Power Up Your Profits

Auctionography—June 26, 2007

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This Week´s Auctionography—Combining Successful Market Research with Effective Product Sourcing Strategies

By Steve Nye, eBay Certified Consultant

Ever seen a juggler at the circus? I remember being captivated by the precision and pizzazz of a particular juggler when I was younger.

First he started with balls, and then moved to bowling pins. From the pins he moved to knives and then to swords. I was captivated! But what surprised me most was his grand finale—chainsaws!

The act was a hit, and it was all based on a very simple process: anticipate, catch, and release. This is really all the juggler was doing, over and over again. Anticipate, catch, and release. Whether it was pins or chainsaws, the process was the same.

The Turnover Principle

Surprisingly enough, this same principle applies to your eBay sales. However, instead of "anticipate, catch and release," your process is slightly different. It’s called the Turnover Principle.

You can see from the figure below that the three steps of the Turnover Principle are Research, Source, and Sell—again and again, over and over.

Benefits of the Turnover Principle

But what’s the point? Why should you turn your sales into a complicated juggling act? As if it’s not already complicated enough already, right?

The key to successful juggling, and to using the Turnover Principle, is actually based upon removing chaos and making the process less complicated.

Here are a few of the benefits of successfully mastering the Turnover Principle:

Stay Ahead of Change: Predict change and offer what consumers want, when they want it
Stay In-Demand All the Time: Be ready to phase out old products as new ones phase in
Focus on Profit: Know exactly which products bring you the highest return and know how to sell them at peak prices
Offer a More Fluid Inventory: Don’t get stuck with only one product offering when you can successfully offer many

Essentially, applying the Turnover Principle to your eBay business gives you a solid sales strategy based on what is actually going on in the market. It’s time to remove the guesswork when it comes to your profitability, and the Turnover Principle does just that.

Start with Product Research

You can see from the figure that the Turnover Principle begins with research because research reveals:

What products are selling well
How much these products are selling for
The supply and demand for these products within the market
Your profit potential

Look at any successful company, large or small. Their secret to success is based on making sound decisions based on the facts. It’s through research that you gain the facts, or the answers to the list above.

In short, research is essential for this to work effectively for your business. Here are some tips to help you start your research effectively:

Get general direction
Get more specific direction
Calculate profit potential over time

1. Get General Direction

A perfect place to start your research is to check out eBay’s hot lists.

This will tell you the current hot-selling categories on eBay. You can get some good ideas of categories you may be interested in selling.

However, you need to know how hot lists are created. Let’s say for example that the Women’s Clothing > Jeans category was listed as hot. This means that you should run out and buy a truckload of women’s jeans, right?

Wrong.

The Women’s Clothing > Jeans category is hot, but that is based upon averages, specifically upon the Listing Success Rate (LSR) for that category. Usually anything over 50% success rate is considered hot.

But, that means that some jeans sold with a higher conversion rate than 50% while some sold at a lower conversion rate. It is impossible to know which jeans sold well and which ones didn’t without getting a little more information.

Now that you have a specific category you know is hot, it’s time to use a research tool like Auction PI Research to find which brands are the hot ones.

To do this, you will want to start with a category research for Women’s Clothing > Jeans.

Once you’ve got the results on how that category performed, you can start to zero in on specific brands, styles, sizes, etc. Anything with a success rate higher than the average can be considered hot, and anything lower than the average is not.

In our results above, we found four brands of jeans that sold for higher than the average LSR, which for the Women’s Clothing > Jeans category was 44.18% with an ASP of $26.47.

One of the top sellers for Women’s Jeans is the brand 7 for All Mankind, with an LSR of 65.84% and ASP of $61.25.

So now you’re ready to order that truckload of jeans, right?

Not quite, because you still don’t know which styles, sizes and types of 7 for All Mankind jeans are most popular and most profitable.

2. Get More Specific Direction

Now you’re ready to narrow in even more with your research. This time, instead of doing a category search within the Women’s Clothing > Jeans category, we can do a product search on our specific product, 7 for All Mankind.

Use Auction PI Research to zero in on a specific product by searching for styles, sizes and types with:

Success rates greater than the overall LSR
Selling prices greater than the overall ASP

Remember, 7 for All Mankind overall stats: LSR = 65.84%, ASP = $61.25.

Our results in the table above give us even more insight into specifically which types of this brand are profitable and/or successful.

It’s also good to try out some combos, too, such as Boot Cut and Stretch: LSR=89.47%, ASP=$43.22, as well as Low Rise and Boot Cut: LSR=86.36%, ASP=$37.05.

Now, of course you still can’t order a truckload of jeans because you don’t know your profit margins. Even though Boot Cut sells for a lower price than the average, it really comes down to your cost of sourcing the product.

3. Calculate Profit Potential over Time

Don’t worry; we are talking about simple math here, so you can put away your latent anxieties over college algebra.

In order to calculate your profit potential over time, you’ll need the following figures:

The Listing Success Rate (LSR)
The Average Selling Price (ASP)
The price you’ll have to pay for the product
Your selling fees (Insertion, final value, PayPal, other)

First, determine your profit for the sale of a single product. This is the Profit Formula.

Profit Formula: ($ASP) – (Cost of the Product) – (Selling fees) = PROFIT

An example using 7 for All Mankind NYD would calculate as follows:

$8.27

Next, determine your profit over time. In other words, if you bought 100 pair of jeans, what would your profit be over time?

Profit-Over-Time Formula: (Profit per Item) x (# of Listings) x (LSR%) = Profit Over Time

An example for 100 listings of 7 for All Mankind NYD with a profit of $8.27 would calculate as follows:

$599.08

Ready for that Truckload Yet?

So now can you contact your supplier to order that truckload of jeans?

YES!

You have successfully juggled the first step in the Turnover Principle (Research) and are ready to move on to the next step (Source).

Part two of this article will discuss both finding a product source and then selling those products for the maximum selling price.

So, in the words of Batman: “Same bat time, same bat channel!”

Steve

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