Absolute Beginners Guide to Launching an eBay Business

Once you find a source for merchandise, you now have the challenge of managing your newfound inventory. That means determining how much to buy and when to reorder.

Ordering the Right Quantity

It's tough to establish how much merchandise to order, especially when you're first starting out. The problem is amplified when you have to order large quantities of an item, or qualify for a larger discount the more you order. It's tempting to shoot the moon to get the best possible price, but that's sometimes a dangerous strategy. It's also problematic if your storage space is at a premium; you certainly don't want to order more stuff than you have room for!

"Mike Sez"

The best strategy is to research similar auctions on eBay, as discussed in Chapter 3, and make an educated guess as to how many items you can sell in a typical week. Multiply that by 4, and round off a little to come up with a conservative estimate of your first month's sales. When you're first starting out, keeping a month's worth of inventory on hand is a safe way to go. If your guess is off by 50% either way, you're still okay; you'll either have two weeks' or two months' worth of inventory on hand, either of which you can handle. If, on the other hand, you order two months' worth of inventory, then if you're off by 50% you're either out of stock in a week or stuck with four months' worth of stuff ” neither of which is that attractive.

caution

In addition, when you place an order for a large quantity of merchandise, you need to make sure that there is a sufficient long- term demand for that product. Fads and fashions change over time; don't order six months' worth of inventory if the current fad looks to burn itself out in three. It may be more prudent to pay a higher per-item price for a lower quantity than risk not selling a substantial portion of a larger-quantity order. (And remember ”you have to store all those items somewhere. )

Managing Your Reorders

Once you start selling, you need to keep track of how much inventory you have on hand. That's where your inventory management system (see Chapter 6, "Step Four: Set Up a Record-keeping System") comes into play. You have to subtract every item you sell from the quantity you initially had on hand. When your inventory drops to a specified level, it's time to reorder more.

Of course, this situation poses two questions: At what level should you set your reorder point, and what quantity should you reorder?

To the first question, your reorder point should be based on how long it takes you to receive any order you place from your supplier. For example, if your supplier ships within a week of you ordering, you can safely set your reorder point at a week's worth of inventory. Let's say you're selling 20 units per week, and your supplier reliably ships within a week of your order. Set your system to alert you when your inventory drops to 20 units. Place your reorder immediately, and you'll have your new stock arrive just as the last of your old stock runs out.

caution

Naturally, if your supplier ships more slowly, you should set your reorder point higher. Let's say your supplier takes two weeks to fill an order. If you're selling 20 units a week, you should set your reorder point at 40 units ”two week's worth of inventory.

tip

As to how much you should reorder, this is dependent on how many units you're selling per week, how long you expect sales to stay at this rate, how much inventory you feel comfortable with, and what discounts are available for larger orders. If you're fairly confident that sales will continue at current levels for the next two months, and you get an extra discount for larger quantities, then go ahead and order two months' worth. (Assuming you have the space to store it, of course.) On the other hand, if you think sales will slow (because of changing fashions, or seasonal trends, or whatever), then don't go out on a limb ”order another few weeks' or at most a month's supply. Order the quantity you feel comfortable with ”you're the one who has to assume the risk.

Deciding to Drop Ship

This is as good a place as any to discuss the issue of drop shipping . This is the practice of selling an item that you don't physically have in stock. You make the sale (via eBay), and then notify your supplier of the purchase. Your supplier then drop ships the merchandise directly to your customer, billing you in the process.

While drop shipping might sound attractive from an inventory management standpoint (you have none to manage), it might not always be the best deal for your customers ”especially if your supplier isn't always a speedy shipper. Remember, your customers hold you responsible for shipping the products they purchase, and if a drop shipment isn't prompt, you are the one who'll get the complaints (and the negative feedback). If, for whatever reason (like they're temporarily out of stock), your supplier drops the ball and never ships the merchandise, you're on the hook. If this happens too often, you could get the boot from eBay.

While not all distributors offer drop ship services, many do. Check with your wholesaler to see what services are available.

In addition, a good source of drop-shipped merchandise is All Drop Ship (www.alldropship.com). This site offers merchandise from a variety of wholesalers, and then serves as a middleman to provide drop ship service to your customers.

Also useful is the Worldwide Brands Drop Ship Source Directory (www.info1.mydssd.com/wwb/). For a fee ($69.95 for the first six months ”pricey!), you can search from thousands of companies that drop ship a variety of different merchandise; you can search by either brand name or product type.