Tuesday, October 6, 2009

Checking in on The Squirrel: Week 2

One might think that on its 14th day of practically giving away items, The Auction Squirrel would have generated enough buzz to get some reasonably competitive bidding on the site. Not so. I just looked at the last 30 ended auctions there and estimate the cost of acquiring and shipping those won items (bidpacks cost nothing) to be about $975. Revenue from sales of won items amounts to $8.97 and bid revenue is about $717.6. In total, The Squirrel took a loss of about $245 on these last 30 items, which is on top of mounting losses from the past 13 days. On average, The Squirrel has been losing nearly $10 on every item it ships, and this only accounts for variable costs, not fixed ones like rent for the office or site hosting and assumes the owner is willing to work for free.

However, with an average of 30 bids per item, the Squirrel is coming close to breaking even. If you stripped all non-$25 gift card items as well as the five worst performing auctions out of this bunch of 30, the Squirrel would be about $20 in the black (assuming all bids were paid for, which they were not). Perhaps a few simple tweaks could help the site go cash flow positive.

Many people have won and received items from The Squirrel so we know they are a legitimate business and I think their performance to date characterizes the challenges of operating a successful penny auction site.

As I mentioned in my last post about The Squirrel, the site needs a plan. An "I have built it so they will come," philosophy is not working in this space. The Squirrel needs to focus on building traffic and building trust, both of which require significant cash outlay. A new visitor to The Squirrel is frankly not going to be impressed with the user interface of the site - and the less professional a site looks, the less people are going to trust it.

However, maybe I'm being anxious, the site has only been up for 14 days. If the owners can afford to give it another month, perhaps they will go cash flow positive without the help of AdWords or a site redesign. BidCactus has been doing very well without much sophistication for quite some time now.

1 comment:

  1. I love The Auction Squirrel so I really hope they stay around. I do think they need to make their site look a bit nicer because I really hesitated at first to take the site seriously based on appearance alone.