What Price Is Right?

An overview of eBay auction pricing options

by Auctiva.com staff writer
- Mar 26, 2008

When listing items for sale on eBay, sellers have a couple of pricing options, including reserve pricing, Buy It Now, and fixed pricing, which allows some flexibility to adjust your tactics, depending on the situation or the item you have for sale. Each approach has its pros and cons. Here's what you need to know.

Start it up

First off, you need to establish a starting price. This seems simple enough. Just set a price that would cover all your costs and still net you a profit (your price floor, in auction parlance) and let the bidding frenzy begin, right? Not so fast. There is a lot of research out there that shows items with lower starting prices—say $1 or less—tend to attract more shoppers, which can set off that bidding war every seller hopes for. A high opening bid might have the opposite effect, by scaring off potential bidders.

Remember, too, that potential bidders get to your auction, in almost all cases, by first completing a search for a given item. Such a search is likely to return dozens, hundreds or even thousands of results. Search queries return a list of auction titles, current prices, time left until the auction closes and location of the item. Therefore, bidders are likely to check out and monitor an auction with a current price of $2.50 than $25, regardless of what the final price will actually be.

Now, maybe your price floor is $500, and an opening bid of $1 seems a bit too dicey. There's nothing that says you must list that low. Spend some time looking around on eBay. Compare current listings for similar or like items. Look at the bidding history of different items to find out what the starting prices were, and venture to stay in that range.

If you're still uneasy, you can set a reserve price to protect yourself, but this comes with its own set of risks.

Reservations about reserves

A reserve price is the minimum price for which an item can be sold. If no bid meets the reserve, no one wins-except maybe eBay, which charges a $2 fee for reserve pricing, but collects only when there is no sale.

Let's break it down: Say you have an item that you must sell for at least $500 in order to recoup your costs and make a profit. You could approach it a couple of different ways.

  1. Set a low starting price—99 cents, for example—and hope for a lively and fruitful auction.
  2. Set your starting price at $500 and wait. If the item sells, you pay the standard commission. If not, eBay will let you relist once for free, and you can keep relisting the item until it does sell. (You might consider reworking your title and description or buying upgrades to make your listing more attractive to buyers, but that's an entirely different discussion).
  3. Set a starting price of 99 cents and a reserve of $500. If the item doesn't sell, you're out just the listing fee, the reserve fee and a little time.

It's not OK to cancel bids and end an auction early to avoid paying the reserve fee because your desired price isn't being met

Reserve pricing is a safety net for sellers who worry that a low starting point—offered to generate multiple bids that will hike up the price—might not get the job done. This risk is real. Start an auction at a price you'd be unhappy to receive and you're leaving it up to bidders and the open market to determine and set value. A reserve price ensures that only bids above a certain point that you set will be honored. But setting a reserve price can work against you.

Whereas some auction houses allow sellers to publish the reserve price, it's kept hidden from bidders on eBay. If a bidder submits a price under the reserve, they're alerted that their bid did not reach the required level. They are free to bid higher, but may not. In fact, prevailing opinion has it that when customers see a listing that has a reserve price, they tend to look for other auctions for the same or similar items that don't.

If you decide using a reserve is right for you, a good rule of thumb is to use your price floor as your reserve, not what you expect to get for the final price. It's also important to know that you can remove your reserve—or reduce it as many times as you like until 12 hours before the auction is scheduled to end.

But do play fair. It's not OK to cancel bids and end an auction early to avoid paying the reserve fee because your desired price isn't being met. Not only will this anger early bidders but it could get you kicked off eBay.

Just buy it

Adding a Buy It Now option adds another dimension to the game. In short, this option does just what it sounds like: Bidders willing to pay the price you've set can immediately purchase your item for that price without having to wait until the auction ends or compete with other bidders. A Buy it Now purchase will immediately end your auction.

To use the Buy it Now option, you'll first need to decide on an auction or fixed-price format. In a fixed price format the seller sets the price, and buyers can either accept it or not. Here, it pays to do some legwork to find out what price the market will bear, or risk losing potential profits with too low of a price or discouraging buyers with a price that's too steep.

Using Buy it Now in an auction-format listing offers this option to buyers, who could also choose to simply place a bid. Once a bid is placed, the Buy It Now option disappears and the listing reverts to a traditional auction. Therefore a buyer can only used the Buy it Now auction before a first bid has been placed. Note: If you've also set a reserve price, only a bid above the reserve will end the Buy it Now option.

Buy it Now can be used in auction listings, as a fixed price, or in eBay Stores, and costs between 5 cents to 25 cents, depending on your Buy It Now price. Fixed-price Buy it Now listings are also eligible to include a Best Offer option, which gives buyers and sellers a little leeway to haggle.

Both of these features require a certain level of experience. Sellers need to have a minimum feedback score of 5. Buy It Now can also be used by sellers who are ID Verified, which is done through a third-party, such as Equifax. ID verification involves cross-checking the seller's contact information using consumer and business databases.

Whichever approach you take, there is a bit of a gamble involved. But, hey, isn't that part of what makes selling online fun?

About the Author

Auctiva staff writers constantly monitor trends and best practices of those selling on eBay and elsewhere online. They attend relevant training seminars and trade shows and regularly discuss the market with PowerSellers and other market experts.

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