If you raised your hand, take a cue from 7 savvy entrepreneurs who used eBay to build million-dollar businesses.
By Marcia Layton Turner | Entrepreneur Magazine – May 2007
Think eBay is just for part-time sellers with too much clutter in their closets? Not anymore. In a few short years, these savvy sellers on eBay have gone from zero to millions of dollars in sales. Here’s how they built lucrative online businesses.
Todd McGohan, 42, and Tim Stallard, 36
Proshop Warehouse
Dayton, Ohio
eBay User ID: proshopwarehouse
2006 Sales: $7 million
Projected 2007 Sales: $7 million
eBay Business: Golf clubs and accessories
Fore: Todd McGohan started selling on eBay in 1999 with his wife, Stacey, 36. Their business, The Guildmark Group, specializes in high-end watches, jewelry, coins and fountain pens. It generated $1.5 million in revenue in 2006.
The online business has always done well, but in 2000, when McGohan spotted the opportunity to make some additional money by selling merchandise a local pro shop was liquidating, he jumped at the chance to enter a new market. “I love deals,” he explains. After paying $4,400 for the inventory and selling it on eBay for $5,700, McGohan knew there was a market for golf equipment.
Work the Phones: But what McGohan needed was merchandise, so he and his business partner, Tim Stallard, began calling small golf shops and pro shops and asking to buy their excess inventory. The pair sold more used equipment than new at first but have since demonstrated enough volume to gain their own relationships with manufacturers. Now 75 percent of their stock consists of new clubs.
Today, Proshop Warehouse runs about 3,000 auctions weekly, with average purchases yielding $170. They also opened a retail location in 2006, which has allowed them to do business with manufacturers that were previously off-limits to the online-only venture, and they have added $500,000 in incremental revenue to their bottom line.
Such dramatic growth and expansion has been possible for the company because McGohan and Stallard invested in automation, going so far as to design their own auction management software to avoid the fees most commercial programs charge. Says McGohan, “Automation has been a lifesaver.”
Smart Tip: Always look for new suppliers and build strong relationships with them–these can lead to cheaper pricing. With margins getting slimmer in most industries, you need to buy your inventory for as little as possible in order to make a profit.
Corey Kossack, 23
Koss DVD
Tempe, Arizona
eBay User ID: kossdvd
2006 Sales: $1 million
Projected 2007 Sales: $3 million
eBay Business: New DVDs, iPod accessories and video games
Student of Opportunity: In 2004, Corey Kossack was a college sophomore doing some online shopping from his dorm room for a digital camera memory card. One of his stops was eBay to see if he could find a deal. Although he says he “always thought of eBay as a place for people to get rid of junk,” he found someone selling hundreds of memory cards that day. This was clearly a businessperson, not an individual selling castoffs from their personal collection, and it changed Kossack’s thinking about eBay. He saw a business opportunity and wanted in.
Nichecraft: Recognizing the need to carve out his own niche, Kossack decided on DVDs. He reasoned that there are always new titles coming out, creating an ongoing demand for the product, and most DVDs are the same size and weight, which makes the process of packing and shipping them much simpler.
However, “finding suppliers was difficult,” he says. By calling major distributors from the study room in his dorm, Kossack eventually got his foot in the door. But he says the sales terms at the outset “weren’t very good,” mainly because his sales volume was low.
Profit-focused: That soon changed as Koss DVD’s sales volume increased. In its first year in operation, the company sold $500,000 worth of DVDs. But what has kept the business on course has been Kossack’s focus on profitability, not sales. “Sales volume isn’t all that’s important,” he says. “What’s really important is profit.”
While most businesses focus on the top line–sales–Kossack has paid equal attention to keeping costs down. One change to the company’s shipping process, replacing the bubble envelopes it had been using with a lightweight alternative, shaved 0.3 ounces off each package’s total weight and saved the company $10,000 in its first year.
From the start, Kossack has tracked each order’s profit margin carefully, taking note of all the factors affecting profitability to make constant improvements. But in 2006, recognizing how important such calculations could be for any eBay business, he paid another student to create software and used the new formulas to replace his manual calculations. Since then, he branded the software ProfitBuilder and is selling it commercially.
In addition to automating his profit tracking, Kossack has renegotiated deals with his suppliers based on his company’s track record of growth and success. He’s also expanded his product line, from 1,000 DVD titles to 10,000, and added video games and iPod accessories to his store. He says, “We’re becoming more of a superstore.”
Smart Tip: Be sure to research your intended industry thoroughly to understand what margins are typical. You will be better armed to negotiate with suppliers, and you can confirm upfront that your business can be profitable.
ennifer Canty, 35
Dyscern
Sterling, Virginia
eBay User ID: dyscern
2006 Sales: $6.8 million
Projected 2007 Sales: $12 million
eBay Business: Consumer electronics sales, including MP3 players, PDAs, cell phones, smartphones, digital cameras and portable DVD players
Back to Work: After having her first child, Jennifer Canty’s plan was to return to her old consulting job. But when it didn’t work out, she began looking for a new opportunity. Her husband and now business partner, Bill Frischling, 35, an avid buyer on eBay, suggested she take a look at selling on the site.
Using her analytical consulting skills and MBA training, Canty researched the market, developed a business plan established performance metrics and focused on achieving profitability. Because she already knew something about consumer electronics, she opted for them as her niche. Their modest size meant shipping wouldn’t exceed each product’s value and they would be easy to store.
Since Canty started the company in 2003 from her basement, selling salvaged, end-of-life and customer-returned consumer electronics, her sales have at least doubled each year. Canty has moved the business into warehouse facilities and started selling new consumer electronics in addition to refurbished items. She lists approximately 1,000 units a week.
Canty believes Dyscern’s success came from her decision at the very beginning to run an eBay business, as opposed to a part-time resale shop. “eBay makes it easy to start up,” she says, “but there is so much more to it if you want to start a full-time business.”
Cost Cop: One area Canty pays very close attention to is cost control. She knows exactly what her costs are, outsources when it’s cost-effective and is vigilant about staying on the right side of eBay’s regulations. But Canty also knows that it often makes sense to let go and bring in outside help. Within six months of starting the business on eBay, for example, she brought in a partner, John Angerer, 35, to help manage the business, which now has 14 employees.
Smart Tip: Make sure you know your cost structure–how much each piece of the process is costing you, from product acquisition to eBay fees to salaries, shipping and overhead. Remember: To grow, you need to have positive cash flow
Lanny Morton, 38, and Deena Morton, 39
Sportscloseouts.com
Glendale, Arizona
eBay User ID: sportscloseouts
2006 Sales: $3.3 million
Projected 2007 Sales: $4 million
eBay Business: General sporting goods
A New Playing Field: “Four and a half years ago, I was broke” and needed to make some money, says Lanny Morton, owner of Sportscloseouts.com. When his then-girlfriend, now wife, Deena, spotted some baseball bats on sale for $40 each, she encouraged Lanny to buy them to resell on eBay. Despite the fact that he had next to no experience with eBay, he knew the bats were worth more than $40. So he borrowed $800, bought 20 bats and listed them for sale on eBay. They quickly sold for a total of $1,300.
Recognizing the business’s potential, Deena wanted in, so she invested $1,300 and they bought more sporting equipment. It sold for $2,600. Reinvesting that money, they earned $4,000, then $6,000 and up. “We put every penny back into the business for the first year and a half” and ran the operation out of Deena’s house, Lanny says.
Today, the company typically runs 1,000 auctions a week, though during busy seasons, it increases to as many as 2,000 to 3,000. Everything from bats to water sports equipment to snowboards is available through Sportscloseouts.com, and items have an average selling price of $70.
Basic Training: What is currently a multimillion-dollar business started out small–very small. “We started with basic tools,” Lanny says. “We wrote shipping labels [from] the floor of the living room with a pen,” rather than printing them or using shipping software. Although the process was time-consuming, it was also low-cost, which was a priority in those days.
But eventually, the number of auctions exceeded the couple’s capabilities, and they began investing in people and resources to help them manage the business more efficiently. They call one such resource, ChannelAdvisor, a lifesaver. “We had a day right before Christmas when we had to ship 800 packages,” a number much higher than the typical 150 to 200 packages a day, says Lanny. “In the old days, that would have taken us a week.” But with 10 employees and their automation tools in place, getting the packages shipped was a breeze.
The couple attributes much of their success to taking care of their customers. “We do whatever it takes to make it right,” says Lanny. In return, they earn loyalty from their customers–20 percent of whom are repeat buyers.
Smart Tip: Negotiate attractive shipping rates with major carriers to make it affordable for people overseas to buy from you. Approximately 20 percent of Sportscloseouts.com’s shipments head overseas, and the percentage is growing.
Ted Corriher, 43
Corriher Implement Co.
Newton, North Carolina
eBay User ID: tractor123
2006 Sales: $3.2 million on eBay
Projected 2007 Sales: $4.5 million on eBay
eBay Business: Farm equipment and accessories
Planting Seeds of Growth: “Once you list on eBay, your business is going to increase,” says Ted Corriher, owner of Corriher Implement Co. It’s a foregone conclusion. And he should know–Corriher’s sales increased by a whopping 400 percent in three years through eBay.
Corriher Implement Co. was founded more than 60 years ago by Ted Corriher’s father, Charles, as a mule-trading business turned-farm equipment supplier. But it was Ted who took the business online in 1999.
Corriher first experienced eBay as a buyer, and he constantly marveled at the savings he found there: “I haven’t found anything that I couldn’t buy on eBay for less,” he says. Impressed by the volume of buyers on eBay, he decided to give selling a try, putting New Holland agricultural and industrial equipment up for auction. The products were a hit. Within two years, eBay generated $1.2 million in sales for the company, and Corriher knew he was onto something.
The company currently lists about $200,000 worth of inventory at a time–everything from New Holland T-shirts to $50,000 new tractors.
Ready for the Harvest: Such growth does come with some challenges. “Be prepared for the increase,” says Corriher. As sales rise, so will the number of e-mails and inquiries. Corriher’s e-mail volume has quadrupled in the past few years, and the company has had to add staff to be able to respond to customers in a timely manner.
Smart Tip: Representing your products accurately and completely will eliminate most potential problems. That means showing imperfections clearly in photos, mentioning any flaws and addressing customer questions before they come up.
You could be the next eBay millionaire. To learn how, see Entrepreneur magazine’s Startup Guide #1824, eBay Business, available at www.smallbizbooks.com; and visit our eBay Center online at www.entrepreneur.com/ebay.
Marcia Layton Turner writes regularly about small-business issues and is author of the award-winning book The Unofficial Guide to Starting a Small Business.
Entrepreneur.com
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