Many eBay enthusiasts dream of becoming super power-sellers, but few really make Five Aussie entrepreneurs reveal their multiâ€‘million dollar trade secrets. Interview by Gillian Samuel.
Taking the plunge
Watch out, Dick Smith, Bing Lee, and Harvey Norman, Ruslan Kogan is out for a slab of your market. But he won’t be opening a store in the same shopping Centre as the electronics heavyweights. The 25-year-old is already turning over $5 million a year through his eBay-based online business.
When Ruslan started Kogan Technologies two years ago, his motivation was simple. He was just a guy with a passion for technology, who couldn’t afford to buy an LCD television set from a shop in Australia. Kogan started contacting suppliers in China and discovered he could take two-thirds of the cost.
He discovered this the hard way, first contacting around 200 different suppliers and then narrowing them down, determinedly seeking the most competitive deal – a strategy he maintains to this day.
His next move was to harness eBay’s selling power to pre-sell the 80 sets he had ordered from the supplier. Then he flew to China to set up his next deal and to organize product branding with his own company name. Now Kogan ships several containers of LCD and plasma TVs, portable GPS units, digital photo frames, and GPS watches a week.
He recently expanded his business into New Zealand and has his eye on Europe and the United States. Kogan’s success can be attributed to his ability to realize the potential of online trading, through eBay in particular. He makes no secret of this – or anything else for that matter. He is a model of transparency.
“eBay provides an excellent sales avenue because it allows you to streamline your sales process and your time to market. It also guarantees sales.” These factors allowed him to leapfrog the issue of funding start-up and marketing and also helped him establish credibility. “I didn’t do any marketing, to begin with, because eBay was doing it all for me. I was getting 100 hits a day on a single item.
“Selling online lets you demonstrate the kind of technical expertise that builds trust. I started by listing the product specifications, which I still always do, and I back that up by providing reliable information about the products.” Kogan’s enthusiasm for gadgetry remains undiminished – and he wants to share it. “I love what I’m doing and have a passion for technology. I want to make it more accessible for everyone.”
Know your product
It seems that most successful eBay traders start with some kind of light bulb moment, rather than setting themselves up and then finding merchandise to peddle.
Bruce Nichol, who trades under the name of Nicholnack, collected Carlton Ware china as a hobby and sourced items for himself from eBay. After saving $2000 as seed money, he went into the collectible ceramics business for himself.
Vintage clothing collector and Queensland solicitor, Ali Breeze-King, put a pair of 1940s heels that didn’t fit her properly on eBay. When they sold for more than three times what she had paid for them she realized there was an opportunity begging. Her boutique-style approach and focus on customer service have allowed her to indulge her interest and to travel at a whim while operating her online business Breeze Vintage.
Ben Moran bought a digital camera from the US and realized his competitively priced, the shiny new purchase might appeal to others, so he ordered several more. Moran now has an Australia-wide distribution network for his company, Mini digital, and continues to sell high volumes of all kinds of electronic equipment, including office essentials, through eBay. Moran maintains there are two components to online trading success. The first is the creative aspect of coming up with the idea, the rest is its implementation.
Master your craft
Profit margins are absolutely essential to success. Former accounts manager, Cynthia Scholten, had absolutely no difficulty in identifying the business opportunity presented after selling a carton of canvas for the wholesalers where she worked at a profit – within a couple of hours of listing it on eBay.
When Cynthia became pregnant, she dealt with the need to become a stay-at-home mum and still bring in an income by negotiating a supply agreement with her employers. Four years later, her business, Artemart, is so successful that she also works as an instructor in how to do business on eBay.
Bruce Nichol agrees. He now specializes in Australian pottery, Carlton Ware, Royal Doulton, and Royal Winton, and his expert knowledge means that he knows almost exactly what an item will realize. Whether he is attending an auction in person or online, he sets a mark-up margin, and once an item exceeds this ratio he walks away.
Kogan visits China every couple of months visiting new factories and extending his contacts, playing his suppliers off each other strategically.
Be good, get good or get out
All the eBay power traders interviewed agree that honest, accurate and precisely targeted communications are absolutely key to happy buyers, return custom, and consistently positive feedback.
Bruce makes the point that you must not only compete to buy but also to sell. “When you’re competing against someone who is selling the same product, you have to be a better seller. That means providing a better product, better photos, and better descriptions.” He pioneered the use of Flash technology on eBay to revolve items so that viewers could see the entire item.
He adds that it’s absolutely crucial to know your market. “I know exactly who I’m talking to. I target people to whom the item is more important than the money.” For this reason, he ensures his ceramics are of immaculate quality and in perfect condition.
Scholten’s market is perfectly suited to mail-order, and particularly to buyers in rural areas where art supply shops are comparatively rare. The site attracts many experimental buyers – those who like to dabble – as well as the repeat custom guaranteed by dedicated painters.
Build a virtual brand
Far from being faceless entities behind the technology, eBay traders are at pains to establish an online presence. It’s a significant factor in creating a point of difference and attracting repeat custom or businesses through referrals or association. Beyond eBay itself, Google, Yahoo, and other websites can help with building a marketing profile. Moran has introduced a services department to back up sales of his 1200 eBay and 25,000 additional product lines, which handles IT-related services including repairs, desktop, and onsite support.
Kogan credits participation in online communities with helping to establish the credibility of his brand, involving himself in online forums and blogs, and providing guides on choosing electronic equipment.
Beyond his marketing objectives, he is sincere in his belief in a model virtual business. “I care a lot about community and the environment. There is not one piece of paper involved in the Kogan purchase process.”
The rules of engagement
Inspired by eBay’s efficiency, Kogan says he is constantly seeking to improve his enterprise’s systems and processes. “Everything from payments, receipts, dispatch requirements, customer notification, and SMS tracking is automated.” This streamlining reduces time and running costs in his operation and helps to maximize returns.
Moran has split his business along two lines, his core eBay line controlled from his admin and warehousing site in Malvern, Victoria, and the larger part of his online distribution network reliant on dropshipping. He says that when he started out it was common practice to omit mention of drop shipping, but he has since learned that delays occur and complete honesty is the best policy. “If a potential customer has an issue with this business structure we would rather give them the option not to buy from us,” he says.
Because Kogan and Moran are mashing high volumes of merchandise, warehousing is a major contributor to overheads. They have to employ staff and both say the job is 24/7. Their reward is in their seven-figure turnovers.
The niche sellers, on the other hand, can either run their ops on their own or split their time commitment with an assistant. In contrast to the high volume sellers, they log in 25 to 30 hours a week. They earn what amounts to the equivalent of executive salaries in the six-figure range.
Bruce Nichol can keep running costs low as he doesn’t need warehousing – his stock is high in value but small in size. On the other hand, he probably has higher packing and registered postage costs than others, but experience has taught him this is a worthwhile investment. Customer satisfaction is paramount.
Before you dive in and set up your own web business, be warned. There are quite a few pitfalls. Receiving payments from buyers can be difficult, and huge sums can be lost through credit card fraud. Moran, who has survived at least one major rip-off, advises operators to trust their gut instinct on this one. PayPal, and the new Australian player, eWay, have eliminated many of these problems but dropshipping and establishing profitable relationships with suppliers remain areas that can make or break an online business.
Cashflow management and being able to maximize automated features and timing involved in eBay trading are crucial. You must also be prepared for growth. Again, eBay provides support as operators make the transition from selling items on the site to making it their major source of income and creating their own storefronts.
Listing merchandise in a way that will reach and appeal to your target market is also key. Kogan very clearly understands that online trading can and will challenge traditional retail and that the demarcation lines of a new, virtual playing field are being drawn.