How to Start an Online Auction Business

The US online auction industry is massive and expected to expand nearly 9% in 2022, which amounts to growth of more than $65 billion. You can ride that wave by starting an online auction business, selling on eBay and other sites and helping people get things they love while making a good living. For very little investment, you could start by selling items you no longer need, then visit garage sales, thrift stores, or estate sales to find more valuable goods. 

First, though, you’ll need to learn some entrepreneurial skills. Luckily, you’ll find everything you need to know about online auctions and starting a business in this step-by-step guide, designed to put you on the road to success.

Step 1: Decide if the Business Is Right for You

Pros and cons

Starting an online auction business has pros and cons to consider before deciding if it’s right for you. 

Online auction industry trends

Industry size and growth

• Industry size and past growth – The US e-commerce and online auction industry is worth $739.2 billion in 2022 and after annual growth of more than 12% for the last five years.((https://www.ibisworld.com/industry-statistics/market-size/e-commerce-online-auctions-united-states/)) 
• Growth forecast – The US e-commerce and online auction industry is projected to grow 8.5% in 2022.
• Number of businesses – In 2022, 311,160 e-commerce and online auction businesses are operating in the U.S.((https://www.ibisworld.com/industry-statistics/number-of-businesses/e-commerce-online-auctions-united-states/)) 
• Number of people employed – In 2022, the US e-commerce and online auction industry employs 787,104 people.((https://www.ibisworld.com/industry-statistics/employment/e-commerce-online-auctions-united-states/))

Trends and challenges

Trends in the online auction industry include:

• The most popular items on eBay in 2022 are car parts, clothing, and jewelry.
• The use of mobile apps for bidding on online auctions is increasing, expanding the market possibilities. 
• Different types of auctions are also offered on some online auction platforms including Dutch auctions, in which the price starts high, and they goes down until someone makes bid, and reverse auctions, in which sellers bid for the price at which they will sell their items. Most online auctions are traditional English auctions, where an opening bid is offered by the auctioneer and bidders bid up until someone with the highest bid wins. 
• Many types of online auction software is on the market which can be used to create your own online auction. Often it’s used for charity auctions. 

Challenges in the online auction industry include:

• The ease of starting an online auction business makes the market very competitive.
• The number of people looking for items to resell, due in part to popular TV shows, is making it harder to find good items to auction.

How much does it cost to start an online auction business?

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. 

How much can you earn from an online auction business?

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.

What barriers to entry are there?

There are very few barriers to entry for an online auction business. Your biggest challenge will be finding and acquiring good items to sell.

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Step 2: Hone Your Idea

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.

Why? Identify an opportunity

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. 

What? Determine your products or services

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. 

How much should you charge for online auction items?

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.

Who? Identify your target 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. 

Where? Choose your business premises

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:

• Central location accessible via public transport
• Ventilated and spacious, with good natural light
• Flexible lease that can be extended as your business grows
• Ready-to-use space with no major renovations or repairs needed

Step 3: Brainstorm an Auction Company Name

Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.

Here are some ideas for brainstorming your business name:

• Short, unique, and catchy names tend to stand out
• Names that are easy to say and spell tend to do better 
• Name should be relevant to your product or service offerings
• Ask around — family, friends, colleagues, social media — for suggestions
• Including keywords, such as “auction” or “online auction”, boosts SEO
• Name should allow for expansion, for ex: “Bidding Boulevard” over “Art Auction House”
• Avoid location-based names that might hinder future expansion
• Use online tools like the Step by Step Business Name Generator. Just type in a few keywords and hit “generate” and you’ll have dozens of suggestions at your fingertips.

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.

Step 4: Create a Business Plan

Every business needs a plan. This will function as a guidebook to take your startup through the launch process and maintain focus on your key goals. A business plan also enables potential partners and investors to better understand your company and its vision:

• Executive Summary: Summarize your Online Auction business plan, highlighting its mission to provide a platform for buying and selling goods via online auctions.
• Business Overview: Provide a concise introduction to your online auction business, outlining the types of products and services you’ll offer, such as auction categories and special features.
• Product and Services: Detail the online auction platform’s features, including bidding mechanisms, payment options, seller tools, and any additional services like appraisal or shipping assistance.
• Market Analysis: Analyze the online auction market, focusing on the target audience, their preferences, and the potential growth in e-commerce and online auction industries.
• Competitive Analysis: Identify key competitors in the online auction space, evaluate their strengths and weaknesses, and explain how your platform will differentiate itself.
• Sales and Marketing: Describe your strategies for attracting sellers and buyers, including digital marketing, user acquisition tactics, and promotional campaigns to drive traffic and participation.
• Management Team: Highlight the qualifications of your team, emphasizing their experience in e-commerce, technology, and online marketplace management.
• Operations Plan: Explain how your online auction platform will operate, including seller registration, item listing, bidding processes, dispute resolution, and customer support.
• Financial Plan: Provide financial projections, including revenue models, fee structures, startup costs, and forecasts for profitability, demonstrating the business’s potential for success.
• Appendix: Include any legal documents, user guidelines, terms of service, and case studies from successful auctions to build trust and credibility with users and investors.

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.

Step 5: Register Your Business

Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business! 

Choose where to register your company

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. 

Choose your business structure

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:

• Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
• General Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
• Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.
• C Corp – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation.
• S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just need to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.

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. 

Form Your LLC

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Step 6: Register for Taxes

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.

Step 7: Fund your Business

Securing financing is your next step and there are plenty of ways to raise capital:

• Bank loans: This is the most common method but getting approved requires a rock-solid business plan and strong credit history.
• SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
• Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
• Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
• Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
• Personal: Self-fund your business via your savings or the sale of property or other assets.

Bank and SBA loans are probably the best option, other than friends and family, for funding an online auction business. 

Step 8: Apply for Licenses/Permits

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.

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.

Step 9: Open a Business Bank Account

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. 

Step 10: Get Business Insurance

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:

• General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
• Business Property: Provides coverage for your equipment and supplies.
• Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
• Worker’s compensation: Provides compensation to employees injured on the job.
• Property: Covers your physical space, whether it is a cart, storefront, or office.
• Commercial auto: Protection for your company-owned vehicle.
• Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
• Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of the above insurance types.

Step 11: Prepare to Launch

As opening day nears, prepare for launch by reviewing and improving some key elements of your business. 

Essential software and tools

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.

Accounting

• Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero. 
• If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial. 

Develop your website

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.

Marketing

Here are some powerful marketing strategies for your future business:

1. Social Media Blitz: Leverage the power of social media platforms to create engaging content, run targeted ads, and build a community around your online auction business, fostering user interaction and loyalty.
2. Strategic Partnerships: Collaborate with influencers, bloggers, or relevant businesses to tap into their existing audience, gaining exposure and credibility in your niche.
3. Email Marketing Campaigns: Develop a segmented email list and implement personalized email campaigns, notifying users about upcoming auctions, special promotions, or exclusive events to keep them engaged and coming back.
4. Search Engine Optimization (SEO): Optimize your website for search engines by using relevant keywords, creating high-quality content, and regularly updating your site to improve its visibility and attract organic traffic.
5. Mobile Optimization: Ensure your online auction platform is mobile-friendly to capture the growing market of users who prefer to participate in auctions using their smartphones and tablets.
6. Loyalty Programs: Implement a loyalty program that rewards frequent bidders or buyers with discounts, exclusive access, or special perks, encouraging repeat business and brand loyalty.
7. Live Streaming Events: Host live streaming events for high-profile auctions, showcasing featured items and creating a sense of urgency to drive participation and excitement among your audience.
8. User-generated Content (UGC): Encourage users to share their auction experiences through photos, testimonials, or reviews, creating a sense of community and authenticity that attracts new users to your platform.
9. Referral Programs: Institute a referral program that incentivizes users to refer friends and family, expanding your user base while rewarding those who contribute to your platform’s growth.
10. Dynamic Pricing Strategies: Implement dynamic pricing strategies to optimize bid increments and reserve prices, creating a competitive atmosphere that motivates participants to bid strategically and maximize the value of each auction.

Focus on USPs

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:

• Rare auto parts to get your car or truck purring
• Top vintage fashions for less
• Ageless home décor to give your space new life! 

Networking

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.

Step 12: Build Your Team

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:

• Packagers – package items for shipping
• General Manager – find items, inventory management, accounting
• Marketing Lead – SEO strategies, social media

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. 

Step 13: Start Making Money!

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!