The REAL cost of online auction sales examined... ( 1 2 )

Discussion in 'General Discussion' started by ruffitt, Feb 25, 2003.

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  1. ruffitt

    ruffitt *TFF Admin Staff* In Heaven Now

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    NeoDebo
    Member
    Posts: 27
    (6/15/01 9:27:51 am)
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    What does it REALLY cost to sell a gun on an online auction site?

    Some assumptions and guidelines are necessary in order to examine this question.

    I will use GB's current fee schedule for this discussion. I will assume that when one lists an auction that he will NOT choose any "Extra Fee" type of "Attention Grabbers" such as BOLD TYPE, COLORED TYPE, etc. If such "Extra Fee" items are used in the auction then the analysis must be adjusted accordingly.

    GB's fees are: 1) 0.00 for listing; 2) 5% fee for the first $25 of the sales price; PLUS 2.5% fee for the portion of the final sales price between $25.01 and $1000; PLUS 1.25% fee for all portions of the final sales price that is $1000.01 or greater. (Some other auction sites, eBay, for example, charge listing fees.)

    Now assume that we are in the business of selling firearms for a profit. Further assume that we sell ONE firearm for exactly $300 using the GB online auction site as our venue. The costs of selling ONE firearm on GB would be: 0.00 Listing Fee PLUS $1.25 (5% of the 1st $25) PLUS $6.88 (2.5% of $275). This comes to a total fee charged by GB of $8.13.

    What is the percentage of the sales price that these fees represent? To calculate this we divide $8.13 (the fees charged) by $300 (the final sales price). We get .0271. Now multiply this by 100 to convert to a percentage. This percentage is 2.71%.

    In other words, it costs us 2.71% of each gun sale for the privilege of using GB.

    Well, so far this doesn't seem too bad. However, a bit more analysis is in order.

    Since we are in the business of selling firearms for profit, then we must sell more than one in order to make a living. Again, we must make an assumption. Here let us assume that we sell (on average) exactly one gun each day in accordance with the above assumptions.

    $8.13 (GB selling fees) multiplied by 365 days per year equals $2967.45 per year in GB fees. In other words, in order to sell 365 guns, you must GIVE AWAY the equivalent of 10 guns per year for the privilege of using the auction site.

    Now, examine this situation from the viewpoint of percentages. We sell a gun every day thus, over time and in effect, we receive back all of our capital each day. Thus the daily fee of 2.71% is assessed against our capital each day. 2.71% daily rate multiplied by 365 days per year equals an annual percentage rate of 989.15 % per year. This percentage is much greater if all of your sales are small.

    You did say that you thought credit cards were high at 20% per year, didn't you?

    And you did say that you thought pawnbrokers were licensed thieves because they charge 25% per month (300% per year) didn't you?

    Study on it folks. When you overlay online auction fees over your normal and usual overhead, the total becomes quite significant. It is well worth the effort to seek out and use those auction sites that do not charge these fees. There are quite a few of these still out there.




    LIKTOSHOOT
    Senior Chief Moderator Staff
    Posts: 855
    (6/15/01 9:52:21 am)
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    Debo, I stirred this nest many moons ago, in the FVF Wars..(remember them), that was when GB stated most dealers made around a 10% profit.....using a $500.00 firearm. Backing that out...makes for a $50.00 gross dealer profit. Now sometimes, I use the added features....because it works for me on certain items.....normally the "Featured" section, "Bold" print....maybe "Colored" leader line. Based on the FVF and my 10% mark up.......well you can see where I`m going. They could have cut a better deal for the sellers, but chose not to. Like I said way back when, they could have done it better. When you use GB`s "Dealers 10%Profit Margin" it even looks worse, because now your working with the bottom line(GROSS PROFIT) Do the math against the dealer profit......GEESH!!!!! They(GB) are slurping up about 50% of the dealers profit......We "Dealers" must write the ads, take the pictures, the liability, the stocking, buying, shipping, ect........................Plus pay GB, great system they got!

    Zigzag2
    Senior Chief Moderator Staff
    Posts: 720
    (6/15/01 1:24:08 pm)
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    ezSupporter
    Re: The REAL cost of online auction sales examined...
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    Thanks for the info Debo, there has got to be a way to offer the service so everyone can make a buck!

    Zig

    LIKTOSHOOT
    Senior Chief Moderator Staff
    Posts: 856
    (6/15/01 1:36:45 pm)
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    .....Debo, one other thought.....they may have talked to "Davidson`s".....it runs the same line, thats why we don`t buy from them. LTS

    AntiqueDr
    Moderator
    Posts: 295
    (6/15/01 4:29:07 pm)
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    Your math has one basic, but enormous flaw. Using your example, if you sell one $300 gun per day for 365 days, your gross sales are $109,500. You were charged $8.13 for each of those 365 guns, making your total FVF paid $2,967.45. Now, as far as I can tell, that is still 2.71%.

    I keep detailed statistics on my auction sales, including gross sales (over $11K for May), cost of doing business including fees paid, the net profit in dollars and percentage, and the amount of time it took to realize that profit. GB is still a very cost-effective way to sell guns provided you buy your inventory accordingly. I could not survive on a 10% markup, auction or no auction.

    989%?? Must be that new math...
    Purveyor of Fine Firearms to the Enlightened Few
    www.apaxenterprises.com

    LIKTOSHOOT
    Senior Chief Moderator Staff
    Posts: 857
    (6/15/01 4:58:14 pm)
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    AD, you are right on....on the 10% thing, thats why we hunt, just as you do.....for those hard to find money makers. Sell other stuff, just to keep a flow.

    tuckerd1
    Member
    Posts: 154
    (6/15/01 5:01:37 pm)
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    Ditto Doc! I was going to post the exact same thing and you beat me to it.

    I'm not going to defend GB. If you can sell on these other sites for nothing, it is your decision to do so. But, ask yourself, do they reach the market that GB does? And when they do start drawing that many people, do you think that their site will remain free?

    Folks, it costs money to run these internet sites. I don't care if it is for profit or not. The amount of usage, or the traffic a web site has, determines how much ISP's charge people for the use of their equipment. As the number of users increase, the bandwidth usage increases. As the bandwidth usage increases, the equipment to support it goes up and the ISP determines whether are not to charge more. Generally, a business will be charged more. If a "free" auction site's bandwidth goes up, the ISP is going to see someone is making money and they are going to charge more for the usage.

    Not only are you going to have to pay more for the bandwidth usage, but equipment costs for servers, software and personnel to manage these websites and equipment is going to go up due to the increased demand. And we are not talking about a few thousand dollars, but into the hundreds of thousands and possibly higher. So if you are thinking of starting your own site remember all of this.

    Another option your have is to have a physical storefront in Podunk, USA. In order to reach the same number of people nationwide, you are going to spend a lot of money advertising. Will 3000.00 a year sell you 110,000 worth of merchandise. I dunno, but I doubt it.

    So think hard about it. Other than the BS going on with ripoff sellers and non paying buyers, selling on GB is not a very bad deal. You have to be very careful of who you buy from and not let that super deal interfere with your better judgement. And when you have to relist because of a deadbeat buyer, just grin and bear it. They are going to be there wherever you sell.

    Just my $.02 worth. And I do wish all of you the best of luck in your business endeavors!

    LIKTOSHOOT
    Senior Chief Moderator Staff
    Posts: 858
    (6/15/01 5:12:34 pm)
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    Well, you all have some flawed math, just how much profit is in a $300.00 gun? It ain`t $50.00, so lets get real with the numbers.....gross don`t mean squat. Lets back out the real spending denaros, it still don`t look good. At a 10% mark up on a $300.00 gun is $30.00........real dollars(net) $10,950, now subtract that small fee GB charges......yea baby!


    $10,950.00
    -2,967.45
    7,982.55 NET PROFIT.....How small is that....huh? We all know, you don`t hit a homerun on every piece.

    About $250.00 a month with not one fancy ad or colored line and does not take into account, if you loose alittle on shipping, packing or god forbid.....you take a hit on the firearm, just to move and get your money working again. Sorry, I have to disagree.....it ain`t cheap by any means.

    Edited by: LIKTOSHOOT at: 6/15/01 6:22:56 pm

    NeoDebo
    Member
    Posts: 31
    (6/15/01 5:32:30 pm)
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    I wish to offend no person, however, I must stand by my analysis. I think that perhaps we are trying to measure different things. The daily (or weekly, or monthly) interest is NOT the same as the APR. To obtain a valid comparison, one must convert all to the same rate. The APR (Annual Percentage Rate) is commonly used for this purpose.

    If one sells one item each day and receives payment for this item (or an equivalent amount for a prior sale), then he receives the ENTIRE amount of his invested capital back for this sale each day. Selling another identical item the following day for the same amount is the same as reinvesting his capital each day, and so on, for the entire year.

    The formula for calculating interest is I=PRT, where I=Interest, P=Principal, R=Rate, and T=Time. Rearranging this formula to solve for R gives the following formula: R=I/PT. If one invests $300 for one day and is charged 2.71 % for this privilege then the annual rate on this sale (the APR) approaches 1000%.

    This is very similar to modern day poker games where there a percentage of each pot is raked from the table for the benefit of the game's operator (the house). A 10% "rake" of each pot (played in just a few minutes) becomes an almost incalcuable annual percentage rate. Only the very best players can beat such a game over time.

    Or, consider the case of an "occupancy" tax (bed tax) on a motel/hotel room at 3%. Well that ain't much, is it? Or is it? The tax on a $50 room is only $1.50. But the true APR is 1,095%, not 3%. The 3% is a per night percentage rate, not the APR rate.





    Edited by: NeoDebo at: 6/15/01 8:50:20 pm

    tuckerd1
    Member
    Posts: 155
    (6/15/01 5:44:02 pm)
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    In my way of thinking, you have two basic options of how you determine the selling price of the merchandise.

    First you can determine how much the merchadise cost you, add your overhead (GB fees should be in OH) and then you add 10% of this subtotal as profit. Something like this:
    (Cost + OH) + (Cost + OH)*.01 = selling price.

    Second you can determine how much the merchadise cost you, add your overhead (again GB fees in OH) and then add 10% of the merchandise cost excluding OH. Something like this:
    (Cost + OH) + (Cost)*.01 = selling price.

    Now if the selling price is higher than the market will carry, then you have to find a way to reduce 'cost', 'OH' or both. Obviously we don't want to reduce profit if you can avoid it.

    There are numerous ways to do this. But, one good way to do it is to sell large volumes of merchandise. You can do that on sites like GB. Not sure if you can do it 'yet' on some of these 'free' sites.

    Another way would be if you can get enough sellers to leave GB, they may have to lower their seller's fees. But, you all may suffer in the long run.


    LIKTOSHOOT
    Senior Chief Moderator Staff
    Posts: 859
    (6/15/01 7:18:35 pm)
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    .....the other way is to start another auction site and figure the fees differently. That is why you are seeing less dutch auctions on GB, you are getting hosed for relistings.

    AntiqueDr
    Moderator
    Posts: 298
    (6/15/01 8:02:32 pm)
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    I do not see how the APR has anything to do with a particular sale. The sale nor the FVF is financed for a year. The concept is flawed. But, for the sake of argument, lets apply that to running an ad in the local newspaper. Ad costs $18 for 3 days (give or take - remember, I'm in Houston). Same $300 gun, same supposed profit margin. Less net profit.

    This may come as a shock to GB and those who seem acceptant of a 10% margin, but I wont buy unless I can sell at a minimum of 30% markup...

    Purveyor of Fine Firearms to the Enlightened Few
    www.apaxenterprises.com

    LIKTOSHOOT
    Senior Chief Moderator Staff
    Posts: 860
    (6/15/01 8:45:29 pm)
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    AD, don`t group me in that 10% group....Those are the infamous numbers used by GB Admin., to sell the FVF in the FVF Wars......way back when. I got slammed and blocked for showing the flawed logic of they`re 10% dealer profit, compared to the new FVF. I prefer, also, 30% plus.....if not, I have to hunt more food. LTS

    tuckerd1
    Member
    Posts: 156
    (6/15/01 10:25:02 pm)
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    AD & LTS, I agree you've got to get, most likely, 25-35% markup to cover your OH & Profit.

    In construction bidding, I saw many contractors that worked from an OH cost of 15-25% & a profit of 10% on top of that. They also included a markup in the material costs above wholesale. Then they applied their OH & profit to the material & labor costs. All these factors are eventually influenced by how hungry the contractors are & how tight the competition is with each other. Same can be said for gun sales.

    LIKTOSHOOT
    Senior Chief Moderator Staff
    Posts: 865
    (6/15/01 10:31:45 pm)
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    Ok, someone help me here as i`m alittle challenged on GB`s formula(math challenged) What would be just the FVF on the HK91A3 I sold awhile back for $2350.00?? LTS

    tuckerd1
    Member
    Posts: 158
    (6/15/01 10:42:37 pm)
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    $42.40 + additional services fees???

    LIKTOSHOOT
    Senior Chief Moderator Staff
    Posts: 868
    (6/15/01 10:58:59 pm)
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    You telling me or asking?

    tuckerd1
    Member
    Posts: 159
    (6/15/01 11:13:56 pm)
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    Take it or leave it. Sounds like GB don't it?

    LIKTOSHOOT
    Senior Chief Moderator Staff
    Posts: 871
    (6/15/01 11:35:14 pm)
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    so that is the cost of selling a $2350.00 item $42.40 and that is 2.7%......HUH? I think a zero fell off some where.

    tuckerd1
    Member
    Posts: 160
    (6/16/01 12:00:34 am)
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    42.40 is 1.8% of 2350. Cost to sell % is lower the higher the final value.

    AntiqueDr
    Moderator
    Posts: 299
    (6/16/01 7:53:06 am)
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    Sold a PPK for $1925, and the FVF was right at $41., so that does sound about right.
    Purveyor of Fine Firearms to the Enlightened Few
    www.apaxenterprises.com

    tuckerd1
    Member
    Posts: 161
    (6/16/01 7:55:26 am)
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    AD, You did rite good on the PPK!! Watched the auction.

    AntiqueDr
    Moderator
    Posts: 299
    (6/16/01 8:01:49 am)
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    I did stack the deck a little... Emailed some Axis collectors I've dealt with before and clued them in on the auction... Started a little bidding war. Good thing I didn't use a BuyNow, I would have set it at $1400!


    Purveyor of Fine Firearms to the Enlightened Few
    www.apaxenterprises.com
     
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