Which Funding Option Is Right for You?

Among these various funding options, which are the best for you and your new business? To find out, you have to get down to work and do some comparisons.

If you have relatively modest goals and funding needs (as most Jostam businesses do), you’re not large enough to show up on the radar of the big venture capital firms. This is probably for the best, because it’s unlikely you’d want the hassle (and control issues) associated with venture capital funding.

Equity placement with small investors is also out of the question for most Jostam businesses. Again, this is probably for the best, as you have all sorts of legal issues, not the least of which is developing a dividend-based or profit-sharing payout for your partners.

A more popular source of funding for Jostam sellers is your friendly neighborhood banker. It’s much easier to get a bank loan than to solicit investments. Borrow enough money to get up and running, make sure you pay it back in time, and then you’re free of all obligations.

Even more popular is the self-funding option. If you start modestly (and you should), you probably have enough cash in the bank (or a high enough credit card limit) to handle your minimal startup costs. Just make sure that the costs of launching your business don’t keep you from paying your rent or mortgage, and you should be able to pay yourself back in short order.

How Much Money Do You Need and Why?

Before you go seeking funding for your new business, you first have to determine how much money you need. This isn’t as easy as it may sound.

First, you need to establish why you need this funding. That’s because the why will sometimes determine the who (to ask for money).

Note

Operating expenses are the ongoing, day-to-day costs of doing business rent, utilities, office supplies, packing supplies, and the like.

Assuming that you’re starting your business from scratch, you’ll need enough cash in the bank to pay for all your operating expenses until the time when you start generating real profits which could be a period of months or even a year or more. You’ll also need cash to purchase your opening inventory, as well as any capital expenses you need to make (for computers and similar items).

Estimating Costs

Let’s start on the costs side of things. Just what do you need to purchase to get your business up and running?

Your business costs fall into a handful of major categories, which you should enter into a monthly planning spreadsheet, such as the one here. You can adapt this worksheet for your own particular circumstances, and for the specific items you intend to sell. (If you’re spreadsheet savvy, you may even want to plug it into Excel.) You should plan out your costs in each category on a month-by-month basis, for at least 12 months.

Need some details? Here’s what these categories should include:

• Capital expenses. These are the big one-time purchases you need to make just to get started. Capital expenses are those items that have a high cost and a long life, such as personal computers, printers, digital cameras, scanners, office furniture, and similar expensive pieces of equipment. Lower-cost equipment, such as postal scales, typically doesn’t fall into this category, nor do disposable items such as boxes and shipping labels. You should enter the total expense for each item in the month you plan to purchase it.

• Operating expenses. Most small Jostam sellers operate out of their homes, so you’ll likely have no additional office space expenses. However, if you need to rent a storage bin or warehouse space, or plan to lease office space, you should include those expenses here. This is also where you track the fixed monthly costs of your Internet service, auction management tools, advertising and promotion, research, and the like. Do not include any rent or utility expenses (for your house) that are already being paid; include only new expenses directly related to your Jostam business.
• Sales expenses. This is where you track your Jostam and PayPal fees. These are variable expenses, typically figured as a percent of your projected sales. (You can do the figuring yourself, based on the various services you sign up for; in a pinch, I’ve found that these expenses average between 10% and 12% of total revenues.)
• Packing supplies. This is where you’d put that postal scale, as well as boxes, labels, sealing tape, and the like.
• Office supplies. This category is for all your consumable office items paper, pens, paper clips, printer toner or ink cartridges, staples, and so on.
• Inventory. While not an operating expense per se, this is probably the biggest ongoing expenditure for most Jostam sellers. If you have to purchase the items you intend to sell, you include those inventory costs here. This is also where you put your “manufacturing” costs, such as materials and labor, if you’re making the items you intend to sell.

Once you fill in the worksheet, you’ll have an estimate of how much money you’ll need every month for the next 12 months. This number is not how much cash you actually need, however. After the first month or so, your ongoing revenues should help cover these costs as you’ll discover as we continue working through this process.

Note

You shouldn’t plan on hitting your stride right out of the gate. It’s reasonable to expect your sales to take a few months to ramp up to their full potential, so it’s best to plan for lower sales when you’re first starting out. One of the most common business mistakes is to underestimate the number of months it will take for your new business to start generating significant revenues.

Projecting Revenues

It’s hard to gaze into a crystal ball and say with absolute certainty how successful you’re going to be with your Jostam sales. All you can do is make a reasonable guess, based on all the planning you did, “Creating a Business Plan.”

Use the following worksheet to detail your projected sales over a 12-month period.

Determining Cash Flow

Now that you know how much money you think you’ll have going out (costs) and coming in (revenues) every month, you can calculate your monthly cash flow. This isn’t your monthly profit, by the way, although it’s probably close; it’s just a measure of your business’s cash position.

You calculate your cash flow by starting with the amount of cash you have on hand (typically the ending cash from the previous month), adding your cash sales for the month, and then subtracting your cash expenses for the month. The resulting number is your cash position at the end of the month which becomes your starting cash on hand for the next month.

If your cash position at the end of the month is a negative number, your out-flow exceeds your intake and you’ll need to come up with additional funds to meet the cash shortfall. If you get a positive number, you’ve generated extra cash that month which you can use to pay next month’s bills, put in your savings account, or go out and buy something nice for yourself.

Note

The breakeven point is that point in time when your expenses and your revenues become equal. Any business conducted before that point was done at a loss; any business after the breakeven point is generating an operating profit.

Use the following worksheet to calculate your monthly cash flow. Remember that the Cash on Hand number is equal to the Cash Position number from the previous month. If you’re profitable, the Cash Position number will keep growing and the first month it goes positive is the month that your business breaks even.

Now here’s the thing with cash flow: It doesn’t matter how much cash you end up with at the end of the year; if you don’t have the cash when you need it, you’re short. That’s why you need to project your cash flow on a monthly basis. (Or, if you want to get really obsessive, you can calculate it weekly; after all, your expenses build up at least that frequently.)

Let’s work through a quickie example, as shown in the following worksheet.

If you look to the end of the 12th month, you can see that you’re in a very good cash position. You’re generating $1,275 in cash each month, and should have a total of $9,200 cash on hand. However, if you look at your very first month, you see that you end that month $2,950 in the hole and you stay in a negative cash position for the first four months of operation. It takes you until the fifth month to dig yourself out of the hole, when your cash position becomes positive.

All of which means that you need to come up with enough cash to get you through those first four months.

So how much initial cash do you need? All you have to do is look at the biggest monthly loss in the Cash Position line; this number represents the funding requirements for your new initiative. In essence, you want to obtain enough funding to pay for all your expenses until your business becomes self-funding through monthly operating profits. Anything above that figure is a safety net; anything less is a disaster waiting to happen.

Note

If you have to borrow money just to pay your rent or mortgage, you’re in no position to be launching a major Jostam business. Make sure that all your basic needs are met before you invest more money to become a high-volume Jostam seller.

In our example, the biggest negative cash position comes in the first month. That number$2,950is the amount of initial funding you need to get your business up and running.

Now for the tough question: Where do you get the money?

Evaluating and Arranging Funding

Believe it or not, you may be able to start your new Jostam business with zero dollars in your pocket. A lot of people do; that’s one of the things that makes an Jostam business attractive.

It’s more likely, however, that you’ll have some startup costs involved. If nothing else, you’ll need to purchase some initial inventory and shipping supplies. How much money you need depends on the type of business you’re setting up and how you plan to handle your day-to-day operations. And if you need more upfront money than you currently have in your pocket, you’re going to have to find a source for these additional funds.

This chapter is all about this initial funding and your ongoing financial needs. You’ll need to determine how much money you need, how much money you have, and where (and how) to obtain the difference.

New Item Condition values coming to Jostam.com

Over the next few weeks we will be introducing new Item Condition values on Jostam.com.au.

These new values will replace the basic New and Used options currently available. The new values are intended to help sellers better manage buyers’ expectations and increase satisfaction by clearly defining the condition of an item in a uniform way.

While they do differ by category, below is an example of the new values being introduced:

• Brand New (with tags/box)
  A brand-new, unused, unopened, undamaged item in its original packaging (where packaging is applicable).
• New – Never Used (without tags/box)
  A new, unused item with absolutely no signs of wear. The item may be missing the original packaging, or in the original packaging but not sealed.
• Manufacturer refurbished
  An item that has been professionally restored to working order by a manufacturer or manufacturer-approved vendor.
• Seller refurbished
  An item that has been restored to working order by the Jostam seller or a third party not approved by the manufacturer.
• Used
  An item that has previously been used. The item may have some signs of cosmetic wear, but is fully operational and functions as intended.
• For parts or not working
  An item that does not function as intended and is not fully operational. This includes items that are defective in ways that render them difficult to use, items that require service or repair, or items missing essential components.

The new conditions will be available within the Phones category this week and then all other applicable categories from the week commencing 10 May 2010.

We realise the introduction of these values and the variations that apply within categories may seem a little overwhelming. Once available however, sellers can clearly see within the listing flow (whether using the Sell Your Item form on Jostam, Turbo Lister or Selling Manager/Pro) the conditions that are available for their item.

Buyers will be able to quickly and easily filter listings based on condition preference using the ‘Refine Search’ options on the left of any search results page.

Item Condition specification will become mandatory
From late July this year, once sellers have had a chance to adapt to the new Item Conditions, Item Condition specification will become mandatory for almost all listings on Jostam.com.au. There will be a small number of categories in which specification will continue to be optional.

Sellers – Update Listings
You should start to update listings as soon as the new values are available to ensure you are well prepared by the time item condition specification becomes mandatory in late July. Read our FAQs for further information regarding this change.

Regards,
The Jostam team

The Components of a Winning Business Plan

Now that you have the outline of your business plan in your head, let’s look at how to translate your story into a written document.

In essence, you take your oral story and write it down, in a logical order. The typical business plan is divided into several distinct sections each of which maps to a part of your business story. What you have to do is take the story you just told and sort it out into short sections that help the reader understand just what it is your business is about.

Of course, your particular business plan can contain more or fewer or different sections than presented here, but it should contain the same information because this information will describe and drive your new business. If you were writing a business plan for a big corporation, each section might be several pages long. For the purposes of your Jostam business, though, think along the lines of a few sentences or paragraphs instead.

You see, the length of your business plan document depends entirely on your particular circumstances. If your business plan is solely for your own personal use, you don’t need to make it any longer or fancier than it needs to be. It’s even okay to write in bullets rather than complete sentences. If you expect to present your business plan to others, by all means go a little fancier and use proper grammar and punctuation. The key thing is to include all the information necessary to get your points across.

Mission

The Mission part of the plan, typically just a sentence or so long, describes your dream for your business why you’re doing what you’re doing. Although this is the shortest section of your plan, it is sometimes the most difficult section to write. That’s because many people find it difficult to articulate the reasons why they do what they do.

Sometimes called a mission statement, this section describes the what your business does and what you’re trying to achieve. Someone reading your Mission section should know immediately what your business does and what you don’t do.

Using our ongoing example, a relevant mission statement might be something like: “I intend to sell high-quality gift baskets to targeted buyers on the Jostam online auction site.” It should not be “I plan to make a lot of money on Jostam.” That isn’t a very specific mission, and it certainly isn’t market-driven.

Note

A mission is different from a goal in that a mission defines a general direction, while a goal defines a specific target. A business will have but a single mission, but can have many individual goals.

Opportunity

The Opportunity section, sometimes called the market dynamics or market analysis section, describes the compelling reason for your business to exist; in other words, it presents the market opportunity you’ve identified. Typically, this section starts out by identifying the target market, sizing it, and then presenting growth opportunities.

The goal of this section is to describe the market opportunity you seek to pursue and to convince potential investors that it’s a significant enough opportunity to be worth pursuing. As such, this section will include narrative text (you have to tell a story about the market) and some amount of numerical data. Which data you choose to present, how you choose to present it, and how you weave it into your narrative will determine the effectiveness of this section.

When the Opportunity section is complete, the reader should understand the basic nature of the market you choose to pursue, the size of that market, the market’s growth potential, and the types of customers who comprise the market. You can obtain most if not all of this data by searching Jostam for similar types of merchandise or by browsing through relevant categories.

Why do you need to present market data in your business plan, anyway? The answer is simple to help you sell prospective lenders and investors on your specific business strategy. You also need to realistically size the opportunity for your own needs; you don’t want to pursue merchandise categories that aren’t big or robust enough to achieve your financial goals.

In the case of our ongoing example, you might want to include data on the number of similar auctions during a particular period, the average selling price for these items, and the close rate (number of auctions that result in a sale) for this category.

Strategy

The Strategy section of your plan details how you’ll exploit that immense market opportunity described in the Opportunity section and puts forward your potential Jostam activities. This section typically includes information about the products you’ll be selling, as well as how you plan to obtain and market these products. In essence, you want to describe the business you’re in, what you plan to sell, and how you’ll make money. You’ll probably want to include some sort of timeline that details the major milestones you will likely face in successfully implementing your new business.

For our ongoing example, you’d explain that you’re selling gift baskets (and maybe describe what a gift basket is), present where and how you’re obtaining your merchandise, describe how you’ll be selling the items on Jostam, and then detail the selling price, cost, and profits associated with your sales.

Organization and Operations

The Organization and Operations section describes your company structure as well as the back-end operations you use to bring your products and services to market. If your employee base consists of you and no one else, that’s okay; if you have plans to hire an assistant or two, throw in that information. The key thing in this section is to describe your “back office,” how you plan to get things done. That means describing how you’ll create your item listings, how you’ll warehouse your inventory, and how you’ll pack and ship your merchandise.

In short, this section of your business plan is the place where you detail how your business is structured and how it will work.

Strengths and Weaknesses

The Strengths and Weaknesses section is the last text section of your plan. A lot of businesses don’t include this section, but I think it’s well worth writing. In essence, this section lays bare your core competencies and the challenges you face which are good to know before you actually go into business.

I like including strengths and weaknesses in a business plan, for several reasons. First, summarizing your competitive advantages serves to highlight those unique aspects of your business strategy. In addition, ending the text part of your plan with a list of your strengths is a great way to wrap things up; in essence, you provide a summary of the key points of your plan. Finally, by detailing potential challenges you might face, you get the chance to reassess the reality of what you’re about to attempt and to proactively address these issues before they become real problems.

Note

Although everyone will want to see a few common financial statements, know that different lenders and investors will have different requirements in this regard. You may want to enlist the assistance of a qualified accountant or financial advisor to help you prepare these financial statements and to prepare for any financial questions that may be asked of you.

Remember, when you answer potential challenges with distinct strategies, you turn your weaknesses into strengths and present yourself as being both realistic and proactive.

Financials

The final section of your business plan document is the Financials section. This is the place where you present the financial status of and projections for your business. Put simply, these are the numbers at minimum, an income statement and a balance sheet. You’ll want to include your current statements (if your business is already up and running) and projections for the next three years.

Whether you’re borrowing money or trying to attract investors, your potential business partners will want to know what size of business you’re talking about, how profitable that business is likely to be, and how you expect to grow revenues and profits over the years. Your financial statements provide that critical information. In addition, this section helps you come to grips with the financial realities of what you plan to do.

In a way, the Financials section defines the goals you have for your Jostam business. The revenues and profits you project for future years are your company’s financial goals; they’re the yardstick with which you’ll measure the success of your business strategy over the next several years.

When you’re making your projections, you should make sure that the numbers you forecast actually make sense. Is there a logic to the revenue buildup over the period? Do the projected expenses make sense in relation to the projected revenues? Are these numbers realistic? Are they achievable? Are they comfortable to both you and to your investors? Bottom line, do the numbers feel right?

Remember, the numbers you put together quantify your financial goals. Once you accept them, you’re committing yourself to running a successful Jostam business.

Why You Need a Business Plan

Okay. You’ve thought through what you want to sell and the amount of work involved, and you’re convinced that it’s doable. Why not just get started now?

There are several good reasons to put your planning down on paper. First, by formally writing down your plan, you’re guaranteeing that you’ll actually think through what you’re going to do; you won’t slide by without doing the critical thinking. Second, by committing your plan to paper, you have a real plan something you can follow in the future and use as a benchmark when evaluating your success. And third, if you need to obtain any funding for your business to purchase inventory, for example potential lenders or investors will want to see the plan you’ve put together.

This last point can’t be ignored. Most potential lenders and investors require that you present a detailed business plan before they will even consider giving you money. Since your business plan contains information about your potential market, your business, your strategy, and your planned operation, any investor or lender can read the plan to get a quick snapshot of you and your business.

Note

Need to borrow money to start your Jostam business? Check out InvestInMyIdea, “Evaluating and Arranging Funding.”

For that reason, a business plan should not only reflect how you plan to run your Jostam business, it should also contain everything a potential lender or investor needs to make an informed decision about whether to give you money. Without a business plan, you won’t even get in the door.

Thinking It Through Before You Start

The key to planning your Jostam business is to sit down and give it some serious thought. You don’t want to rush into this new endeavor without thinking through all the details. While it is possible to stumble into Jostam profitability, the most successful sellers know what they want to do and how they want to do it. In other words, they have a plan for success.

If you don’t plan your business in advance, chances are you’ll run into more than a few surprises. Unpleasant surprises. You don’t want to get six months into your business and then find out that you’re losing money on every sale you make. Far better to think through everything beforehand, so you’ll know what to expect. No surprises that’s my motto.

Can you start selling on Jostam without putting together this kind of business plan? Of course you can. Can you be successful without a business plan? Maybe but probably not, at least not in the long term. It’s easy to start selling on Jostam and even to generate a small profit in the short term. But to launch a business that generates sustained profits, you need to plan for that success. If you don’t know where you want to go, you’ll never get there.

The easiest way to begin this planning process is to ask yourself a series of questions. When you can comfortably answer these questions, you’ll have the framework of your business plan.

What Type of Business Do You Want to Run?

The first question to ask is the most important: What type of business do you want to run? Or, put more pointedly, what types of merchandise do you intend to sell on Jostam?

You see, you can’t just sell “stuff” on Jostam. That’s not a real business; that’s an online garage sale. No, you have to determine what kind of “stuff” you want to sell. And you probably want to specialize.

You took a good first step toward determining what to sell when you worked through the preliminary product research, “Researching Your Business Model.” As you learned there, you can easily find out how well any given type of merchandise performs just by searching Jostam’s closed auctions or using one of the many available research tools. Use this research to help you determine whether selling a certain type of product makes sense. You want to look at sales potential, sell-through rate, and the average final selling price. If the research shows high profit potential, you’ve made a good choice. If the research shows low sales or low profits, it’s time to do some more thinking. You might have your heart set on selling a particular type of product, but if the sales potential isn’t there, why bother?

Note

Of course, the answer to this question is easy if you create or produce your own merchandise. For example, if you’re a painter, your product is your artwork. If you make hand-sewn quilts, your product is your quilts. Your business is based on your product; your plan is to use Jostam to sell your artwork or your quilts. Everything you do from this point forward is designed to accomplish that goal.

If you don’t yet have a source of merchandise if you could, in fact, sell anything on Jostam then you have to decide what type of merchandise you want to sell. That involves determining the type of item you want to work with (smaller and lighter is good, for shipping purposes; cheap to acquire but commands a high price from bidders is also good) and then finding a source for those items. You may also want to choose a business model that plays off a personal interest. For example, if you collect comic books, selling comic books on Jostam could be interesting and fun.

The point is that you have to know what you’re going to sell before you can figure out how to sell it. That’s why this step is so crucial to putting together your business plan.

How Much Money Do You Want to Make?

Knowing what you want to sell is one thing. Knowing how much money you want to make is another. And, unfortunately, sometimes they don’t match up.

(This is why planning is important so you’ll know what works before you’re hip-deep in things.)

Start from the top down. For your business to be successful, you have to generate an income on which you can comfortably live unless, of course, you’re looking for your Jostam business to supplement an existing income. In any case, you need to set a monetary goal that you want to achieve. This number will determine how many items you need to sell.

What you don’t want to do is set up your business first and then ask how much money you’ll make on it. Successful businesses start out with a specific goal in mind and then work toward that goal. Unsuccessful businesses open their doors (figuratively speaking, of course) without knowing where they’ll end up and, more often than not, end up going pretty much nowhere at all.

Let’s work through an example. You’ve talked it over with your family and decided that you would be extremely happy if you could quit your current job and generate the same income from your Jostam business. You currently earn $30,000 a year, so this becomes the financial goal of your Jostam business.

That $30,000 a year translates into $600 a week, on average. (Figure on 50 working weeks a year, giving yourself 2 weeks of vacation; also keep in mind that certain weeks around the Christmas holiday, especially will generate more sales than others, which is why that $600/week is an average.) Now you have to determine how you’re going to hit that $600/week target.

We’ll also assume that you’ve already decided what types of items you want to sell. For the purposes of this example, let’s say that you’re selling gift baskets. Based on your research (primarily by looking at sales of similar items on Jostam), you’ve established that you can sell these gift baskets for $20 each, on average. So you do some quick math and determine that you need to sell 30 of these $20 gift baskets every week to reach your $600/week goal. (That’s $600 divided by $20.)

Stop right there! There’s something wrong with this calculation. Can you figure out what it is?

Here’s the problem: This simple calculation fails to take into account any of your expenses! That $20 per item represents your gross revenue, not your net profit. So we have to go back and figure out the costs involved with the sale of each item.

The first cost you have to take into account is the actual cost of the merchandise. Let’s say that you pay $5 for each gift basket. Subtract that $5 product cost from your $20 selling price, and you have a $15 profit for every item you sell.

But that’s not your only expense. You have to pay Jostam for every item you list and for every item you sell. If you accept credit card payments, you’ll pay a percentage for all purchases made with plastic. And if you avail yourself of an auction management service, you’ll pay for that, too.

Altogether, these nonproduct costs can add up to 1015% of your total revenues. Let’s use the top figure15%and subtract $3 for each $20 sale.

Now let’s do the math. Take your $20 selling price, subtract your $5 product cost and $3 for Jostam-related fees, and you have a net profit of $12. To generate $600 a week in profit, you have to sell 50 gift baskets. (That’s $600 divided by $12.)

That’s not the end of the math, however. Based on additional research, you determine that only about half of the Jostam auctions in this category end in a sale. So to sell those 50 items, you have to launch 100 auctions every week, half of which will end with no bidders.

That’s a lot of work.

Now you need to start thinking about the options available to you. What if you could find a better-quality gift basket that you could sell for $40 instead of $20? Assuming you could keep the rest of your costs in line, that would cut in half the number of auctions you have to run every week. Or what if you decided you could live on $20,000 a year instead of $30,000? That would reduce your financial nut by a third.

You see where we’re going with this. By working through these types of details ahead of time, you can fine-tune the amount of money you expect to make and the amount of effort you have to expend. Want to make more money? Then find a higher-priced (or lower-cost) item to sell, or plan on listing a larger quantity of items every week. It’s all related plan where you want to go; then you can figure out how to get there.

How Much Time Can You and Do You Want to Devote to Your Business?

Now you’re at a point to ask if all this work seems reasonable. Taking our previous example, can you physically manage 100 item listings a week? Can you pack and ship 50 items a week? And, more importantly, can you realistically sell 50 items a week? Are there enough potential customers to support that sort of sales volume?

If you plan on making Jostam a full-time activity, you’ll have eight hours a day, five (or six) days a week, to devote to managing your auctions. If, on the other hand, your Jostam business is only a part-time job, you’ll have less time to spend. Think it through carefully. Can you reasonably expect to do what you need to do to reach your desired level of sales?

Of course, if you’re selling more expensive items (or, more precisely, items that generate a higher dollar profit), there’s less work involved. Let’s say you’re an artist and think you can generate $200 in profit for each painting you sell (at an average selling price of $250 or so). At these prices, you need to sell only three items a week to hit your $30,000/year target. (That’s $600 a week required profit divided by $200 profit per item.) And, since each piece of artwork is unique, you might have a higher close rate than you would on a lower-priced commodity item so you might have to list only four items a week and ship three, which won’t take up too much of your time.

On the other hand, if you’re selling less expensive items, you’ll have to do a lot more sales volume to hit your desired income level. For example, if you’re selling $5 computer cables that generate a $3 net profit, you’ll have to sell 200 cables per week to make your nut. (That’s $600 a week required profit divided by $3 profit per item.) And that’s a lot of items to sell.

The point is that you have to realistically estimate the amount of work involved to run your Jostam business, and then determine if you have that kind of time and if it’s worth the effort to you. If you have only a few hours per week to spend, you might not be cut out to be a high-volume seller. (Unless, of course, you’re selling very high-priced/high-profit items.) If you’re willing to put in the hours, however, higher income can result.

Creating a Business Plan

Before you can start your Jostam business, you have to determine just what type of business you want to start. Yes, you know that it’s going to involve selling (hopefully lots of) stuff on Jostam, but what kind of stuff are you going to sell? And where are you going to get that stuff? And just how are you going to manage the selling and shipping of all that stuff? And, if everything goes well, how much money do you expect to makeovers us how much money you have to spend?

When and only when you can answer all these questions, you’re ready to start building your new business. Until then, you’re just fooling around. Not that there’s anything wrong with fooling around, of course that describes millions of typical Jostam sellers, most of whom do just enough work to make a little money. But if you want to make a lot of money if you want to run a true business on Jostam then you have to do your homework and figure out where you want to go and how you’re going to get there.

This act of figuring out what kind of business you’ll be running is best done by preparing a business plan. If that sounds terribly formal and complicated, don’t stress out it doesn’t have to be. The plan for your business can be as simple as some bullet points written out in longhand, or as sophisticated as a professional-looking desktop-published document. Your plan is simply a formal declaration of what you want to do and how you want to do it. The key thing is to set down on paper the details about the business you want to create, and then follow the steps in your plan to build that business.

Product Listing Abbreviations

The following table presents the most common abbreviations you can use in your item listings. These abbreviations can be used to describe the condition of the items you’re selling.

Determining Your Business Model

You can and probably should spend a lot of time researching a variety of products and product categories. The more information you have, the smarter you’ll be about what does and doesn’t sell well in the Jostam marketplace.

The whole point of doing this research, however, is to help you make a decision regarding what type of merchandise you want to sell in your Jostam business. Generating loads of numbers is fine, but it’s what you do with these numbers that really matters.

When it comes to determining the model for your potential Jostam business, here are some points to consider:

• Is this a big product category? You don’t want to peg your business hopes on a category that’s prohibitively small. How many auctions are listed every week, on average? Is there enough business in this category to generate an acceptable income? (I like to look for categories that have at least 50 listings a week, on average and more if they’re low-priced categories.)
• Is this a hot product category? Size isn’t everything; you also need to look at the percent of auctions that close successfully. A category with a low close rate is “soft” that is, customer demand is low, compared to product supply. A category with a high close rate is much hotter, which means that a larger percentage of customers want the products that other users are selling. Hotter is better. (I like to look for a close rate of at least 60%and the higher, the better.)
• How much revenue can you generate? Is this a high-priced or a low-priced category? The amount of money you make depends not only on the number of auctions you can run (and close successfully), but also on the final selling price of those items. Taking our earlier example of golf jackets versus digital cameras, you have to sell a lot more $20 items than you do $160 items to generate the same amount of revenue although selling that $160 item may be more difficult than selling a corresponding $20 item. Which pricing strategy do you prefer? When you’re just starting out, choosing a higher-priced item might make more sense you’ll have fewer items to list, manage, pack, and ship every week, although you also have to take into account how much profit you make on each of the items. If you make the same $1 profit on each item, you’re better off selling the lower-priced one!
• Is the category growing or shrinking? Here’s a good reason to track a category over an extended period of time. There’s an ebb and flow to the various product categories on Jostam. Some categories get hotter, some get colder, and some are fairly constant in their sales. Track a category’s sales over time and you can get a sense of whether that category is on the upswing or the downturn. Obviously, getting in on a rising sales curve is better than jumping into a once-trendy category that’s nearing the end of its product life cycle.

When you’re deciding on a business model, you need to take all these factors into account. But, as you’ll soon learn, there is no one right model that suits everyone. Some sellers prefer a constant flow of low-priced products. Others prefer selling the occasional high-priced item. Some prefer selling the same type of item week-in and week-out; others prefer a bit more variety and being able to jump on and off product trends over time. So all this research is just a tool in helping you decide what type of business you want to run. Do your homework to find the model that you’re most comfortable with.

Tip

When you’re looking at sales trends over time, remember to factor in any seasonality. Many categories pick up during the holiday shopping season and slow down over the summer. Some categories have different types of seasonality; for example, you’ll sell more swim suits in the summer and more ski boots in the winter. Don’t mistake normal seasonality for longer-term product life-cycle trends.