eBay Changes (SR10.1) Series – Economic Changes

March 12, 2010

ChannelAdvisor ChannelAdvisor By ChannelAdvisor

See this post for an overview of the series.  As noted these changes were announced in late January and go live in March 30.

In this post we’ll provide a unique view of the economic (fees) impacts of SR10.1.  First, we’ll look at the fixed-price listing changes (stores and fp30) and then the auction changes in detail.  Then we’ll look at three new strategies for sellers to consider going into 3/30.  Finally, we’ll save editorial thoughts for the end.

Fixed-price changes

Historically, eBay has had two fixed-price formats:

  • Store Inventory Format (SIF in eBay-speak) – A fixed-price listing that does NOT show up in the eBay core search engine, but does show up in a seller’s store.  SIF items are $.03-$.10 depending on the category and back-end loaded FVF with 12%/8% with the tier break at $25.
  • 30-day Fixed Price (FP30)– A newer addition to eBay, this is essentially a SIF item that does show up in the core search engine. FP30 is $.35 to list and has a tiered FVF starting at 12% for most categories.

For the SR10.1 release, eBay is making these fixed-price changes:

  • SIF is going away and (this is important and missed by many sellers) – your existing SIF items will be automatically converted to FP30 going forward.
  • FP30’s listing fees are going up from $.35 to $.50, but you now have the ability to ‘buy down’ the insertion fee by paying for monthly store subscriptions.  At the highest store tier, the FP30 listing fee is as low as $.03.

We’ve received a lot of questions about this topic, so let’s dig into it a little.

Here is how the store tiers work:

  • Before March 30 (old pricing) – FP30 is $.35 to list

After March 30:

  • No store – FP30 is $.50
  • Basic store – $15.95/month, FP30 is $.20
  • Premium store – $49.95/month, FP30 is $.05
  • Anchor store – $299.95/month, FP30 is $.03

There’s obviously some math to think about here and we’ve run some scenarios to show you the best tier for various listing volumes as illustrated here:

Economics_pic1
The highlighted areas illustrate that if you list:

  • > 50 items/month you should be in the Basic plan.
  • > 230 items/month and it’s time to upgrade to the Premium plan.
  • > 12,500 items/month – welcome to the Anchor plan.

Auction economic changes

Good ole’ auction format is getting a price overhaul that significantly lowers the insertion fee (especially for lower start prices) and bumps up the FVF.  Also, like FP30, having a store yields a discount.

Here’s a chart that shows the changes from one view:

Economics_pic3
The biggest change in auctions that everyone should be aware of is that before the price change, the FVF for $25-$50 was 3.5%.  After the changes, eBay has changed that to 8.75% which is a more than doubling.  Sellers that auction items in this level should be extremely aware of the economic impact of that change.  (for example, many $1 no-reserve sellers of video games, DVDs and some electronics will see a significant FVF increase here.,

Economic changes cheat sheet

Remember that regardless of format, if you are a top-rated seller (eTRS) you can earn a 20% reduction in FVF fees.  If you are an ‘Above Standard Seller’ (ASS), then you do not receive that reduction.

We’ve looked at the fees from several angles and found this BEFORE (left column) and AFTER (right format) format: (click to enlarge and print out as a handy cheat sheet)

Economics_pic2
If you have any more questions about the fees, feel free to post them in comments.  Also eBay has some great resources available:

  • General overview is here
  • Fee details are here
  • Interactive fee calculator is here

Strategy 1 – Go ahead and pick your store tier today

eBay has generously allowed for sellers to go ahead and pick their store tier and not incur the fee until April. Historically when there are ‘BIG’ eBay changes, sellers that anticipate and take advantage of the changes can have a competitive advantage.

A couple of tips:

  • Remember your store items should be considered as well.  If you normally have 500 FP30 and 1000 store, you should figure out how many store items (see strategy 3) you plan on converting and make your calculation from that total number.
  • Remember the 50, 230 and 12,500 break points for the store tiers
  • To keep your eBay sales where they are today you may need to surge your listings, so make sure you consider this in your calculations (see strategy 2)

Strategy 2 – Prepare for what a flood of listings will do to your eBay business

Old-timer eBayers remember when eBay decided one day in the Cobb/Whitman regime to put all of the store listings in the core search engine.  It’s commonly known as the ‘store in core debacle’.  Now a lot has improved and changed at eBay so I don’t think we’re heading for a crash and burn scenario.  But, our data indicates that we are going to see a significant surge in fp30 listings (we are already seeing this three weeks before) across the marketplace.

We’re advising sellers to run some ‘stress test’ secenarios:

  • What if we see a surge in listings of 2-4X?
    • Remember, one view is listings are going from .35 to .03 – nearly ‘free’ – we could see as much as a 10X surge.
  • Will your items be found?
  • What should you do to compensate?  Some suggestions:
    • Surge as well – do you have inventory you haven’t been listing on eBay?  This could be a great time to try it to support a surge (adjust your store tier accordingly)
    • If you’ve moved 100% fixed price, consider adding auctions back to the mix – we don’t anticipate a surge there, so you may actually have more visibility
    • Consider shorter FP durations – we have seen some sellers already having success with FP7.  Many sellers forget this is still available and creates a sense of urgency with buyers.

Strategy 3 – Don’t look at your store inventory performance and assume under-performers will not work in the FP30 format.

We’ve talked to some sellers that I believe are looking at things the wrong way. They are looking at SIF listings and for those that don’t hit a conversion rate threshold.  Remember that SIF items are not seen in core search.  So when they convert to fp30 and are in core search, you should see a natural bump in conversion rate (well, we don’t know what the surge will do, but generally this is the case).

In other words, don’t do an apples and oranges comparison here and under-shoot on items that probably will work in FP30 once search traffic is added to the equation.

Editorial comments on the economic changes

From the 30,000-ft view, I think these changes are very positive. eBay is moving closer to the Amazon economic model which puts more of the risk on the marketplace and not the seller.  The result is going to be more selection on eBay which is always a good thing.

I worry that the auction fee changes are going to accelerate the demise of that format, with perhaps the surge of listings helping there a little as sellers have to do some auction for visibility.

Finally, if you haven’t caught on, I’m really, really, REALLY worried about the eBay search engine implications.  Before these changes sellers are extremely frustrated with BM and the inability to understand why their listings aren’t showing up.  A 2-10X surge is going to make this problem worse.  Regular buyers know that the search engine experience on eBay is still, well, really bad and full of spam-y junk.  eBay has made some good first steps, but I fear they won’t be enough for the April surge.

Also, someone mentioned in comments, what does this mean for the small seller.  I honestly don’t know.  If eBay could nail the search engine, then I think that unique smaller seller inventory would continue to do well.

Don’t despair – part 4 of this series will go through some search implications from all the changes and give you some strategies to get in front of a possible search kerfuffle.

In the next (shorter) post, we’ll look at eBay’s trust-oriented changes.

SeekingAlpha Disclosure – I am long Amazon and Google. eBay is an investor in ChannelAdvisor.