Many ebay sellers know the frustration of sellers that offer products from a drop shipper for near cost - and in some cases below cost. How might you wonder does this type of selling strategy make the seller any money ?
To answer this, lets take a look at the physical retailer COSTCO which has sold products at near cost for years. The interesting part of their business model is that the majority of their profits comes from the interest on the money they make from their membership fees and not the actual membership fee or the sale of the product themselves. The short moral of the story is that sometimes if you think outside of the box, you can figure out how to make money without marking an item up with a profit margin.
In the case of Ebay, many of the low baller sellers are making their money off of the shipping and handling costs. For instance, in the computer cable category, their are several big time sellers that offer USB cables for 1 cent, and shipping is $4.99. If you have a look at their history, some of these guys are doing 500 plus transactions per day ! That's over $2500 in revenue per day. Now let's assume that the real cost of the product they are selling for a penny is $1.50 and the real shipping cost including envelope and ebay fees is $2 - this means their total cost of the sale is $3.50 - which means they generate $1.50 in profit per sale. At 500 transactions per day, this seller is making a minimum of $750 per day in net profit - or about $273,000 per year in profit. Not bad for selling things for a penny.
So how can you apply this strategy to your own efforts - or future auctions?
First, keep in mind that profit per customer can be as important as profit on an individual item. For example, lets say you get into drop shipping electronics and you start selling 40 inch tv's at direct cost to you but build in a $5 profit into the sale. Let's then say because you are the lowest prices seller of that product on Ebay, you are able to do 10 tranactions a day - for a profit of $50 per day. If you extend that over the entire year, all of a sudden you are making $18000 per year plus off this simple transaction formula.
Secondly, don't be afraid to think outside of the box when it comes to selling. Your real objective is to make a profit at the end of the day that makes your efforts worth while - so don't fall to hard for any one type of selling format. An example of this is the website developer that offers their sites for next to nothing but makes $10 per month off the hosting fees ( which is a $120 per year )
Finally, if you see someone selling something that seems like the seller must be crazy, check their history and if they are successful at it - then spend some time reverse engineering their business process. Keep at it until you figure out how they are making money doing what they are doing and then copy and improve on their efforts rather than trying to reinvent the wheel.