Recently, I saw an investor relations presentation by eBay (available on the company website), where it provided a nice formula for how the eBay Marketplace makes money.
Briefly, eBay’s Marketplace revenues are a percentage of the Gross Merchandise Volume (GMV) which is the value of the goods actually sold on the marketplace. The relevant equations:
(1) eBay Marketplace Revenues = GMV ($) * take-rate (% cut for eBay)
(2) GMV ($) = Listings (#) * Conversion Rate (%) * ASP ($, average selling price)
eBay publishes GMV and Listings data, but does not disclose conversion rates or ASPs for any of its categories. Listings volume went up by 3% in Q2’08 over Q1’08 after eBay allowed fixed price listings at a drastically reduced 35 cent per listing insertion fee. GMV, dropped in Q2’08 by about 2%, which implies that the conversion rate and/or ASP dropped in Q2’08. Since eBay does not disclose either number, I wanted to see if I could estimate them based on reasonable assumptions.
I first tried to estimate what percent of listings on eBay fall into the following “buckets”:
- Low End Retail: this includes categories like Clothing & Accessories, Home & Garden, Books/Movies/Music, Toys etc
- High End Retail: this includes categories like Computers, Consumer Electronics, Sports, Cameras & Photos, Jewelry & Watches etc
- Motors: this includes Vehicles and Parts & Accessories
- Rare Stuff: this includes Collectibles, Antiques & Art, Coins & Stamps
- Business & Industrial
You can do this by sampling the active listings on ebay.com and bucketing them as above.
Next, as the table below shows, you can estimate ASPs for some of these categories. For example, based on published data for e-Commerce Sites, $25 is a good estimate for ASP for Low End Retail items. I assumed $250 for High End Retail Items and $5000 for Motors (since a majority of the listings appear to be used vehicles). Ebay provides Listings and GMV data for these categories. The rest of the data in the table below flows from applying formula (2) to the buckets listed above.
For example, for Low End Retail:
- GMV = $15568 M (source: Ebay, with my bucketing approach for categories)
- Listings = 2628 M listings * 50% (my estimate of percent of Low End Retail Listings based on sampling eBay.com)
- ASP = $25 (my assumption based on data on eCommerce transactions)
- Resulting in a conversion rate of 47% (= 15568/(2628*50% *$25)
You can see the rest of the analysis in table below.
As a consumer seller, I think eBay is great for Low End Retail items (47% conversion rate implies that you have a one in two chance of selling an item if you list it). I am not sure I would take a chance on eBay for selling High End Retail items or Motors– I might be inclined to try classifieds first.