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How to Start an Online Auction Business?

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Yuri Musienko
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In this article you will learn how to start an online auction business. How to develop a business plan and what should it contain, whether you need registration, how to make your own website and how much it costs, how to advertise online auctions and other important points.

Developing a business plan

Even if you do not plan to take out a loan or raise venture capital, you should draw up a detailed business plan for your project. So you can understand what kind of business you want to start and what is needed for this. There are no single correct rules for writing a business plan, but usually it contains the following information:

Branch analysis. Information about the state of the online auction market, with a focus on the region where you plan to work, and the prospects for the development of the branch as a whole and the niche you have chosen. It is important to understand the current state of the niche here, as this will determine the prospects and marketing policy.

For example, according to the PRWEB agency, the online auction market in the United States is one of the fastest growing and adds 12% per year in an average. The branch has over 130,000 e-Commerce and online auctions, employing 500,000 employees. At the same time, the branch has a relatively high concentration, since market leaders (eBay, Etsy and others) account for most of the sales.

These data indicate that the market is at the stage of growth, but it is already clear who will take the leading positions (if nothing changes). However, this does not mean that there is no place for beginners. On the contrary, as long as the market grows, any startup has a chance of success. But you need to choose the right business strategy: find a narrow niche and, like Amazon and Google, go from a specialized project to a global player that deals with everything.

Competitor analysis. In order to find such a niche, you need to analyze competitors: what niches are already represented and if users are satisfied with existing online auctions.

Such niches and by whom they are occupied in the USA and the EU:

USA Start an Online Auction Business
You can understand whether users are satisfied by the reviews on the online auction website and in social networks, as well as by the site's Internet metrics: if the market (niche) is growing, and traffic and trading volumes are falling, then the site has problems and you can “snatch away" its audience.

Choosing a niche. Ideally, you need to find a niche that is not occupied by anyone. So you will have time to build an auction for small amount of money and bring it to mind. The problem is that there are no empty niches left in developed countries, so if you plan to start in the USA, Canada, Western Europe, Australia or Southeast Asia, immediately get ready for a serious fight with competitors, since there are no free niches left in these countries. That is, be prepared to spend quite a lot of money and effort on launching an online auction and promoting it.

Empty markets can be found in Africa, Eastern Europe, Asia and South America, so if you are planning to start an online auction business, it is best to do so in the regions listed. Such niches can be:

  1. Residential and commercial properties.
  2. Insurance services (for example, auto insurance).
  3. Tenders for construction, freight services.
  4. Furniture, household utensils, household appliances.
  5. Charity auctions.
  6. Financial services, loans.
  7. Car market.
Choosing a business model. After choosing a niche, your business plan needs to describe how your auction business will operate and how you will make money. Your site can work according to one of two models:
  1. One Seller Auction. Famous auction houses work according to this model. They create websites to sell products on their behalf. In this model, the business owner deals with everything from product search and procurement to paperwork and postage. These websites make money on the difference between the purchase price and the sale price.
  2. Multi-vendor platform. EBay and Etsy have chosen this business model. They have created platforms where anyone can both sell and buy goods. Such sites earn on listing fees, advertising, premium features, sale of personal data.
Economic analysis. At the end of the business plan, you need to calculate the estimated cost of launching the auction business. The budget should include website development, marketing, staff salaries, maintenance, legal services, fiscal fees and taxes, rent or purchase of real estate and other expenses. In addition, economic analysis should also include a forecast of business development in case of an inert, favorable and unfavorable course of events..

Place of registration of a legal entity

How much does it cost Start an Online Auction Business
How much does it cost to register a limited company in the USA by state. Source of the image
If you are resident. It is better to register a business where most of it will be located (office, retail outlets and warehouses, if such are present) or in the place of residence. It will simplify company registration, taxation and accounting. But this is not a mandatory rule. The laws of most countries allow you to have a head office in one place, live in another, and do business in a third. For example, in the USA it is quite possible to open an office in the state of Washington, and do business in California. To do this, you need to obtain a  foreign qualification.

If you aren’t resident. If you intend to launch an online auction targeting a country where you do not physically reside, you need to obtain the status of a non-resident businessman. This is usually a fairly simple procedure that can be carried out without a personal visit to the country of registration. For example, in the USA it is easier and more profitable to do it in the following states:

  1. Delaware is chosen if you want to create a US company to attract US investment / venture capital, start an online business, or open a representative office of an existing business. The state has the most robust legislation and fairly low taxes.
  2. Wyoming is chosen if you need to create a company in the States to open a US bank account and / or merchant account to accept payments using bank cards. It is not necessary to open a branch or have a physical presence. Also, Wyoming has the lowest annual government fees: Corp / LLC - $ 50.

Online auction business registration

Business registration. For those wishing to start an auction business, as a rule, several forms of registration of a legal entity are available. For example, in the United States it is a sole proprietor, limited liability company, partnership, and corporation. Novice businessmen usually choose a sole proprietorship because it is easier to register and report.

However, it must be remembered that the individual entrepreneur has several very important disadvantages. So, if the business expands, then the legal entity needs to be re-registered - this is an additional effort and expense. In addition, if a business has debts, then an individual entrepreneur will be responsible for them with all his property.

Those wishing to protect themselves from these problems choose a corporation or limited liability company. In addition, the status of LLC or C-corp adds value to the business, making it more respectable and reliable in the person of users and partners. It's also easier to optimize taxes.

What documents are needed to launch an online auction in the USA:

  1. Employer Identification Number (EIN).
  2. Federal Tax Identification Number (TIN).
  3. Operating Agreement for LLCs.
  4. Certificate of Incorporation.
  5. Employment Agreement.
  6. Business License.
  7. Sales Tax Permit.
  8. Insurance Policy.
  9. Business Plan.
Insurance payments. In most countries, an entrepreneur is also recommended to have insurance policies in several areas, which are determined by the type of business and jurisdiction. For online auctions in the US, you need such policies:
  1. General Liability Insurance.
  2. Workers’ Compensation Insurance.
  3. Business Owner Policy Insurance.
  4. Errors and Omissions Insurance.
  5. Payment Protection Insurance.
  6. Umbrella Insurance.
  7. Contents Coverage.
  8. Property Insurance.

Development of an online auction site

ways Start an Online Auction Business

There are three ways to create a website:

  1. The easiest and cheapest is to use a WordPress theme. This way you can launch an online auction with a small set of functions and a template design, which is enough for new markets and niches without competition. It's very difficult to find such now.
  2. The second way is SaaS. These are cloud-based plug-and-play products. They are more reliable and functional than WordPress themes, but they are also template solutions that allow you to create a website that will not differ much from competitors.
  3. The third option is development from scratch. This is the only way to create an auction with a unique design and functionality that will be better than competitors in any niche.

Marketing policy

To stand out from the competitors and attract users, it is best to use the services of a marketing agency that fully understands the branch. Such an agency will help develop and launch an optimal advertising campaign, which will not only be more effective, but will save money.

Here are some of the things that are included into such a campaign:

  1. Analysis of the target audience, compilation of User Persons.
  2. Drawing up a content plan for website promotion in search engines and social networks using paid advertising, SEO and SMM.
  3. Development of advertising offers, banners, slogans, texts.
  4. Inclusion of the auction in offline and online business directories.
  5. Promotion on Facebook, Twitter, Instagram and Linkedln.
  6. Email newsletter.

Final word

Starting an online auction business is a long and tedious process if you do it yourself. But it can be greatly simplified and accelerated by using the services of a technical partner. He will help with the analysis of the target audience, website development and marketing campaign, which will increase the chances of project success and reduce the time to payback.

How to choose a partner is described in the article: «How to Choose a Marketing Agency».

Merehead does professional development of start online auction business. If you have questions, contact us for a free consultation.

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