As one of the directors of a UK based engineering company which operates across multiple sales channels including eBay, I’ve learned a lot of lessons about ecommerce. Perhaps the most valuable of all is how, in the light of stiff competition from cut price retailers, we discovered that we didn’t need to be the cheapest online, and that increasing our prices ultimately lead to a more sustainable and more profitable business model.
Our business was established back in the 1970s and we began trading on eBay in 2009. Since then we’ve scaled our eBay business to the point where it now turns over close to £1m a year. We also sell via a number of other channels including Amazon and through our own online store. What is apparent is that of all the channels we sell through, eBay, owing to it’s auction house roots, is the most similar in characteristic to an old fashioned market environment where buyers come to find bargains and are prepared to haggle hard while fellow sellers regularly undercut the competition. It can, at times be the very definition of the word ‘cut throat’.
It’s very easy to fall into the mindset that you have to be the cheapest seller on eBay in order to succeed. By continually slashing your prices however you’re quickly eroding your margins to the point where that once profitable product is barely making you any money. I’ve seen the stark reality of this situation first hand when one of our customers and fellow eBay sellers took their eye off the ball. They were continually cutting their prices to compete with sellers based in China and Hong Kong. Within 2 years they had gone from a large warehouse operation employing some 30 people and boasting annual profits of £100,000 to making huge losses. They were recently forced to declare themselves bankrupt with debts owing to our own business totalling almost £10,000.
It’s an extreme example of how things can go wrong but it was nonetheless a sobering reminder that profit and success can be fleeting and that attempting to be the cheapest seller on eBay is simply not a sustainable business model. It instigated us to begin carrying out price reviews across our own eBay listings and to our surprise we discovered that we’d too fallen into a similar trap with some of our most popular products. What with rising costs (both raw material costs and seller fees) and our own irregular price reviews conflicting with the pressure to remain the cheapest on eBay, we’d inadvertently been selling some of our most popular products at a loss (no wonder they were popular). We too had, quite embarrassingly, taken our eye off the ball. Having seen first hand what could happen if we didn’t act to correct the situation, we immediately drew up an action plan. Here’s what we did:
– We increased prices. We took into account our material costs, eBay seller fees, PayPal fees, packaging costs and postal charges and calculated a revised retail price which would leave us with a healthy profit. That much is obvious. Here’s what we didn’t do though: previously we would have then looked at the price that our competitors were offering and anxiously begun trying to cut our prices to compete. This time, we just stood firm and rolled with the price we set, comfortable in the knowledge that if we could sell at this price then we would be making good money whilst those competitors that continued to undercut us would ultimately go bust or follow suit and increase their prices.
– Next, we redesigned our listings. We outsourced the design to Jarillo who are a professional eBay template design company. The cost? Only £250. We could have done it in-house to save money but outsourcing really makes sense as the time saving far outweighs the cost. (Read more about outsourcing here)
– Then we focussed our attention on our product photos. The photos themselves were good enough (we take them ourselves) but the photo backgrounds were busy and distracting. eBay’s latest product photo guidelines state that it’s good practice to place products on a white background. We sent our photos to ClipItQuick.com who operate an image ‘clipping’ service whereby they remove the background from the image and place it on a white background. This really transformed our product photos and made them look far more professional.
– We then improved our listing descriptions, adding more detail, using more bullet points, cross linking between listings to make customers aware of our other products, and also checking our spelling and punctuation. The latter improved buyer confidence no end.
– We also focussed more time on delivering continually great customer service in order to achieve a 99.9% eBay seller rating. This has been achieved through treating eBay messages and cases in the resolution centre with the highest of priority. By maintaining a high seller rating we qualify for discounts off our eBay fees, meaning lower overheads and ultimately more profit.
– Answering product enquiry messages both promptly and in a friendly and helpful manner also helps bag us additional sales. If a customer receives an immediate answer then this reassurance can often outweigh price differences between other sellers. And even if they don’t buy immediately, that friendly and helpful tone will likely help you bag sales further down the line.
The result? Have our sales slumped as a result of the price increases? Simply put, no. Because the price increases were offset by improvements to our listings and customer service. As a result our profit per sale and average basket value has increased considerably. We count ourselves lucky that, owing to a fellow eBayer’s misfortune, we were able to learn from their mistakes and make our eBay business both more sustainable and more profitable, by increasing our prices.
Did you know that product images on white backgrounds result in better sales? You may have noticed that this is how all the big online retailers display their product imagery. If you want to see what your product images look like when professionally clipped then take advantage of our free trial now!