Do you want to start an online auction company? If YES, here is a complete guide to starting an online auction business with NO money and no experience.
Okay, so we have provided you an in-depth sample online auction business plan template. We also took it further by analyzing and drafting a sample online auction marketing plan backed up by actionable guerrilla marketing ideas for online auction businesses. In this article, we will be considering all the requirements for starting an online auction business. So put on your entrepreneurial hat and let’s proceed.
Table of Content
- 1 Why Start an Online Auction Business?
- 2 Starting an Online Auction Business – Market Research and Feasibility Studies
- 3 Starting an Online Auction Business – Legal Matters
- 4 Is Professional Certification Needed to Run an Online Auction Business?
- 5 Starting an Online Auction Business – Technical and Manpower Details
- 6 Starting an Online Auction Business – The Marketing Plan
Why Start an Online Auction Business?
If you have been thinking of a business that you can start at home that will not require lots of startup capital, then an online auction business is the one for you especially if you have lots of items in your home that you need to get rid of. One good thing with this kind of business is that it is very easy to set up an account on an auction website as all you will need are your basic contact information and payment method. Charges are usually on sales transactions that are incurred due to listing and selling of the items, however these charges are usually small and vary depending on the auction website.
Before you begin to sell anything on the auction website, it is important that you have familiarized yourself with the auction environment by bidding for an item yourself. You should also spend time surfing different auction websites in order to get an idea of the kind of item that you might sell, and which ones sell faster, and what strategy the seller uses to attract bidders.
Aside from checking out the item, it is also important that you check out the site’s help section to know the different types of auctions that exist, the features that you can use when listing your items and those that you can’t, the site’s rules and regulations, the feedback levels and various options on what to do should something go wrong.
Once you have familiarized yourself with the environment, you should decide what kind of business you intend to start. Ensure that you conduct a thorough research on the item that you intend selling so that you do not end up dashing your profitability hopes and wasting not only effort but time and money as well. Also, carry out a thorough investigation on competitors selling the same items as that which you intend to sell, check out their weak points and improve on it when starting your own store.
Once you have conducted a thorough research on the items that you are looking to auction, you must devise strategies that will get your items noticed once you have listed them for auction. Your titles, how you describe your items and your photos are what are going to entice bidders. While some sellers go to extra lengths to stand out, you should ensure that these extra lengths are worth it so that you don’t waste money on something that will be of no benefit to your business in the long run.
In setting prices for your items, there are several options available from setting a price that will involve no auction, setting the lowest price that you are willing to accept, having a Dutch auction especially if you have several of the same item or the ‘buy it now’ option where bidders buy the items at a set price without waiting for the auction to end but with the last option, you should know that should anyone bid on the item, the option disappears automatically.
Check out what restrictions and fees come with each options and which formula will likely work best for you. Also, have a written plan on what you intend to achieve with your online auction business.
Starting an Online Auction Business – A Complete Guide
- Industry Overview
The online auctions industry is growing at a rapid rate as customers who do not have the time and are conscious of cost are attracted to the convenience that comes with finding, comparing, bidding and then purchasing the items they want online easily and quickly.
Due to the increased consumer spending rate as well as the rapid growth of internet users, it is expected that revenue for the online auctions industry will rise between the periods of 2012 and 2017. Over the next five years (2017 – 2022), it is expected that the industry will continue to grow especially as internet traffic volume will continue to grow as well.
The industry which is combined with the e-commerce industry on IBISWorld has generated average yearly revenue of more than $450 billion, with annual growth at 12.3 percent between the periods of 2012 and 2017. There are more than 137,000 eCommerce and online auction businesses in existence in the United States employing more than 520,000 people. The number of operators in the industry will cause an increase in competition as online retailers will feel the pressure to differentiate themselves from their rivals.
According to PRWEB, the industry is one of the fastest growing industries as more than 100 million Americans buy stuffs online every year. This industry has outperformed most retail industries due to the exceptional rate it grew within a decade.
Even though the industry experienced a brief slump during the recession in 2009, revenue however increased at an annual rate of more than 10 percent in the five years to 2012 and jumped by nearly 12 percent in 2012. The number of enterprises that has grown between the periods of 2007 to 2012 grew at a rate of 1.5 percent to more than 52,900 operators.
The industry has a low level of concentration as small scale companies make up more than 75 percent of the market. The two largest players in the industry accounted for more than 11 percent of the industry revenue as at 2012 as no other company held more than 5 percent of the market share.
A census data by the IBISWorld showed that most operators in the industry had less than 5 employees, while those that operated without employees had a 45 percent share in the industry. Due to the nature of the industry, no special skills are required to start and the start-up cost can be borne by almost anybody.
However, industry concentration has been on the increase due to the growing market share of major players in the industry where there has been a lot of acquisitions and ability of these major players to expand their product mix in order that they may be able to reach a wider set of customers.
The industry is however in its growth stage even though acquisitions might point to it being a maturing industry. Rising and stiffening competition in the industry is making it hard for small scale businesses to maintain their bottom line. However, this competition is enabling the small scale operators to seek to differentiate themselves in order to stand out.
Even though the value of goods and services that have been traded through online auctions have not been properly tracked, it is estimate to have reached more than $30 billion in 2005. Auction sales through one of the market leaders, eBay, in 2004 were at $32 billion.
According to internet analysts, online retailers that have incorporated auctions into their sales have seen a high level of repeat visits, increases promotional opportunities and frequent purchases when compared to regular online retail stores, which is why many companies have started incorporating online auctions as part of their business trading strategy.
The largest online auction space belongs to eBay, where 95 percent of all online auctions are being conducted. Small businesses have used eBay to boost sales for themselves and some businesses have been formed mainly from the sale of products through the eBay auctions which has helped tremendously to boost the site, and leading it to be more preferred to its many rivals in the industry. The industry is considered to be hugely fragmented even as it offers low barriers to entry.
Starting an Online Auction Business – Market Research and Feasibility Studies
- Demographics and Psychographics
The demographic and psychographic composition of those who require the services of an online auction business is not restricted to individuals and businesses in the immediate locality of the merchant but its cuts across customers – individuals or businesses – from all over the world as long as there is accessibility of the internet.
Therefore, if you are looking to define the demographics for your online auction business, you should strive to make it as all-encompassing as possible as it should include those within and outside the United States.
List of Niche ideas Within the Online Auction Business That You Can Specialize in
Online auction businesses enable consumer-to-consumer (C2C) or business-to-consumer (B2C) transactions regardless of what the items might be. The fact that there are individuals and businesses that seek the thrill that comes from auctions has made this a thriving business.
However in starting this business, it is essential that you conduct a thorough research so that you might be able to determine the best niche for your business and so that you do not end up wasting your time or resources on niches that will end up draining your bottom line.
Below are some of the niche ideas within this particular business that you can specialize in;
- Household items
- Real estate
- Collectibles and memorabilia
The Level of Competition in the Online Auction Industry
The level of competition in the online auction business industry does not depend on the location of the business as this business can be operated from any part of the world and still compete effectively against its competitors.
Demand in this industry is usually driven by the preferences of the customers and per capita income. What clients are after is that their bids win on the items that they are looking to buy for personal use or to re-sell. Clients want to buy quality items as advertised by the seller and have it shipped to them at affordable rates.
The profitability of individual companies in this industry depends to a large extent on how effective their marketing strategy is. While small firms are able to compete using outstanding customer service and offering niche products, large scale companies are able to compete based on their economies of scale and telecommunications.
List of Well – Known Brands in the Industry
There are several online auction websites in existence that are not only offering entrepreneurs a great experience when it comes to setting up their own stores but they are also quite popular in the United States and all over the globe. Most of these well-known brands have existed for a long time, are easy to use and offer sellers and bidders a great experience.
Some of the well-known brands in the industry are;
- Amazon.com Auctions
- Liquidity Services, Inc
- Property Room
- IRS Auctions
- Auction Zip
It is expected that the industry will continue to grow in the coming years especially as rising per capita income and employment has improved the sentiment of customers towards buying items online. Also, the fact that more people will be on the internet in the coming years is a boost to the industry as this will enable them to be easily accessible to online retailers, thereby causing the revenue of the industry to continue to increase.
Between a 10 year period (2007 and 2017), the industry value added (IVA) increased at an annual rate of more than 8 percent, in comparison to the GDP of the United States, which in the same time period is expected to rise at an annual rate of 1.9 percent. This therefore means that the industry in the growth phase due to its growth rate and rising industry participation from new businesses.
Even though the online auction industry will continue to grow, there is bound to be increase in the use of proprietary technology during online auctions. Mobile apps that are dedicated to online auctions have become very common as people can now bid easily. Also, many big online auction sites have become more mobile friendly especially as technological tools are becoming more sophisticated.
Due to the fact that many items are being auctioned online, more people are becoming privy to items especially collectibles and rare items that were only known to a few. The fact that these items can be purchased from any part of the world has continued to make the marketplace thrive.
Starting Your Online Auction Business from Scratch vs Buying a Franchise
One decision that you will have to make that can have much impact on your business is whether you should start your online auction business from scratch or whether to buy a franchise. One thing with buying a franchise is that it helps the entrepreneur have a head start over those starting from the scratch as the franchisor will provide guidance and support for the business. The online auction business is still in its growth stage and as such there are no well-known franchise opportunities available for entrepreneurs.
When starting a new business from scratch, it is best to start on a small scale as this will enable you to learn the ropes without being pressurized into thinking that you would fail. Once you have learned all there is to know, you can then think of expanding your business into the level that will enable you attain your goals and objectives more quickly.
Possible Threats and Challenges You Will Face When Starting an Online Auction Business
Any entrepreneur that doesn’t have strategies to handle incoming threats and challenges is not one that takes the business seriously. You should however note that there are some threats and challenges that cannot be handled and when your business faces this, the best you can do is try to remain focused on why you established the business in the first place.
Some of the threats and challenges that you will therefore face when starting your online auction business include; having to deal with already established competitors, changing industry trends, adverse government policies, and economic downturn.
Starting an Online Auction Business – Legal Matters
- Best legal entity to use for this type of business
When you are considering starting an online auction business, one of the most important decisions that you will make will be what legal entity will be chosen for your business because the legal entity a business uses has an impact on the how far the business will go. If you want your business to be known nationally and internationally and not just in your locality, then you must ensure that you choose the legal entity that will not be a hindrance to your business.
There are several legal entity options available for an entrepreneur looking to start a business and they are sole proprietorship, partnership, limited liability company (LLC) and corporation. Most people just starting out their business usually choose sole proprietorship because of how easy it is to form and manage especially when it comes to matters of assets, profits and payment of taxes.
However, a sole proprietorship usually comes with disadvantages as well as the business cannot be expanded till the legal entity is changed and should the business incur debts, the sole proprietor is usually held liable.
For those who are looking to incorporate their businesses by either choosing an LLC or a corporation, they often do so because they are looking to show customers that they are credible and authentic and that the customer can do business with them without being afraid of losing their money as opposed to a sole proprietor.
Once you have chosen a state to start the business, engage the services of an attorney that is an expert in your kind of industry to help choose the legal entity that will be most suitable for your business depending on the laws of the state where you intend to operate your business from.
Catchy Business Name ideas Suitable for an Online Auction Business
When looking to start a business, one of the aspects that you have to take care of first is what you intend to call your business. The importance of a business name is that this is what will identify and set your business apart from others and so the name must be unique, easily pronounceable and memorable.
Some of the catchy business name ideas that is suitable for an online auction business include;
- Quick Sale Auction
- Auctioneers Bay
Individuals as well as business owners are encouraged to have insurance policies in the United States regardless of what they may do or industry they may be in. Having insurance coverage is to the benefit of the individual or business because should any disaster or calamity occur, it makes it easy for you to recover as you are no longer directly bearing the risks.
However, while it is necessary to buy insurance policies, knowing the one which best suits your business might require that you engage the services of an insurance agent to help you out. Below are some of the insurance policies that you will need to purchase if you want to start your online auction business in the United States of America;
- General Liability Insurance
- Workers’ Compensation Insurance
- Payment Protection Insurance
- Errors and Omissions Insurance
- Contents Coverage
- Property Insurance
- Business Owner Policy Insurance
- Umbrella Insurance
Intellectual Property Protection/Trademark
The online auction business does not require the entrepreneur to purchase any sort of intellectual property before they can start or run the business and this is due to the fact the business consists of getting items and putting them up for auction.
If you are however running a large scale business, you might look to secure intellectual property for the name, logo and any other property or concept worthy of being protected. This is however not considered a huge priority for this kind of business.
Is Professional Certification Needed to Run an Online Auction Business?
The online auction business is a straightforward kind of business and anyone looking to start this business does not require any sort of professional certification before they can start as all that is needed is time and finding quality items to put up for auction.
This does not mean that any entrepreneur looking to get professional certification in marketing and sales, management and finance that will help them run the business better cannot do so.
List of Legal Documents You Need to Run an Online Auction Business
Whatever business you might be looking to start in the United States, you should be aware that you will need to have necessary documentation in place before you can think of starting the business. Any attempt to run your business without having legal documents in place will get you into trouble with the constituted authorities.
If you do not know the documents you will need, you can ask those who are running the same business as you or get in touch with an attorney to help you out. Some of the basic legal documents that you are expected to have in place if you are looking to start your online auction business in the United States of America include;
- Business License
- Sales Tax Permit
- Insurance Policy
- Employment Agreement
- Business Plan
- Employer Identification Number (EIN)
- Federal Tax Identification Number (TIN)
- Certificate of Incorporation
- Operating Agreement for LLCs
Financing Your Online Auction Business
Finance is one important aspect in starting and keeping a business running. If you have a business idea but have no finance to start the business, then the business idea will never become a reality. Due to how important finance is, entrepreneurs are often encouraged to have a written plan especially if they intend to source for capital from external sources.
An online auction business can be started with little capital which can be raised by the entrepreneur or from those close to him. Some of the financing options that are available when looking to start your online auction business include;
- Generating startup capital from personal savings and sale of property
- Sourcing for soft loan from friends and family members
- Getting a business partner and splitting the startup capital with them
Choosing a Suitable Location for your Online Auction Business
An online auction based business does not require the seller or merchant to meet with the buyer before a transaction can occur and so the merchant or buyer can be located anywhere as the business is usually conducted over the internet.
If you intend running this business from home and are looking to sell varied items, then it is important that you clear a space in your home to store your inventory because you might have to quickly look for an item to show a customer online or know what is left of your stock. If you have no space at all within your home, then you can think of leasing or renting a facility to run your business.
While this means that this is a business that can be run from one’s home, it doesn’t mean that the location where you are at can have little or no effect on the success of your business especially when it comes to shipping. Operators in this industry who have become huge have had to rent or lease a facility where they run their business from.
If you are going to be renting a facility, ensure that you rent or lease a facility that is visible and can be easily accessed by your employees and certain customers that might be looking to visit you. If you are going to be leasing a facility in a visible location, you should know that it won’t come cheap and you should be prepared for that by setting aside an amount that can handle renting the facility for a particular period of time.
If you intend looking for the facility yourself, there are several mistakes that you can make which is why it is usually advisable to engage the services of a real estate agent or broker who has a better grasp of the city to help you with choosing the right facility to start your online auction business.
Starting an Online Auction Business – Technical and Manpower Details
If you are starting the business on a small scale, you can clear a space to store your items, but once your business starts to expand with you putting up several items for auction, it is important that you get your inventory organized or you might end up losing money and time due to your inefficiencies especially as a customer could send you an email requesting for an immediate picture of one of the items.
One thing to consider when starting and running an online auction business is shipping because this aspect is one of the most important parts of the business. It is important that you set up your shipping in order to ensure that the items are sent out at the right time as this will improve your feedback rating immensely.
Also, when putting up your shipping rates, while you must ensure that it does not affect your costs, you must also ensure that the rates are affordable to the bidders as well so that you do not end up chasing them away.
You do not require much equipment to get your online auction business up and running as all you need after you have organized yourself is to get a computer that has a fast internet connection as this will be useful when you are uploading photos to your auction.
You will also require a digital camera to take pictures of the items you are selling and a scanner for when you are selling items that are two dimensional in nature. You will also need a good printer, an office software, editing software and accounting software.
An online auction business can be run from home and by a single person especially when starting off with few items. However, as you begin to expand, it would be best to recruit individuals that identify with your goals and objectives and are willing to ensure that you attain them. Some of those that you can hire include; Chief Executive Officer (yourself), logistics and shipping manager, inventory manager and account officer.
Over and above, you will require at least 4 key individuals if you are looking to run a successful online auction business in the United States.
The Service Delivery Process of an Online Auction Company
An online auction business is one where sellers list their merchandise and then allow buyers bid on the items. There is usually a sophisticated auction software that monitors these bids and then determines who the buying winner is at the end of the auction period.
Online auctions are unlike traditional auctions which have a set time and location as they are usually open 24 hours of the day for buyers to bid on the items that they want. Also, buyers can be from remote parts of the world as long as they have access to fast internet connection and the online auction site.
Once an auction has closed, the seller usually uses third parties to facilitate payment as well as shipping. Sometimes, buyers and sellers may have to be pre-qualified by the auction site in order that fraudulent activity might be reduced.
Starting an Online Auction Business – The Marketing Plan
- Marketing ideas and strategies
When starting a business, you will need to look for ways you can generate the revenue that will grow and make your business attain the goals and objectives that you have outlined, which is why marketing is regarded as a very important aspect in the starting and growing of a business. The marketing activities not only create awareness for the business but also ensure that they are able to penetrate the market and gain a certain share for themselves.
Before you can effectively determine the needs of your target market, you must first conduct a thorough market survey that will enable you identify your intended target market. Knowing who your target market is will allow you draw a marketing plan that will set varying milestones that your business should be able to accomplish.
It is after the marketing plan has been drawn that different marketing strategies can then be created in order to ensure the core goals and objectives are being achieved. When you are creating your marketing plans and strategies, ensure that the profile of your company is compelling enough as customers like to be able to identify with a brand and are most loyal to those that they can identify with.
In order to be able to stand out from competitors, it is best to engage the services of a marketing consultant who has thorough knowledge of the industry in order to help you craft strategies that will enable you achieve your goals and objectives or you can hire marketing executives if your company is large enough and empower them with engaging in marketing activities to the benefit of your company.
Below are some of the marketing ideas and strategies that you can utilize for your online auction business;
- Send cold mails to potential customers informing them of your online auction business
- Advertise your business on relevant forums and blogs in order to promote your business
- Offer incentives and discounts in order to create awareness for your online auction business
- Create a website that can easily load and ensure that it is search engine optimized
- Ensure that your business is listed in online directories
- Promote your business on social media platforms such as Facebook, Twitter, Instagram and Linkedin
Possible Competitive Strategies for Winning your Competitors
Whatever business you are looking to start, you should expect that you will have others who have been in the business before you as well as others who will be looking to start the business after you and be prepared for them. Any entrepreneur that hasn’t laid down strategies that will enable him or her win over their competitors shouldn’t expect to attain its set out goals and objectives.
Some of the competitive strategies that you can use to win over your competitors in this particular business include; putting up items that have good titles, description and images, ensuring that you have quality customer service and that you offer discounts every now and then.
- Possible Ways to Increase Customer Retention
For every business to attain its profit maximization objectives, it must have strategies in place that will attract a lot of buying customers. However, while attracting customers is very important for a business, ensuring that a high number of these customers stick to the brand is another ballgame altogether as this has become a huge problem for several brands who keep losing their customers to their competitors.
The major advantage that comes with high retention of customers is the fact that brands that retained a high number of their customers usually spent less for advertising than those that had to keep attracting new customers all the time because retained customers help the brand they are loyal to in attracting new customers through conscious or unconscious word of mouth advertisement.
One of the ways you can increase customer retention for your online auction business is by ensuring that you keep your feedback rating positive from how you handle inquiries to the support you offer your customer till the item has reached its destination.
Ensure that you keep in touch with all your loyal customers by sending them monthly mails about what items you have for sale as well as money back guarantees and any other information and tips that you have for them. Also, ensure that you are honest with your customers at all times as this act will ensure that they stick to your service.
Strategies to Boost Your Online Auction Brand Awareness and Create Your Corporate Identity
Anyone that is starting an online business knows how competitive the industry can be and so how necessary it is to deliberately boost the awareness of one’s brand and communicate a corporate identity to the intended target market. Because the online business cannot be confined to a particular area especially when it comes to eCommerce, you should be ready to spend money in promoting the business.
When looking to promote your brand, it is important that you leverage on different media due to the different tastes and preferences of your intended target market. Most companies now use more of the internet not just because of how cost effective it is but also because of how effective it is in reaching a large number of the audience.
One good thing with promoting one’s brand is that it is not all activities that require money and therefore you can combine several activities to be able to get what you want.
Some of the strategies that you can use in boosting awareness for your brand and creating a corporate identity for your business;
- Encourage your customers to help spread the word about your business
- Leverage on your website to promote your business
- Advertise your business in popular websites and forums
- Use social media platforms such as Facebook, Twitter and Instagram to promote your business
- Support local and national charity events in order to raise awareness for your business
- Send mails to your customers regularly in order to keep promoting your business
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