What's all the hype about online auctions? Why are we hearing so much about them? Are they really profitable? And how can you get involved?

Online auctions have effectively created a giant virtual marketplace where people can gather to buy, sell, trade, and check out the goods of the day; they're enormously popular, high-traffic venues where start-ups and auctioneers alike can begin selling product almost immediately, with...

• No overhead or upfront
costs
• No sales staff or distributors
• No web site of your own
• No initial investment (you'll pay between 2% and 5% of your final sale price to the auction site)

In this massive marketplace that will generate an estimated $48.5 billion in sales by 2006 (Forrester Research), the auction site that rules the game is eBay. According to the Neilson Ratings, eBay is among the top ten most-trafficked of all sites on the Internet -- and with three million items listed in 3,000 categories and 1.5 billion page views per month, this is not hard to believe.

eBay leads the online auction industry with over 60% market share, while its closest competitor, Yahoo! Auctions, is only half its size, and Amazon.com Auctions follows at a distant third.

The amount of traffic that these sites attract make online auctions an ideal place to capitalize on readily available, widespread exposure. However, I must warn you -- the competition is fierce in popular categories, and your product can easily get lost among the hundreds of listings.

So whether you're selling a knick-knack or two or becoming a full-time baseball card dealer, there are a number of things you MUST do to harness the volumes of traffic heading your way and generate the highest profits possible. That's why I've created an eight-step game plan for selling products through online auctions to help you make the most of this potentially valuable marketing medium...

Step #1: Select Your Site

First of all, you have to think about which online auction site you want to use. eBay is the obvious choice because of its reputation and the amount of traffic it receives.

But different auction sites tend to cater to different markets. For example, eBay has 25,000 laptops for sale but almost no birdfeeders, while Amazon has 750 birdfeeders but only a handful of laptops. Amazon has the reputation of being a bit less user-friendly, but if you're selling a birdfeeder-related product, you may find an established market here. On the other hand, you may have better luck selling your item on an auction site that has less direct competition -- your best bet is to test both.

To determine which site is best for your product, check out the top three or four in your field -- look at specialized auction sites as well as the big ones. There are hundreds of specialized online auctions that cover the spectrum from antique books to business liquidations.

Check out item quantities and bid lists to see how much demand there is for your product. While you're there, you might even want to try bidding on a few items to get a feel for the process and the competition involved. (But don't ever bid on an item that you don't plan to buy!)

Step #2: Pick Your Products

Are you going to sell unique, one-of-a-kind products item by item? Or do you have a product you can sell in quantity? Is there a demand for your product? (This is less of an issue for one-of-a-kind items.) What kind of profit margin do you expect to be making? (This can determine whether or not you'll have to sell in quantity.)

In the world of online auctions, niche markets are responsible for 43% of total sales. Not bad, hey? But don't disregard the remaining 57% generalist market share! Bottom line: you can make money with both.

Collectibles are the best-selling items at auction sites, with computer hardware and event tickets in second place, and toys and books hovering around third. But while popular items may be easy for you to sell, you could also make a killing on a unique item with a high profit margin. People are making money hand over fist from specialty items like cigars and lobster -- that are shipped by mail!

"Fad items" are where you can really cash in quickly. Remember the Beanie Baby phenomenon? People went nuts and bid literally thousands of dollars on them! It would be difficult to build a web site and try to generate traffic around a fad item -- by the time you were done, the fad might already be old news! But auction sites give you an instant audience at a low cost, so if you spot a trend, you can hop on the wagon as quickly as possible.

Step #3: Look at Listing Options

The next thing you need to think about is HOW you'll sell your product. Auction sites typically offer a variety of listing options for you to choose from, including:

• Regular Listings: A regular listing is just that -- you pick your category and your product gets listed in it. While this is the most common (and really the least effective) way to list your product, you should definitely start with this option. You'll want to see how your product does before you decide to spend money on featured listings.
  
  
• Reserve Price Auctions: If you place a "reserved price" on your item, it means that you have specified the amount at which it should sell. This is done to prevent "auction sniping," which happens when bidders lay low until the very last moment, then grab your item without starting a bidding competition. Reserved Price Auctions can be to your benefit, but they may discourage bidders who are looking for the best deal.
  
  
• Dutch Auctions: Also known as "English Auctions," these are one of the best ways for people selling in quantity to place their products, because you can list multiple identical items at once in each auction. However, on eBay you must have a "feedback rating" (see Step #6) of 50+ and you must have been registered for more than 60 days before you can choose this option.
  
  
• Featured Items: In most of the larger auction sites, you can get your item rotated through the site's homepage as well as listed in the "featured items" section for about $20. For about $15, you can have your item appear in your category's "featured items" section, or simply at the top of the list. You can also have your photos displayed in a gallery for only about 25 cents, or featured as a large photo at the top of a gallery for about $20.

You also have the choice of listing for 3, 5, 7, or 10 days -- and, of course, you always have the option to re-list at the end of this time. The standard option is a 7-day listing with an automatic re-listing for a specified period of time.

Step #4: Choose Your Category

Explore the product categories on the various auction sites to broaden your perspective of what goes where -- you definitely want to be specific, but you don't want to limit yourself. While you are doing this, check out the competition in different categories and have a look at how much bidding is going on.

The very best way to decide which category your product should be listed under is to do a search on similar and related products, determine which ones sell best, and see which categories they are in. You will usually be able to pick one main category and one sub-category -- use this method for both. Check to see how easily your product can be found using the site's search tools before you settle on a category.

Whatever you do, do NOT try to gain more exposure by placing your product in unrelated categories. Your online auction site will probably close your account if you do.

Step #5: Create Your Ad

Once you've decided how and where to list your product, you need to turn your attention toward selling it... And that means you need excellent advertising!

Think about your target market -- who's going to buy your product, and, perhaps more importantly, why. You need to grab their attention and motivate them to buy from you.

How? Well, first you need a very good title. It's really important that you're specific: instead of saying "Doll" in your title, say "Two-foot-tall dancing Elvis doll." Don't assume that your bidders will understand you -- make everything as clear as possible for them.

And make it as exciting as possible. You'll probably have to pay a bit more for special formatting like bolding or highlighting (one to two dollars), but these can be a good way to grab the attention of potential buyers. Use exciting and convincing words that draw the buyer to your item: "Unique two-foot-tall dancing Elvis doll -- Collector's Edition."

The same techniques apply to your product description. Expand as much as possible on your product -- obviously, there's only so much you can say about a baseball bat, but what if it's an original 1915 Louisville Slugger used by Babe Ruth himself in warm up? Try to create a story around your product, even if it's just how amazing you personally think it is (in which case you will have to come across as likeable and convincing yourself!). Include specific motivations for buying your product: "Be like Babe Ruth!" or "Impress your friends with your dancing Elvis!"

Think about other ways you can motivate your bidders -- can you provide money-back guarantees, free shipping, or bonus products? Tell them what you have to offer!

And don't forget about photos! People don't want to buy what they can't see... and on average, they'll pay at least 10% more for an item that is accompanied by a photo.

Important Note: Make certain that you are NEVER dishonest in your product descriptions, because you'll never have any repeat buyers... and you'll get kicked off the auction site!

Step #6: Establish Trust

The best way to establish yourself as a trustworthy, reliable seller in an online auction is by having a good feedback rating. A feedback rating is a listing of customer comments, rated as positive (+1), neutral (0), or negative (-1).

If you are not trustworthy, your feedback rating will warn other buyers to stay away from you. If you have a positive rating, you can increase your sales by as much as 7-9% (and this number will steadily increase as the feedback rating system catches on).

Ask for feedback from your buyers whenever possible -- most auction sites make it easy for buyers to rate and offer comments on your service. Not only do you want to build a positive rating; you also want to show a large number of responses in order to establish yourself as an experienced seller. Don't worry, though -- people don't usually shy away from newbies.

To ensure that you get a good feedback rating, make sure you always:

• List shipping costs (or additional costs) up front
• Deliver your product right away
• Deliver EXACTLY what you've advertised
• Answer buyers' questions immediately

... And always, always follow up with great customer service.

Step #7: Get Exposure

You've put all this time and effort into creating a great ad for the auction site, so use it to your advantage! Draw more traffic to your own web site by posting banners or links to your site on your ad. (Be careful, however, that you aren't using the ad primarily as a means of redirecting traffic -- this is called a "signpost" and will get you kicked off the auction site.)

Unfortunately, while eBay will allow you to link directly from your ad to other items that you are selling on eBay, you can no longer post links to your homepage on your ad. However, you can still link to your site from your eBay "About Me" page -- so be sure to take advantage of this option!

And get that ad out there! There's no reason why you can't use the same ad to promote your product elsewhere, via e-mail or by posting it on someone else's site or in their newsletter -- you can include a link to the URL that your auction site will create for you. The more exposure you get, the better.

Most important is that you keep a list of all your buyers and e-mail them "thanks for purchasing" messages, new offers, complementary product information, or newsletters on a regular basis. Your best customers are your repeat customers -- they will be responsible for 80% of your sales! Once you get your name out there, you'll do nothing but profit by keeping it out there.

Important Note: Some sites will let you link to a shopping cart or order form on your own web site to complete the transaction, but eBay will not. If you have this option, it is a great way to steer buyers toward other products on your site once they've completed the initial transaction.

Step #8: Test!

You should always be testing and tweaking your auction listings -- even if they're really good, you may discover that one or two simple changes dramatically increase your sales! Start by doing regular listings on two or three different auction sites, and, changing only one element at a time, test the following:

• Ad copy & photos: Tweak your copy continually until it is the most compelling, most descriptive it can be. Test the ad a few times with changes and track the responses you get.
  
  
• Pricing: If you're not on eBay, try raising your reserved price or initial bidding price just a little. You can get away with this on other sites because there will be less bidding competition driving up your final price. You will almost always get a higher price by staying in until the very end, allowing the last-minute bidders to fight it out, so you should never pull out of your auction early. You could also try N/R listings (No Reserved Price), which may attract enough interest to start a bidding war.
  
  You'll have to get a feel for what prices will attract the most bidders to your products. Sometimes starting high can increase the perceived value of your product; other times starting low will attract more bidders and drive up the final price as a result. It really depends on your product, your market, and your understanding of both. Remember that buyers in online auctions are generally looking for low prices and good deals.
  
  
• Timing: Your ad will get the most attention the first day it is posted and a few hours before the auction ends; weekend afternoons are the busiest overall. But think about your target market -- if you are marketing to housewives, you'll get the best response on weekday mornings; working families will respond in the evenings. Experiment to see which times work best for your product.
  
  
• Different products: Once you've got the system down, you might as well branch out! Try different products and don't be afraid to get creative -- whatever you come up with, there is bound to be something more bizarre that is selling in large quantities online!

Once you've settled on the combination that works best, try out different auctioning options (Featured if your sales warrant it; Dutch if you have multiple products) to see which will sell more product at higher winning bids.

eBay reports that as many as 70% of the items listed for auction on their site result in winning bids (i.e., sales), so if you are below or close to this percentage, keep working on it -- with these tips under your belt, you can do much better!

Resources:

• www.online-auctions.net is a directory of online auction sites and an auction meta search engine.
  
  
• www.auctionwatch.com provides software for businesses in online marketplaces, including inventory management, listing services, automated checkout, and tracking.
  
  
• www.collectingchannel.com offers a variety of resources for sellers in online auctions, including price guides and an appraisal service (you pay $19.95 and an appraiser will look at photos of your antiques and heirlooms).
  
  
• www.dovebid.com and www.bliquid.com are examples of business-to-business style marketplaces.

Final Thoughts:

Your ability to set prices that attract bidders, write compelling ads, choose the best categories that draw the most potential bidders, and ensure that your auction closes with the highest profit margin will have a dramatic impact on your success in the competitive arena of online auctions. Whether you're looking to:

• Cash in on a fad
• Start an Internet business without a web site
• Harness the traffic these sites get as another profit channel for your existing web site, or
• Get rid of some extra stock quickly

... you need to pay careful attention to the strategies I've highlighted in this article if you want to guarantee that your listing doesn't get lost in the crowd.

If you don't have a product to sell, but have specialized knowledge of a particular market or industry, then you may even want to consider becoming an auction regular who monitors products in your field, looking for exceptional deals that give you opportunities to buy low and resell at higher prices. Of course, there are risks involved in doing this sort of thing, so it's not recommended unless you have an excellent command of both your industry AND Internet marketing.

Because no matter WHAT you're selling, and despite all the "hype" you've probably seen about how easy it is to "cash in" with Internet auctions, the fact is, this is a business like any other! You need to educate yourself and test the waters carefully before diving in if you plan to be successful. People DO make millions through online auctions... so it's not unreasonable to think you can profit, too. Just proceed with caution! And market smart!