How Average Can Be Exceptional: Neil Waterhouse on Building a Million-Dollar eBay Business

Can you really build an exceptional business from individual parts that are only average? I asked Australia’s Neil Waterhouse, author of Million Dollar eBay Business From Home, to explain his approach to eBay selling in more depth.

Neil started selling on eBay in 2002, and has sold millions of dollars of items from his home in Sydney. He was refreshingly open and candid about how his business works, and I’m really pleased to be able to share that with you.

Andy: I see your approach to ecommerce as very structured and analytical. How would you summarize it?

The way I look at an eBay business is that each product is a business in itself. If you buy a business you pay normally between one to four times the yearly profit. As an example if the business was making $100,000 after all expenses you’d pay somewhere between $100,000 and $400,000 to buy that business.

The concept works the same for running an eBay or ecommerce business. I look at each product as being its own business, and each product has to pay its own way. Now, unless one product makes $1,000 per cubic meter per month, we don’t sell it – we drop it. Once you’ve done that, it’s just a matter of rolling it out. You can build a million dollar eBay business with eighty products.

Andy: A lot of new sellers say that eBay is limiting their sales. Do you see that?

eBay have made it harder for new sellers because of unscrupulous sellers out there. Over here we call it the pub list – those things that in the past we’d hear about people selling in the pub: laptop computers, SIM cards, cameras, all those kind of products. If you hop onto eBay and want to start selling those, it’s quite challenging because eBay is going to want you to prove where you got these items from.

So now they do make you jump through a few hoops to prove who you are, and I think that’s fair enough. If they didn’t do that people would come on eBay and mistakenly buy stolen goods, then leave eBay forever when they find out what’s happened. It’s the buyers that get stung.

A lot of people don’t realize that if you open another eBay account, and you already have an established account, you can make a phone call to eBay and they will cross-link the two and remove your limitations.

Andy: Sellers with years of experience are also reporting lower sales. Any ideas what’s causing that?

In the old days before eBay’s Cassini search engine you could have nice steady sales, but now we see a wave pattern. Cassini’s goal is to put at the top of Best Match items which have the best impression to conversion ratio. It’s just like the way Google measures how many times people click through on a search result then stay on that page. With eBay, it looks at the amount of impressions – how many times an item is shown in the search results – and how many people actually buy it. eBay wants to show items that have the best impression to sale ratio, because they’re obviously the products that people want.

The other thing with Cassini is that it’s not static – it’s dynamic. It’s continually changing the search and puts in listings which are coming to an end. It also tries to give everybody a fair go, so when a seller lists a new item straight away it wants to show that to see if it’s any good.

It’s continually moving everything around and that creates these wave effects. One minute you might see your listing at the very top of the Best Match search results, but an hour later or the next day it will be on page two or three. Your sales can appear to have stopped. In the past, before Cassini, that didn’t happen as much, so a lot of people are feeling the pinch now.

It comes back again to selling hot items with plenty of margin, so you can be aggressive on pricing if you need to. And it’s got to be a product that people want with not too much competition. There’s nothing you can do to get your listing to stay at the top of Best Match search results, because it just keeps changing.

Andy: Is store branding important in your selling strategy?

We find branding works best because it creates a level of trust. We try to create trust with all our listings, and have the same templates and branding for every single item. Why do people always go to the same grocery store? Why do they always go to the same gas station? Because it gives people a feeling when they are walking in and see that brand – the colors, fonts, iconology. All those things should be the same for every listing.

It’s simply that – it creates trust. People go back to the same place because they’ve bought from them before. They say it’s seven times easier to get a customer to buy again, then to get a brand new customer. It all works because of branding.

Andy: You advocate selling multiple products in multiple niches. Does branding work if you sell in lots of different niches?

A lot of the big sellers, we’ll call them the “Walmarts”, often have a name which doesn’t really mean anything. Like “eforcity”, what does that mean? [Andy: eforcity is eBay’s largest seller in the US.] If you had a brand name like “Joe’s Clothes” but you sold phones then there’d be a contradiction. A lot of the large eBay businesses are generic – they don’t have a brand name that specifies something.

We have our main Walmart, but if we take a lot of products out and have a separate niche that just sells specific items, we’ll rebrand it. Then you appear to be an expert in that niche. For example, we took out a lot of products for toys and hobbies and called that one “RC Hobby Estore” (RC as in radio controlled). Everything is built around that and it’s very much a specific brand, with a matching web site as well. We found that when we did that we got a couple of extra points on margin, because we were perceived as an expert.

For a lot of new sellers it’s good to have a Walmart type of brand, because you’re not locked in. Unless you have a specific niche that you’re good at, and you have a lot of products, then you don’t have to lock yourself in.

It’s very important for people to set the foundations first, and get a nice template created. People might balk at spending a few hundred dollars getting a template made, but it’s your brand. If you had a conventional bricks-and-mortar store, say like a steakhouse, it’s going to cost $250,000 to fit out. Spending a few hundred dollars on an eBay listing template is the same – it’s your store fit-out.

Andy: In your book you suggest a pretty wide selling price range of $20 to $150 to research within. What’s your own preference?

The stuff that I see in the warehouse that keeps getting turned over and turned over, and regularly ordered, tends to be the bigger stuff not the smaller stuff. The smaller $20 items don’t have as much margin, and if they can fit in a letter from China, then you have all the competition from there. We try to stay away from the $20 to $25 dollar products – it would have to be pretty unique for us to take on at that price.

Because every item we sell has to make $1,000 per cubic meter per month, a cheap item can’t have much meat in it. We’d have to turn over a lot of small items to make money. We do do it, but most of the items we sell are a bit bigger physically. The Chinese can post letters cheaper than we can post to our next-door neighbors, but not large items.

Andy: You have a very clear set of criteria for products – no brands, mid-range selling price, mid-volume sales, non-seasonal, 100% profit margin etc. With so many criteria, doesn’t it make it near-impossible to find products?

It’s a definite challenge to find products that meet the criteria. It must already be selling fifteen times a month, for example.

We don’t do brand names because we get all our stock from China, and if we got branded items from there it’s almost certainly going to be a rip-off or copy. If you can get brand names at a good price, they rock. But Apple is not going to give the average Joe Blow twenty iPhones to sell at a decent margin. Even if they do, you’re not going to get them any cheaper than the guy fifty meters away at the mall, who is also selling them. So we’re not a great fan of them.

These days we only like to sell items on eBay that are proven. In the old days, Wednesdays would just be our sourcing day – we’d sit around and talk about different products. We got some great winners, and we made some great margins, but we also got some losers.

So one day we decided to not bring in anything that’s not already proven – we let everybody else throw mud at the wall and see what sticks. Then we come along and see which items are actually making money, and they’re the ones we bring in. Since we did that, it changed our profitability massively – it eliminates a huge amount of the risk. When people come to me and say “I think this product is going to be good” and there’s no sales on eBay, it immediately scares me to death because I think “Hmm, are you the first person on this planet to think of this idea? I don’t think so!”

The skill and the fun comes from finding an item that’s already got sales, and optimizing that. Find a product that you can buy for 50% of what it’s selling for right now, and that’s not a trend or a fad, or a brand name. Write some half-decent keywords, take some half-decent photos, write some half-decent ad copy, and use an eBay account in good standing. If you only get those right, you’ll make some money.

But then, if you do some of the optimization techniques and you get your listing up in the top of the search results regularly, all of a sudden yours will be the best one in Best Match. And off it will go into what we call the “jet stream” and get more sales than everybody else because of that impressions-to-sales ratio. So if you get the first bit right then use all your skills to optimize it, to get it into the jet stream, that’s when you can make some really good money on your products. [Andy – I see Neil’s “jet stream” as a reinforcing loop, as discussed in Systems Thinking for Online Sellers.]

Andy: In your book, you are very open about your business background and how you got into selling. I expect a lot of eBay sellers are keen on a home-based business, just like you were, but might lack the business background. How can they avoid getting stuck or making mistakes due to a lack of business sense?

The easiest way to learn is to have someone who’s already done it teach you. Like everything in life, if you’ve never done it before it’s just a matter of learning. You can either wing it and learn it yourself, or learn from someone else and save a lot of mistakes.

Entrepreneurs tend to be more gung-ho and just test things out and see what works. It depends on who you are. Read books, attend courses and seminars, join groups of other people doing the same thing, and learn from other people. Try to reduce your mistakes – that’s the methodical way of doing it if you’re more risk-averse. It certainly saves a lot of time.

I learned from Anthony Robbins a very long time ago how to make the best chocolate cake in the world – you just find who makes the best chocolate cake, and get that recipe. That’s the fastest way for most things in life – find the recipe that works, rather than trying to learn it from scratch. That was great advice that I learned twenty years ago and it’s stayed with me.

Andy: Is there a danger for the more risk-averse – those who want to learn from others rather from themselves – that they don’t know when they’ve learned enough and need to start actually doing something?

That’s a very good point, they call it paralysis by analysis – so many people get bogged down by learning. You’ve really just got to write all your criteria down. Let’s take product sourcing as an example – you might want a product that turns over fifteen times a month, that makes 50% profit and whatever other criteria you like. If you find a product that meets that criteria, then you have no choice – you have to pull the trigger and go with that product. It’s met it, now you’ve got to action it.

We do the same thing in reverse. When we find products, we have to prove why we will not import that product. If it meets the criteria, we have to import it. It’s a bit of a mind-play.

The only way to learn eBay business, is to get your hands dirty. You’ve got to do all the hard stuff yourself, before you can outsource it. You’ve got to pack products, you’ve got to answer emails. Do it all yourself and get your hands dirty, then you can find all the ways to automate it and outsource it all.

Andy: Some sellers love tackling the day-to-day challenges of running their business, and want to keep running it themselves for as long as possible. But others want to build it up then step away – to sell it off. As someone who has sold several businesses, do you have advice for others who have that goal?

There’s people who gravitate to this business who come from a corporate background, and they’re used to procedures and manuals. But the entrepreneurs who build businesses are not manual people – they don’t like documenting and writing things down. So the corporate people want to buy a turnkey business, and just want to follow a procedures manual.

If you sell an eBay business and you’ve got great procedure manuals with photos, then people can walk in the door and say “if I follow this manual, my business will not just stay static but actually grow”. If you can prove that it will grow without you – the person who set it up – just using the manual, you’ll get maximum dollar for it.

An investor might be scared they’re not going to get they’re money back, and it’s not going to grow, but it all comes down to your procedure manuals. If you can document your methodology and prove that it’s working then you should remove the fear from the buyer.

Andy: Perhaps the scariest part of your approach is importing from China – the perception (at least) is there’s a lot of jargon, complexity and mistrust when it comes to importing. Is there a way for sellers who are new to importing to overcome that?

Everyone has that fear about importing, but if you take it back to its basics, the concept is no different to calling your grandmother in another country and asking her to send you a new pair of pajamas. That’s importing. She’s going to buy something over there and send it to you. Bingo, you’re now an importer.

Of course it gets more complicated, but you’re just building on that. We have never lost a cent with importing, but we only buy from Alibaba Gold Suppliers. Alibaba has a gold membership for suppliers in China, and we want a minimum of one year gold membership, preferably two. If they’re not a gold member then we won’t go near them, no matter what.

We also check that they have their own website – they’re not just using a Hotmail email address, but the biggest thing is the gold membership. The horror stories that I hear of people losing money are almost always not Gold Suppliers. I’ve spent a lot of time in China and heard a lot of stories.

The most important thing is to add up all the fees. Many people just look at the price you can buy a product for in China, but that is radically different to its landed cost. That’s where a lot of people get stung, because they don’t do the maths and add the shipping fees, the eBay fees, the PayPal fees – all that stuff adds up.

There is a lot to learn with importing from China, but it’s just a learning curve. You need to find a way to learn – a book or something else – it’s really not that hard.

Andy: In your listing advice, you include a lot of good marketing advice like offering a long warranty, describing benefits as well as features, creating a sense of urgency and more. Many of us aren’t natural salespeople, and find it difficult to sell rather than just describe. Any tips for those who find marketing and selling difficult?

With eBay, as long as you get the basics right you don’t have to be a salesman. In fact, I think people should just throw the sales hat out of the window. These days it’s just about creating trust.

When we’re writing ad copy what we do, and what we teach the people doing our listing to do, is to grab the item. Everything you sell, hold it. Pretend you’re buying it. Spin it around in your hands. Document every feature. All you’re doing is writing all the features and benefits down for this item. You’re not trying to write some glitzy sales copy because, if you’ve done the first part right, all you’ve got to do is show what this product does and try to get as much value out of it as possible.

Just like if you go and buy a brand new car, you get a brochure. There are so many bullet points in car brochures even I don’t understand some of them, and I’m a bit of a car fanatic. The more bullet points you can put in, the more perceived value the item has.

If you’re selling a car on eBay you walk around it, and as you do, you take photos – just like you are buying the car. It’s the same with any product you’re selling. If it’s a set of scales, take photos around them, just like you were looking at it in a shop. Lift it upside down, photograph the bottom, turn the thing on – so many people who sell electronic devices don’t turn them on. Give the customer all the information they could possibly want, every single itch they’ve got – scratch it by giving the answer. Then you’re not really selling something, you’re providing more of a service.

We don’t write fancy sales copy any more. We don’t do one-page sales letters to sell our products. We just do a very short story at the top, which can be just one paragraph telling people all about it, engaging them a bit. The rest of it is just bullet points.

Andy: You talk about using Google AdWords to drive traffic to your own independent store. AdWords is a bit of a beast and can be very complex – it’s easy to burn through cash there. Is there an easy way to get started or is it dangerous to dive in without studying it first?

AdWords is a great way to suck your credit card dry, if you don’t know what you’re doing. I think anyone would be crazy to spend a cent on Google AdWords, unless they’ve read a book from someone like Perry Marshall. It is a beast, and it changes all the time – you’ve got to know what you’re doing. Start with a very small budget, you can set budgets of $5 or $10 a day.

If you spend a dollar, and make more than one dollar profit, then you can slowly open the throttle to get more traffic to your site, and make more money. It’s all about creating a campaign with an ROI [return on investment] of more than one. That is the tricky part.

If you know what you’re doing, it can be relatively easy. The great thing with AdWords is you can have an ad up there within the next half hour, whereas with SEO [search engine optimization] it could take six months to get your site at the top, or you might never get it there because Google constantly reshuffles the deck. Google Adwords can get you on page one very fast, and that’s the great thing about it.

When we’ve optimized an eBay listing, we can take that and paste it into our websites. It’s virtually the same. We remove a few things that are related to eBay of course, but the photos, the ad copy, the bullet points – we use exactly the same ones on our websites as we do on eBay. Because we’ve done the optimization for eBay’s Cassini search engine, it works for the Google search engine, smaller search engines and also Google AdWords.

Andy: Something that comes across really clearly with your approach, is that sellers don’t need a fantastic new idea or to find something that’s really popular. Instead you can compile a great business out of parts which on their own, are just OK – they’re average.

If you try to find the best product, the problem is you can’t repeat it and you’ve got to make your business repeatable. We have some products back to 2005 that we keep selling. If you have this one great product, how do you sleep at night? If someone comes along and gets exactly the same product, you’ve got a ton more competition and you can’t budget for that. It’s better to have many products that generate a bit less money, than one product that makes a ton of money. Give me that any day of the week.

People have to get step one right. They don’t prove their products, they don’t do the research at the beginning. That’s why people have all these products lying in their garage that don’t sell, because they shouldn’t have bought them in the first place. It was a gamble that didn’t pay off. Remove the gamble. Look at the history. Does it sell fifteen times a month? Can you get it for substantially less?

Someone told me a long time ago, and I think there’s a lot of truth to it, that a good business should be a bit boring. It’s a procedures manual. If you’re in business to make money, then it’s practically the lollipop machine where you put twenty cents in the top, turn the handle, and out comes a lollipop. With an eBay business you should be able to design it so you put in X amount of time, spend X amount of money, and get X amount of return. Once you’ve got that ratio you can improve it, but you’ve got to start with something.

Andy: Thank you Neil for sharing so much with our readers. I really appreciate it and I’m sure they will too. Let’s see what they have to say in the comments!

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As well as running a successful online retail business, Neil Waterhouse provides one-on-one consultancy and runs training events. You can find him at neilwaterhouse.com.