!
posted on October 21, 2004 06:59:49 PM
Don't forget to figure in the listing costs of the ones that don't sell. If 30% sell, the per item listing fee is essentially 90 cents (to include the fees for the 2 that don't sell).
posted on October 21, 2004 10:38:15 PM
Per year, not per week! 80k per year. Don't forget, these are items that are extra stock that are worthless. She's making real money on some of the items, and selling the stuff you can't give away for a penny, but instead of taking a loss, is making money on it. I am not condemning the seller, I also buy inventory where I make a lot on some items, a little on others, and some you can't move - but I do move that stuff. You have to be creative about it. Selling for a penny is one way, but in reality she is not selling this stuff anywhere near a penny, people are paying prices higher than if they were to go to Walmart and buy it. However, people like to brag that they bought something for a penny, so they buy. People are stupid, but if it weren't for stupidity, I guess I would be out of business too.
Friends don't let Friends say stupid things like Friends don't let friends vote Republican!
