“2012” Starring John Cusack
What transpired after the release of eBay’s Spring 2010 Seller Update is similar to the storyline of this past summer’s blockbuster “2012” starring John Cusack. In this metaphor, the Spring 2010 Seller Update (S2010SU for short) will represent the heating of the earth’s core which led to the devastating earthquakes, torrential flooding, and volcanic eruptions that threatened John Cusack’s life. John Cusack is representative of all eBay sellers. Of course, AuctionCope.com will be the life-saving arks. You’re welcome in my ark for the price of one billion dollars or your entire eBay store inventory, whichever is lower. Unfortunately, I don’t want to ruin this fantastic movie so the metaphor will continue only after the movie hits cable or the next Seller Update, whichever comes last.
New Auction Fees Aren’t Good For Anyone
There are two kinds of basic fees on eBay that everyone (unless you’re Buy.com) pays – insertion fees and final value fees. The insertion fee is the most clearly visible on eBay because it is stated right before the submission of every auction. Because of their visibility, eBay continues to lower insertion fees to make eBay appear as though it is getting cheaper and cheaper. EBay isn’t necessarily getting cheaper though, as insertion fees make up only a fraction of total fees paid to eBay. Insertion fees are also a fixed rate fee based on starting price, so it is much cheaper to lower insertion fees, which are mostly under a dollar anyway. Even a slight decrease in final value fees would lower eBay’s revenue sharply, so it is not an option and has never been done.
Final value fees are paid after an auction ends with a winning bid or a sale is made on a fixed price listing. The final value fee is much less visible, although it is stated along with the insertion fee on fixed price listings. On auctions, the final value fee is not shown because the closing price hasn’t been established and thus, can’t be calculated. EBay does not include the final value fee of a specific sale in any email. The only place actual final value fees are available is the invoice, which can be found by logging in, going to “My eBay,” clicking “Seller Account,” clicking “View Invoices” and then selecting an invoice from the pull-down menu. Because final value fees are less visible and the “casual seller” eBay likes to talk so much about is generally unfamiliar with the fees that will be paid after a sale, eBay prefers to raise these rates while keeping the more visible insertion fee low.
The current final value fee structure on eBay is tiered. Sellers pay a higher rate (8.75%) on the first $25 of the closing price, a lower fee (3.5%) on the amount between $25-$1000, and an even lower fee (2%) on the amount above $1000. Most auction houses, including the famous Christie’s and Sotheby’s, operate on a similar sliding scale. The final value chart for auctions currently looks like this:
Beginning March 30th, eBay is “simplifying” the final value fee structure by charging a flat rate of 9% regardless of the selling price. You will notice from the chart that 9% is higher than any of the current rates. It is only one quarter of one percent higher than the fee on the first $25, but it is 5.5% higher than the rate for amounts between $25-$1000. As we will see from the following charts, 5.5% is a sizable amount, especially as auction price rises.
Even though eBay final value fees are going up, eBay still markets their Spring Update as bringing its “lowest fees ever.” This is because insertion fees on auctions are going down. For example, if you list an auction with a starting price of $10.00, it will cost 50 cents come March 30th instead of the 55 cents it currently costs. This represents a possible savings of 5 cents on insertion fees, or as eBay puts it, “dramatically reduced upfront costs.” What eBay is really excited about though, is offering sellers 100 “free listings” per month so long as the auction starts at 99 cents or less. “Free” relates only to the insertion fee – the more expensive final value fees are still paid. Currently, the insertion fee of an auction starting at 99 cents is 15 cents. If you chose to take advantage of all of your “free listings” each month, you would save a total of 15 cents * 100 auctions, or $15.00 total. However, the increase in final value fees erases any potential savings in almost all scenarios. Let’s take a look at some examples.
This chart assumes the auction was started at 99 cents and the seller does not operate an eBay store. For the “total fees today” column the insertion fee is 15 cents and for the March 30th column the insertion fee is zero, or “free.” This represents the cheapest insertion fees possible for both time periods. A positive number in the “D” column indicates a savings over current fees. A negative number indicates how much more the fees will cost beginning March 30th, or in other words, how much money you can subtract from your profit.
As we can see from the chart, there is a maximum savings of 15 cents on auctions that end at $25 or less. This is because the 9% flat rate final value fee is almost the exact same as the current 8.75% fee on auction values up to $25, so sellers will save the 15 cent insertion fee here. On auctions that end for more than $25, the total fees are going up. An auction ending at $100 will cost $4.04 more beginning March 30th. An auction ending at $200 will cost $9.54 more beginning March 30th. An auction ending at $500 will cost $26.04 more beginning March 30th, and so on.
EBay’s best known talking heads, “Richard Brewer-Hay” and “Griff” have been trying to convince eBayers on Auctionbytes, eBayInk, and the eBay forums that sellers who can’t figure out how to take advantage of the changes to the auction fee structure simply aren’t “doing it right.” Either our volume is wrong or our listing strategies are wrong, or we simply are incapable of understanding eBay’s genius new fee structure. As we can easily see in the chart, there are no savings to be found. The maximum anyone could save on “free” insertion fees is a total of $15. Those savings are erased by increased final value fees on just one $300 item or four $100 items or twelve $50 items – and that’s assuming a total savings of $15. If you only sold one item for $300 then you would only be “saving” 15 cents in order to pay $15.04 more in final value fees. There is simply no way to make up the increased final value fees with insertion fee savings.
When eBay says their final value fees are becoming “simpler” they are omitting the fact that there is actually another final value fee structure that will be available exclusively to eBay Store subscribers. For a monthly fee as high as $300 a month, sellers will have access to a tiered fee structure reminiscent of the current offering. Store subscribers will not receive any free insertion fees, but their overall fees may be lower because of the tiered rates (which are also going up). Richard, of the “official eBay Blog,” insists that “volume is the key” to figuring out whether or not an eBay store subscription will lead to savings (when I say savings I really just mean a fee increase in the double digits rather than triple).
In fact, eBay has provided a fee calculator for sellers to try to guess what their sales will be and then decide if spending $16+ a month is worth access to the fee structure that may or may not represent a savings. If eBay is trying to make things “simpler” then I have to wonder why there are dual fee structures, why a fee calculating crystal ball is necessary, why some receive “free” insertion fees while others do not, and why eBay has confused the word “lowest” with the word “highest” in their headline, “lowest fees ever.”
Fee Structure Numero Deux
EBay sellers who subscribe to a store will have yet another fee structure come March 30th. Remember, you are allowed to have as many User IDs on eBay as you want, so you can have several Store accounts and several accounts without a Store subscription if you want. EBay has also stated that they will not “penalize” members who use multiple User IDs to get more than 100 “free” listings. This isn’t because eBay wants you to have more than your fair share of “free” listings, it’s just because they know the “free” listings actually cost sellers more money than had they opened an eBay store and used that fee structure. Let’s have a look at the insertion and final value fee structures for eBay Store subscribers.
The insertion fees are exactly the same as for sellers without a store, except there are no “free” listings and there is no mention of the $50 cap on final value fees. The major difference between this chart and the current chart is that the highest fee, 8.75%, now applies to the first $50 of a sale, rather than only the first $25. This means that the final value fee on a $50 item will be $4.38 on March 30th, up from $3.06 today. This represents a 43% increase. Let’s look at a chart of the total current fees, the total fees paid without a store subscription, and the total fees paid with the store subscription
A negative number in the “Savings No Store Vs. Store” column means that the total fees are lower for sellers without a Store subscription. A positive number indicates the savings you would enjoy with a Store subscription over the non-store price. Keep in mind also that this is all assuming that the non-store insertion fee is zero. Any listing created after the first 100 each month would add an additional 10 cent insertion fee and erase most of the savings seen over Store subscribers. For auctions that close at $50 or lower, the non-store price is lower by a few pennies, as long as there is no insertion fee. Above $50, Store subscribers will enjoy a savings over non-store owners. Even so, the total fees for Store subscribers are still at least $1 more than current fees, all the way up to more than $20.
Store subscribers will also enjoy several other benefits in addition to possibly saving money on the alternate fee structure. Fixed price insertion fees are lower. For $15.99, sellers will get a Basic Store, 20 cent insertion fees for fixed price listings, up to 12 free pictures per listing, and access to a variety of “great marketing tools.” For $49.95, sellers receive free pictures, the marketing tools, 5 cent fixed price insertion fees, and Selling Manager Pro. For the truly elite, $299 a month will buy an Anchor subscription enjoying all of the same benefits of the Premium store plus 3 cent insertion fees for fixed price listings. Fixed price final value fees are the same whether you have a store subscription or not. All informed sellers will have to decide whether or not opening an eBay store is the economical decision.
As we can see from the various charts and calculations, volume is not as important as price, no matter what the talking heads say. This isn’t a case of buying something for $5, selling it for $4, and making the loss up on volume. The more you sell the more you lose, if you make the wrong listing decisions. Since the cheapest Store subscription is $16, you might want to run some numbers and see how much savings a store would bring. Also take into consideration that you are allowed to have a User ID with a store subscription and one without, or any combination you want.
There are a few certainties come March 30th. Most fees are higher than ever. “Simpler” final value fees aren’t better. If McDonalds raised the price of all of their tasty hamburgers to $25, it would be simpler to calculate how much my order would cost. That doesn’t mean I would rather pay $100 instead of $5.38. Many sellers will have to wrestle with whether or not they want to subscribe to a Store and how they will want to distribute their listings across multiple accounts. Sellers with a current Store subscription will have to go through all of their current listings and decide whether or not it’s worth it to pay increased listing and upgrade fees as Store Inventory Format no longer exists. Nothing is getting simpler.