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Written by: Carolyn Young
Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.
Edited by: David Lepeska
David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.
Published on April 5, 2022
Investment range
$2,050 - $5,100
Revenue potential
$65,000 - $260,000 p.a.
Time to build
0 – 3 months
Profit potential
$26,000 - $104,000 p.a.
Industry trend
Growing
Commitment
Flexible
Key details to focus on when starting your online auction business:
You May Also Wonder:
How profitable is an online auction business?
There really is no limit to how profitable an online auction business can be. The key is to find items that you can get for a good price that will sell at auction for more.
How should I price items in my online auction store?
Theoretically, in an auction setting, your items should be bid up to a fair market price. But you can set a minimum price to ensure you make a profit. To set a minimum, aim for a profit margin of about 40%, but beware of setting your price so high you don’t get bids.
How do I ensure the security and trustworthiness of transactions on my online auction platform?
To ensure the security and trustworthiness of transactions on your online auction platform, implement user verification processes, utilize secure payment gateways, have transparent policies and terms, and provide a rating and feedback system. Additionally, invest in SSL encryption and secure servers to protect sensitive data and ensure secure transactions.
How do I handle shipping and delivery of items sold through the online auction?
Handling shipping and delivery of items sold through the online auction depends on your business model. You can offer shipping options directly through your platform by partnering with shipping providers or allow sellers to arrange shipping independently.
Can I start an online auction business on the side?
It’s possible to start your online auction business on the side, but it might be difficult to handle all customer service requests and shipping packages. It’s best handled as a full-time business.
How can I promote and market my online auction business to attract buyers?
To promote and market your online auction business, consider the following strategies: utilize digital marketing channels such as social media advertising, search engine optimization, and content marketing; leverage email marketing to reach potential buyers; collaborate with influencers or industry experts to increase visibility; participate in relevant online communities and forums; and utilize targeted online advertising campaigns to attract potential buyers to your platform.
What items sell best at auctions?
Generally, unique or rare items, collectibles, antiques, high-end fashion, jewelry, art, and vintage items tend to attract bidders. Conduct market research to understand the preferences of your target audience and identify popular categories or niches that align with your platform’s offerings to optimize sales potential.
Starting an online auction business has pros and cons to consider before deciding if it’s right for you.
Trends in the online auction industry include:
Challenges in the online auction industry include:
Startup costs for an online auction business range from $2,000 to $5,000. Costs include a website and an initial inventory of items to sell. While you’ll be selling your items on an existing auction site, you can promote your auction site store with your own website.
| Start-up Costs | Ballpark Range | Average |
|---|---|---|
| Setting up a business name and corporation | $150 - $200 | $175 |
| Business licenses and permits | $100 - $300 | $200 |
| Insurance | $100-$300 | $200 |
| Business cards and brochures | $200 - $300 | $250 |
| Website setup | $1,000 - $3,000 | $2,000 |
| Initial inventory of items to sell | $500 - $1,000 | $750 |
| Total | $2,050 - $5,100 | $3,575 |
Prices for goods auctioned online vary greatly based on the items you sell. These calculations assume your items will average $50 and that your profit margin will be 40%.
In your first year or two, you could sell 25 items a week, bringing in $65,000 in annual revenue. This would mean $26,000 in profit, assuming that 40% margin. As you ramp up your business, you could increase your sales to 100 items a week. With annual revenue of $260,000, you’d make a tidy profit of $104,000.
There are very few barriers to entry for an online auction business. Your biggest challenge will be finding and acquiring good items to sell.
Now that you know what’s involved in starting an online auction business, it’s a good idea to hone your concept in preparation to enter a competitive market.
Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.
Research online auction businesses to examine their products, price points, and what sells best. You’re looking for a market gap to fill. For instance, maybe the market is missing an online auction store for antique kitchen items or collectible record albums.
You might consider targeting a niche market by specializing in a certain aspect of your industry, such as antique furniture, under-appreciated jewelry or luxury home decor.
This could jumpstart your word-of-mouth marketing and attract clients right away.
You could decide to specialize in a certain type of item, or you could just sell any valuable items you come across. The choice is yours, but it helps if you’re able to build a brand, a reputation, based on the goods you offer. You also often have the choice on online auction platforms to set up an online store, where you sell items at a fixed price.
Your prices will depend on the items you sell. You’ll need to look at similar items to get a fair market price. On most online auction sites, you can set a minimum price that an item can sell for, so that you can make sure that you at least recover your money and make some profit. It’s best to aim for a profit margin of at least 40%.
Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.
Your target market will also depend on the type of items you’re selling. You can promote your online auction store on TikTok, Instagram, Facebook, and beyond.
In the early stages, you may want to run your business from home to keep costs low. But as your business grows, you may need to hire workers and rent out a packing facility. You can find commercial space to rent in your area on Craigslist, Crexi, and Instant Offices.
When choosing a commercial space, you may want to follow these rules of thumb:
Here are some ideas for brainstorming your business name:
Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.
Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that sets your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.
Here are the key components of a business plan:
If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.
Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.
Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!
Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you’re planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to online auction businesses.
If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.
Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your online auction business will shape your taxes, personal liability, and business registration requirements, so choose wisely.
Here are the main options:
We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.
Choose Your State
The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.
Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.
The IRS website also offers a tax-payers checklist, and taxes can be filed online.
It is important to consult an accountant or other professional to help you with your taxes to ensure you’re completing them correctly.
Securing financing is your next step and there are plenty of ways to raise capital:
Bank and SBA loans are probably the best option, other than friends and family, for funding an online auction business.
Starting an online auction business requires obtaining a number of licenses and permits from local, state, and federal governments.
Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits.
You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more.
You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.
This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties.
If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.
Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.
Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your online auction business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.
Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.
Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.
Here are some types of insurance to consider:
As opening day nears, prepare for launch by reviewing and improving some key elements of your business.
Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.
You may want to use industry-specific software, such as LS Retail, Vend, or Retail Pro, to manage purchasing, inventory, and invoicing.
Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism.
You can create your own website using services like WordPress, Wix, or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.
They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google.
Here are some powerful marketing strategies for your future business:
Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your online auction business meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire.
Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your online auction business could be:
You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running an online auction business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in online auctions for years and can offer invaluable insight and industry connections.
The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in online auctionis. You’ll probably generate new customers or find companies with which you could establish a partnership.
If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for an online auction business include:
At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need.
Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.
Online auctions are a popular way for people to buy just about anything — from car parts and jewelry to art and clothes and toys and more. Starting an online auction business is easy and inexpensive, and finding treasures and hidden gems can be a lot of fun! If you’re good at sniffing out great value, the sky’s the limit for your online auction business.
Now that you understand the business part of online auctions, it’s time to set up your business, find great items to sell, and get your new business off the ground!
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