Does Anyone Get Rich on eBay?

Does Anyone Get Rich on eBay? By Elizabeth Millard
July 3, 2006 8:15AM

"There are those who get rich on eBay, but there is also more smoke than fire," says Joe Kennedy, author of "The Small Business Owner's Manual." "There are a lot of people working really hard and not making much money. The kicker is that they don't really realize it."

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In its nearly 11 years of existence, the auction site eBay has come a long way from its early days as a souped-up online flea market. Thanks to its anyone-can-sell business model, and a prevailing philosophy that there's a buyer out there for anything, eBay has become the granddaddy of all auction sites. Countless people have managed to sell an item or two at a profit.

Some people have even managed to make a tidy living by selling stuff on eBay, sacrificing nights and weekends to keep their inventories moving. And some of these so-called PowerSellers do well enough to ask themselves a potentially life-changing question: Is eBay a place where I can get rich?

Some PowerSellers claim that riches can be had, but that it takes an almost-obsessive focus on how the selling is done, what's being sold, and how inventory is managed. In other words, if someone selling $1 geegaws on eBay envisions buying a private island someday, he or she had better keep dreaming. If, however, those widgets are $50,000 each, some snorkeling gear might yet lie in the future.

The PowerSellers of eBay know that what seems to be a straightforward business venture -- you sell, someone buys -- is actually a complex maze of strategies, price controls, feedback, and site policies. Playing all of these elements to one's advantage can make the stock exchange seem like a snap. Whether the payoff from eBay can make a seller rich is another question entirely.

Going Past Gold

First, a little insider information. On eBay, to realize an enormous profit, you almost always need to become a Titanium PowerSeller.

A tiered system designed to reward qualified sellers, the PowerSeller program is by invitation only, and has a number of criteria that must be maintained to keep the designation. At the lowest level, Bronze, a PowerSeller must average at least $1,000 in sales per month for three consecutive months; have an account in good standing; and get an overall feedback rating of 100, with at least 98 percent of the comments marked as positive.

Just like credit cards, the more precious the metal, the higher the status. Bronze is followed by Silver ($3,000 in sales per month) and Gold ($10,000). The PowerSeller program makes a big jump at Platinum ($25,000), but that's a minor hop compared to the gulf between Platinum and Titanium. That top-tier designation requires $150,000 per month in sales, and sellers must maintain that level, as well as a 98 percent positive-feedback rating, to keep it. (continued...)

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Feedback plays an enormous role, which should come as no surprise to anyone who's ever bought something on eBay and been pestered to post positive comments. If feedback levels drop even slightly -- from 100 to 98, for example -- a seller's status is threatened. Once you lose feedback credibility on the site, it can be a hard climb back, even if 97 percent of the comments are positive.

Fortunately, a few annoyed buyers won't completely kick you to the curb, since the program calculates feedback ratings differently than the ratings visible on the member profile pages. What buyers see is a rating based on unique users, while the PowerSeller score is based on total feedback, to reflect the overall happiness of repeat buyers. Because PowerSellers depend heavily on repeat buyers, and Titanium PowerSellers in particular rely on such business, the system helps sellers maintain their status.

EBay does not release any numbers on its PowerSellers. According to Amy Joyner, author of "The eBay Millionaire," less than 4 percent of the millions of eBay merchants have earned PowerSeller status, and of these, only a tiny slice have gone Titanium. What they sell ranges from vintage Rolex watches to designer shoes to sports collectibles, Joyner notes, all the way up to Mini Cooper automobiles, jewelry, and computers.

Select Sellers

Although they are relatively few in number, Titanium PowerSellers do exist, and several started their businesses with modest means.

A prime example is David Wirtenberg, a 28-year-old entrepreneur who runs Outrageous Auctions, which has its own retail arm but also sells enough merchandise on eBay to garner the Titanium tag. Wirtenberg got involved in online auctions in 2003, while unemployed. His father-in-law suggested selling jewelry on eBay, and after only three months, Wirtenberg had lined up a supplier, hit the Titanium level, and began hiring employees.

Such success, seemingly overnight, wasn't without effort or the need for a cash infusion to get started, Wirtenberg says: "To ramp up, you need money, that's just the way it is." Although Wirtenberg shares no details on how he acquired his start-up funds, he does say that once inventory is in place, it's all about buckling down and working hard. He also acknowledges that it doesn't hurt to be selling expensive rings instead of 99-cent CDs.

However, selling expensive wares can be a Catch-22. The path to Titanium status might be shorter, with just a handful of items needing to be sold to hit $150,000 per month, but it's also much harder to convince people to shell out tens of thousands of dollars to an online seller. Even with the ubiquity of online retailers and the success of higher-priced items on home shopping TV channels, many prospective buyers still hesitate when it comes to punching in their credit card number or PayPal account details. (continued...)

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"If someone is scared to buy a $300 iPod online, think of how nervous they are to buy a $5,000 ring," says Wirtenberg. "That's why PowerSellers have to focus so strongly on conveying trust, and distinguishing themselves as individual sellers. People aren't buying from eBay, they're buying from us. And that's an important distinction."

Most companies are adamant that they provide stellar customer service even if they don't, but when PowerSellers talk about customer care, they mean it -- and the proof is in the ratings. Outrageous Auctions maintains a rating of 100 percent positive feedback, and Wirtenberg emphasizes that earning so many smiley-face icons takes a great deal of work.

"Whatever our customers want, we do," he says. "We follow up on everything. We understand this is a big purchase for most of them, but we know that once we have a new customer, that's our customer for life. So we put a lot of emphasis on giving them the greatest retail experience possible."

Powerful Evidence

Further demonstrating that PowerSellers seem to sprout from humble beginnings, another Titanium member, Mike Shelton, was working at a golf pro shop when he started selling on eBay to help his employer liquidate some extra inventory.

Before long, Shelton had taken on a partner and started a company, Designer Athletic, that sells retailer overstocks. Although the company has several employees to handle sales, Shelton still creates hundreds of auctions every day, and even fills some of the orders himself. In 2004, less than a year after the company was founded, it had revenues of $5 million.

Another Titanium PowerSeller, John Stack, started selling on eBay as he got ready to close his family's restaurant-equipment business in 1999. After putting 50 coffeemakers on the site, and getting far more money for them than he thought he would, Stack became an "eBayer," and began listing more and more items. He reached $10 million in revenues within five years.

Although all of these PowerSellers might hawk different types of items, and at different price ranges, they tend to have certain attributes in common -- for starters, very few start out on eBay looking to become Titanium sellers. Rather, they seem to have a knack for selling and find that eBay is an effective channel for their talents. They're willing to put in the inordinate amount of time it takes to answer e-mails, ship packages, create listings, and find new inventory sources. (continued...)

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"There are many eBay hucksters around, people who promise that amateurs can earn quick and easy riches by selling on the Web site," Joyner writes. "But these top-level PowerSellers are frank about the hard work that is required to truly build a multimillion-dollar business."

Making Bank

The lure of Titanium status might be compelling, but some eBay sellers believe that it's tough enough to make a decent living on the site, much less become a millionaire. "Can you get rich on eBay? In a word, no," says Terry Gibbs, author of "The Auction Revolution." Gibbs does a weekly eBay educational segment for Clear Channel radio, and was one of the first large consignment operators to do business on the site.

The problem, he notes, is the "volume trap." The only way for a seller to increase income is to list more items, but that means finding more wholesalers, amping up an inventory system, and spending more time packing and shipping.

"If you are selling new items, the competition ends up raising the prices you must pay for your stock," Gibbs says. "Also, once you establish yourself, others will undercut your prices in order to take your sales, driving your profits per auction down."

People selling used items also get slammed by the same market forces, he adds. If you are selling an antique or collectible, you can look up pricing information on eBay first, and then sell the items yourself for slightly less, rather than go through a PowerSeller.

There are sellers who can hack it, Gibbs says, but he believes they're few and far between.

"The majority of the larger eBay sellers sacrifice lifestyle for volume," he says. "The smaller sellers chase this volume because they think it's the only way and ignore the consequences."

But Gibbs does know some sellers who have managed to escape the list-and-ship treadmill by hiring employees. This will ease time restraints and leave the seller more time to investigate alternate sources of inventory, but it comes with its own difficulties. For one thing, paying extra workers eats into profits; for another, having an extra set of hands doesn't automatically mean that inventory issues will be solved. (continued...)

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"The sellers who can do it are masters at sourcing products," Gibbs says. "That's where the profit really comes from. The eBay auctions are just a sales channel. If eBay wasn't there, these people would still be successful."

Tricky Business

For those eBay sellers who don't trade in expensive goods, the path to riches is likely to be much tougher, maybe even impassable. Hitting the jackpot depends not only on the amount of time seller put into the effort -- which, by many estimates, is "every possible second" -- but also on how they manage inventory and budgets.

To succeed in making a living selling on eBay, one has to go into it with eyes wide open, says Joe Kennedy, author of "The Small Business Owner's Manual." Kennedy advises a number of eBay sellers and sells a modest number of items himself.

"There are those who get rich on eBay, but there is also more smoke than fire," he says. "What I've found is that if you're a buyer, you can get incredible deals, but the flip side of that is the sellers have to sacrifice to offer them. There are a lot of people working really hard and not making much money. The kicker is that they don't really realize it."

Although it seems odd that sellers would be unaware of losing money, Kennedy notes that it happens frequently, because of the way the system is set up. Sellers might turn over a healthy amount of inventory, get it shipped quickly, and have the money in their accounts promptly, but the level of detailed bookkeeping necessary can give sellers a skewed view of their operations. They might look like they're headed toward riches on paper, but in reality, it could be the road to the poorhouse instead.

"Some work like dogs, and they figure that because they're working so hard, they're doing really well," Kennedy says. "But the fee structures are complex with credit card services and auction management, and it could be that they're losing just a little bit of money on every deal. It happens far more often than most people think. EBay buyers wonder how people can sell things for so cheap, and the answer is: They can't."

To pocket a nice amount of revenue, a PowerSeller has to have access to good products at good prices. While that seems obvious, it's certainly not easy, says Kennedy. (continued...)

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"So many people are scavenging and undercutting each other," he says. "The sellers are a strong community, and support each other, but one thing they won't tell each other is where they get their products."

Going, Going, Gone

If a seller does manage to find a solid supplier, that's when the real work begins. To turn a profit, a seller has to be shipping every day, and often must broaden the product range to capture more buyers.

So, with the right pieces in place, it is possible to get wealthy, even if it means kissing most of your free time goodbye. But look at it this way: If you never take a vacation or have time to go out to dinner or even see a movie, then that just means more money in the bank, right?

"When you offer more products and do that much shipping, it eats up your time," says Kennedy. "To be Titanium, you have to be selling a lot, adding products, changing prices, tweaking your listings. On top of that, you have to figure out where the money is going in an extremely complex system. There are only so many hours in the day, and you'll end up using all of them on eBay."

Jim Griffith, who holds the title of dean of education at eBay, agrees that when it comes to success, eBay tends to foster an environment of "survival of the most dedicated."

"When you have the initial flush of success, it can be overwhelming, and you have to stay nimble," he says. "It's like any marketplace, where you have to constantly be on the lookout for more efficient ways of doing business."

Although eBay doesn't release figures on its PowerSellers, Griffith did note that the number of PowerSellers is climbing, and that those sellers are learning to be more flexible and strategic as the site evolves.

"The glib answer is that it's easy to get rich on eBay if you have the money to do it," he says. "But for those who don't start with capital, it really is possible to reap some serious financial benefits."