EBay Commissions Approaching Barter Industry Fees
January 30th, 2008 · by Bob Meyer · 6 CommentsEBay’s incoming Chief Executive John Donahue has made some commission changes. He contends that EBay is at a crossroads, and that changes are needed if the company is to maintain its leadership position in the e-commerce marketplace.
While the fees charged to sellers are being lowered (in order to boost listings/inventory) EBay plans to increase its commissions on sales made. For smaller transactions, good selling for $25 or less, the transaction fee to the buyer will be 8.75%. Which is approaching the 10% transaction fee charged by many barter companies here in the US and around the globe.
Interestingly, the father and tenacious architect of the trade exchange industry, Mac McConnell, exhibited similar thinking to Donahue’s when he formed Business Exchange back in 1960 as a 38-year old. He based his trade exchange model on solid economic percepts, and they’ve withstood the test of time.
McConnell fervently believed optimum business success would result when entrepreneurs could make sales of their products and services through the exchange (without paying an upfront commission/transaction fee) to earn trade dollars. And then, only after they successfully spent their trade dollars, would a transaction fee be paid.
Although the transaction fee payment process has evolved into various types of income streams, the basic premise has remained…transaction fees are necessary if a company is to provide a valuable service–be it an auction service or a trade exchange.
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This entry was posted on Wednesday, January 30th, 2008 at 12:44 pm and is filed under From the Desk of Bob Meyer. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
January 30th, 2008 at 3:33 pm
Bob:
Here is what eBay’s commission structure will look like:
8.75% of the initial $25.00, plus 3.50% of the initial $25.00 - $1,000.00… plus 1.50% of the amount over $1,000.
So on a $5,000 sale the seller will pay $96.31 or under 2%. ($25 X .0875 = $2.19) + ($975 X .035 = $34.12) + ($4,000 X .015 = $60). In addition to the commision there would be a listing fee of $0.15 to $4.00 depending on the starting price.
Power Sellers can get a 5% to 15% discount off of eBay commissions. So eBay seems way ahead of the retail barter exchange world in volume discounts and overall affordability.
January 30th, 2008 at 4:57 pm
Carl…
Do you feel EBay’s Donahue made the right decision?
Will the highest commission, now set at $25, be raised down the road?
Do you feel the barter industry’s transaction fees are a detriment and hinder trading activity?
Are you suggesting transaction fees be lowered as the size of the transaction increases, like a “power sellers discount?”
February 3rd, 2008 at 9:07 am
eBay charges listing and sales fees to sellers, not buyers, as they are primarily providing a service to the seller, while many barter exchanges charge a fee to the buyer and some split the fee and charge both the buyer and seller.
eBay ’s model is to charge for the service of enabling businesses and people to sell their products and services to eBay’s massive audience of buyers. In contrast, a barter exchange’s model is more of a payment system, except that they also refer businesses new sales from new customers, and then enable them to spend the trade dollars earned from those sales to reduce their cash requirements in spending, which also improves a businesses bottom line profitability.
My opinion has always been that a barter exchange is a payment system (i.e. credit cards) that provides member businesses with the added benefit of sales and marketing services and since the advent of the Internet, also an online marketplace and online trade account management system.
Following that premise, which is easily understood by merchant businesses, a barter exchange should parallel the credit card industry and charge a discount rate. Credit card companies typically charge 2% to 3% of sales, but unlike a barter exchange, they do not get their merchant businesses new sales that they ordinarily wouldn’t have had, which is an added value provided by a barter exchange. That value is certainly worth a few extra percentage points, as many businesses are used to paying sales commissions in addition to a discount rate when purchases are paid by credit card. Therefore, they could certainly understand being charged a 3% to 6% discount rate or sales fee by a barter exchange based on a merchants sales volume and average sale amount.
Barter exchanges could also substantiate charging a similar fee percentage on purchases, as they assist businesses to find appropriate and valuable trade opportunities so that member businesses are enabled to spend trade dollars instead of cash, thus conserving their cash for other business expenses, expansion or a better quality of life.
February 3rd, 2008 at 10:00 am
Bruce,
Thanks for your thoughts and remarks on the justification for barter exchange fees, due to the added services (over and above being a payment system) they provide their members.
February 4th, 2008 at 1:34 pm
Bob Meyer Says:
January 30th, 2008 at 4:57 pm
Carl…
Bob: Do you feel EBay’s Donahue made the right decision?
Carl’s response: An eBay shareholder would definitely ask if eBay was leaving too much money on the table. In my opinion they were. But part of what excites buyers is the thrill of the deal and the fee adjustments encourage multiple re-postings of fixed price items. I would have raised final value fees (commissions) less and left the listing fees where they were to encourage low starting price auction format over the fixed price format or high starting price auctions.
Bob: Will the highest commission, now set at $25, be raised down the road?
Carl’s response: My crystal ball is not crystal clear. eBay’s variable costs of adding more auctions are practically nil. This price increase will affect the prices sellers push for. Sellers can increase prices by restricting inventory listed, higher starting prices or higher shipping prices.
These low-ticket sales are a large part of what sells on eBay. My sense is that eBay prices are often so low that the buyers will pay 3% more without complaint. But on categories with cutthroat prices off eBay as well as on eBay (such as computer memory or music CDs) many of the sales will migrate away from eBay.
I suspect the under $25 commission is as high as it’s going to go. Future price changes may be by category but with search the dominant method of finding items of interest (compared with browsing) more variable category pricing would be a massive enforcement headache.
Bob: Do you feel the barter industry’s transaction fees are a detriment and hinder trading activity?
Carl’s response: I don’t believe the typical 10-12% inhibits new members from joining and starting to trade. But a business with significant experience in the retail trade environment sometimes does much less trading than they could because of the typical fee structure.
Some businesses benefit a barter group more than others. Sometimes one business in a barter group can have a very positive impact on the perceived value of a trade dollar in that group.
Sometimes all it takes to keep that VIP member happy is a little higher level of customer service. Other times only a price concession will do the trick. Sometimes a fee cut would spark greatly increased trading for a particular business but how they earn or spend trade dollars suggests the fee cut is not in the interest of the group.
Fees are an area that independents can use to their advantage over large groups that choose to have little or no flexibility.
Bob: Are you suggesting transaction fees be lowered as the size of the transaction increases, like a “power sellers discount?”
Carl’s response: I would place more emphasis on a monthly or annual volume discount. By the way, the eBay power sellers’ discounts of 5% or 15% are totally predicated on Detailed Seller Ratings (customer satisfaction).
February 4th, 2008 at 2:48 pm
Thanks Carl for your thoughts, comments and conclusions.