With a still shaky economy, gas prices soaring, shipping carrier increases, fuel surcharges and sales growth that trails the growth of ecommerce and competitor Amazon, eBay has picked an interesting time to implement fee changes that will potentially amount to an overall increase for millions of sellers.
And while some early media reports proclaimed a fee decrease, industry insiders that understand how the numbers work provide a clearly more accurate picture.
At the root of the potential fee increase is eBay’s decision to charge Final Value Fees on the total amount of the sale, which includes charges to the customer for shipping.
Yes, eBay is now charging fees on what is categorized by your bookkeeper as a business expense. (The IRS doesn’t tax businesses on expenses.)
You can read the full announcement here. At the core of the issue is this:
Sellers subscribed to a Store: To reward free and low-cost shipping, Final value Fee rates will be reduced and applied to the total amount of sale—including shipping—starting July 6.
Here’s how it breaks out:
eBay starts by reducing Final Value Fee rates. Sounds good right?
For example, currently if you are a store owner and sell a lamp for $25 and it costs you $25 to ship the lamp, you pay 12% of the final sale price.
12% of $25 =$3.00
In July that fee drops to 11%.
But here’s the hitch. The fee now applies to your item price plus shipping costs.
Under the new rate, which takes effect in July, you’ll be charged 11% on the item price $25 + shipping $25 = $50. Your new fees? $5.50 A fee increase of 83%.
Now let’s say all along that you’ve been charging $50 for that lamp and offering FREE shipping. In this scenario, you’d see a fee decrease of .50 ₵
But here’s the “X” factor in all this. If the marketplace is used to seeing this lamp priced at $25 + $25 shipping.
It is highly unlikely that you or anyone in your category has been selling that same lamp at $50 + free shipping.
In the case of these gorgeous, heavy, one-of-kind lamps, the seller must take extreme care to make sure these make it to the buyer in one piece.
Granted, with a lighter weight item, you will not see this variance.
If a seller has been selling a lightweight bracelet for $21 + Free Shipping, they are already paying a Final Value Fee on the total order price.
Sellers who have been incorporating their shipping into their product price and offering Free Shipping will generally see a fee decrease with the lowered Final Value Fees.
However, in the above scenario a seller has determined that they can afford to incorporate Free Shipping and add the cost into the price of the product because it works for their business model.
Under the new policies, sellers have no choice. Whether it works for your model or not, you’ll be paying FVF on the total amount of sale.
Additionally if you’re a Top Rated Seller, the 20% TRS discount is no longer worth quite as much. Even though fees are being charged on the total amount of sale, TRS discounts only apply to the price of the item.
The rules change for non-store subscribers and auction format listings… more about that in my next post.
The Bottom Line for Your Business
The bottom line is that this is not a fee decrease across the board. In fact it’s not even a fee decrease on a per seller basis.
Every seller can potentially see fees go up on some of the products they sell and down on other products. It all depends on the product and how you list it.
So it’s very important to take some time and look at your most common pricing/shipping scenarios. You won’t be able to look at every product, but if you start with your most popular items, it’s a start.
Revisit your product line, your pricing strategies and your fees as you continue to list this month. A daunting prospect for already busy sellers.
You may be wonder why eBay would make such a change? Especially during a time when margins are more squeezed than ever, especially for small sellers.
eBay has stated that “buyers have told us they love free shipping”. Of course they do! Buyers would love free products too if it were an option.
But free shipping was never meant to be the norm. It was meant to be used for special promotions.If you give your kid a birthday cake every single day of the year, it ceases to be special. It becomes ordinary. Expected. The same holds true for free shipping.
… In fact there is no such thing as free shipping. There is a hard cost to shipping. And either the merchant or the buyer pays that cost. (Last I heard FedEx wasn’t shipping products for free.)
So, should you keep your business on eBay? Only if it can be profitable there.
And as with any business, the purpose is to turn a profit. If the model is no longer profitable, reassessing and reinventing your business is the only way to continue to thrive.
-Lisa
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Hmm, well if ebay wants to get greedy, I think I’ll just stop paying my fees, well at least this new FVF on shipping anyway. I don’t think they have any right to do this. Shipping cost has nothing to do with ebay, they shouldn’t even be able to touch that. eBay is already getting money from both the item’s price as well the money deposited through paypal. If they want to make more money, as every greedy company does, they should’ve just raised the FVF on the sale price a percent or too, not do something as intrusive as a whole new fee on shipping.
I hope ebay gets the clue that this is straight up bad business. Until they stop this terrible practice, people are simply going to leave ebay, hopefully leaving standing account balances with them. Matt(Quote)
Eka(Quote)
Hi Eka,
Unfortunately eBay won’t be removing the fees on shipping. I had a meeting with eBay’s director of seller marketing and director of pricing – and talked with them at length about this. A lot of different factors went into the decision to implement fees on shipping. So this is the eBay model of the future.
For some people it’s working, for others it’s not. It all depends on what you sell. I go into this in detail in my 2-part teleseries “Tackling the eBay Shipping Fees… and Winning.”.
For many people it does call for reinventing their business. I wish I could tell you something else,
but that’s the truth! You can make it work though if you still want to stay on eBay.
-Lisa Lisa Suttora(Quote)
….if you offer free shipping on combined orders and the customers pays for each item without combining them first and you send them a refund on the shipping of the second item you don’t get a refund on FVF.
The folks at eBay need to get themselves some guns and masks then come to my house, bust in the door and rob me proper Greg(Quote)
Hi,
The issues you outline have a serious impact on your business. I did talk to eBay’s director of seller marketing and director of pricing about the combined shipping/refund issue as it relates to final value fees. And they did confirm that right now there is no solution, but they are working on a way to refund the final value fees when a customer is refunded for partial shipping.
It’s not a consolation I know – given that your bottom line is being impacted now. And I agree with what you said about the impact on the customer and what they pay. And as you stated (and I wrote in this blog post) – unless a company really does absorb the cost of shipping for the customer, there is no such thing as “free shipping.
-Lisa Lisa Suttora(Quote)
I don’t understand this fee at all. Ebay is not packing the item, is not driving the item to the post office, and is not paying postage to ship the item. I can understand a fee for posting an item, but how does Ebay acquire shipping costs?
I don’t even print out a shipping label as I am perfectly capable of using a dark ink pen to write a legible address. With the fees on Ebay and the fee on using Paypal I am barely making any money at all. SeanP(Quote)
I just spent 20 minutes yesterday talking to Ebay customer support about that Final Value Fee on Shipping. I got charged for selling some goods for last three days and when I notices that on my account activities I made a call.
I requested to get all the Final Value Fee on Shipping fees back to my account. It is not a good way to run business. Ebay is getting greedy. German(Quote)
I stopped selling a couple of years ago when they changed international shipping charges rules. It decreased my profit margin by 75%, as I would list on non-US sites, and ship from the US, requiring higher shipping charges. I could no longer charge for this. eBay lost a power-seller. This move will lose them more. :/ former ebay seller(Quote)
Since I am fairly new to eBay, it does not bother me that they take a cut on the postage…I just increase my postage.
What they REALLY need to do, since they are now taking fees from the postage, is REMOVE the stupid question asking if we as Seller’s charge reasonable fees for our shipping…
WHY would that matter if they are participating in any profit we may make above the standard shipping fees. Deborah(Quote)
ed(Quote)
Hi Ed,
Yes, that’s true – there is a (relatively new) policy against saying anything in your eBay listings regarding eBay policies influencing changes in your business (pricing, shipping, payment methods etc.) The best option is to just stick to the facts of the product description. I do think that eBay needs to revise their “We’re just a venue.” statement. That has not been true for many years. It is their ‘house’ and they can run it the way they wish, but being upfront about it is the right thing for them to do!
-Lisa Lisa Suttora(Quote)
I wonder if one reason for the decision was the number of bad sellers switching the item price and the shipping cost to avoid ebay final value fees. I saw this a lot and reported it to ebay whenever I did. For example, one seller was selling rare sealed blank cassette tape for a buy-it-now of $1.00 and shipping cost of $25.00 to ship one little cassette tape. I see many other violations as well to avoid ebay fees. I’ve been saying for years that sellers who get away with this sort of thing ultimately hurt everyone because ebay will raise fees. I have a feeling I’m one of very few from the old school who believe ebay members should keep house and weed out bad members. I still click on that little link that says “Report Item.” Everyone should… or should have I guess I should say. IMO if members were more involved in ebay we wouldn’t be paying such high fees and now final value fees for shipping. To be fair to members who haven’t been more involved in maintaining ebay there has always been poor upward communication to ebay and it has only gotten worse. Timothy(Quote)
I had a decent part time job through ebay, selling motorcycle parts. My shipping was always higher than my parts obviously because my parts are heavy. Im out! This new fee kills me and I am making little profit and it makes no sense for me to sell any more unless I want to keep the shipping company and ebay in buisness. Thanks ebay for the memories; jackasses. John Werhling(Quote)
Is there an alternative to Ebay yet? These seller fees are still hurting me, they are clearing out too much money at the end of each auction, it seems rather pointless to sell on ebay for a profit anymore, hopefully if another fully functioning auction site is online, ebay will be a market for desperate sellers and made in china items. Leaving Ebay(Quote)
And what about the sellers who do true auctions–$.99 to start. Then, weigh and measure each box–enter data into their shipping calculator—loose 3%+ to paypal, still end up owing more for postage (cause the calculator is seldom accurate) and not charge a handling fee? I’ve always prided myself on staying true to ebay’s original business model (i remember waiting for money orders and hand writing customs forms). I was never a fan of Buy It Now–and i’ve always charged actual postage. I’ve refunded when it was overpaid and ate it when it wasn’t enough. I pay for my own packing materials and treat that as i would any other variable expense. I’ve never passed it on to the buyer. Yes, I did all this to stand out among other sellers and increase my own worth on ebay–but along the way–it was sellers like me who truly created the “ebay experience”. No i didn’t help write the codes that enable the platform—i just did the grunt work—i was the honest, trust-worthy, hometown, folksy seller that ebay capitalized on and now extorts for every lousy penny they can squeeze.
I started to give up on ebay when the feedback system changed which allowed buyers to hold sellers hostage for partial refunds, clear violations that never work out in a sellers favor. It didn’t take buyers long to figure out that nothing bad could happen to them by simply sending an email saying i want money back or else. Ebay went from a shared community to a cold hearted, dog-eat-dog forum over night with that little change. I was amazed and overwhelmed at how buyers attitudes just changed instantly.
Had I known then what things would be now, i doubt I would have cared so much whatever happened to ebay. Silcon Valley streets are paved worth brillant and useless dot com computer codes. I and many others like me created ebay–not some ivy league geek. They forgot that and will in the next 10 years suffer for it. There already is an Amazon—no room for another and besides….amazon does it better. half dot com anybody???? that joke of an ebay site never caught on—but now—it’s the entire ebay experience. john(Quote)
Hi John,
Yes, I’ve always been an advocate of having an “eBay Classic” site and a new consumer goods site, so that the two models could be handled separately. I think an eBay Classic site using the original model and featuring the unique-one-of-a-kind products, in a marketplace filled with independent online sellers would be a big success!
And you’re right, Amazon has it’s model nailed down and they do it very well. The thing about Amazon is that they know who they are, and they’ve stuck to that vision for years in a quest to become the best at what they do. They know they can’t effectively be all things to all people (at least not in one marketplace).
-Lisa Lisa Suttora(Quote)
If case anyone is wondering, you have to multiply 0.099 by the shipping cost to make up for the Shipping FVF (if you plan on the buyer sucking up the cost).
I do not do this as a seller, but I am toying with the idea of splitting the charges with my buyers. Such as I charge them: shipping cost PLUS .050 x shipping cost. So if the shipping is normally $10, then they pay $10.50 and I pay 49 cents. Steven(Quote)
i heard a lot of people saying that the real reason ebay started charging fees on shipping was because of the bad sellers who had put in small amount on the actual item and greater shipping fees to avoid paying final value fees. instead of charging for shipping fees, i personally think ebay should rather follow amazon model where they defines what the shipping costs would be based on the category of the item, size and many other factors. amazon model has been successful over the years. andrew(Quote)
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