Options
A Controversial Article Regarding Coin Dealer Profits (Longacre will love this one)
numisma
Posts: 3,877 ✭✭✭✭
The following article was recently published on James Garcia's website, EarlyUS.com. It is also posted on his website in PDF format if you want to print it for whatever reason; link to article . James posted this article across the street and I thought it would make for a lively and healthy discussion on the PCGS forum. What other expenses do dealers have to contend with? Can you think of anything that he missed?
What does a dealer really pay for a coin?
factors that contribute to a coin’s actual “cost”
Introduction
Any rational coin collector does not mind (or at least, he shouldn’t mind) paying a reasonable price for coins he wishes to add to his collection. It is expected that, when purchased from a coin dealer, a coin’s asking price will include some markup above the dealer’s cost, such that he is allowed a reasonable amount of profit, without increasing the price of the coin beyond the reach of most collectors, and certainly not beyond what the market will support.
The goal of this article is not to define what an “appropriate” dealer markup should be, but rather to discuss some of the factors that go into the asking price of a coin in a dealer’s inventory. These factors must be considered when there is concern with regard to what a coin actually “costs” a dealer, and are especially important for those cases where the price of a coin is substantially higher than what seems to be reflective of current market conditions.
What is a “dealer markup”?
Given that a coin costs a dealer some specific financial amount, the dealer markup is simply some financial amount added to the original cost, which in turn becomes the “asking price” of the coin. Thus, if a dealer pays a collector $1000 for a certain coin and subsequently decides that $1200 is an appropriate price to ask for it at the retail level, then his markup is simply $200.
It is almost universally accepted by coin dealers and collectors that the asking price of any coin is negotiable to some degree, which is really a way of saying that the dealer markup is negotiable. Thus, following from our current example, the dealer may decide to accept an offer of $1150 for the coin – a $50 discount. The cost of the coin remains the same at $1000, but the dealer simply lowered his markup from $200 to $150 to accommodate the $1150 offer. The actual markup realized from the sale of a coin is referred to as the “profit margin”.
Coin dealers are entitled to make a profit
Of course, there is a limit to what degree the price of a coin can be negotiated. Only in the rarest of cases would a dealer allow a coin to be sold for even less than what he paid for it (resulting in a financial loss). It is very unlikely that the dealer in our example will price at $900 the coin that he just paid $1000 for! However, such a scenario could occur, if, for example, the availability (“population) of the coin suddenly increased, resulting in depressed demand, and a lower market value. In that case, the dealer may be forced to accept an inevitable loss. Typically, however, a dealer will make every effort to avoid taking a loss on sales of his coins.
Naturally, a primary reason for a coin dealer to be in business is to make a financial profit. In today’s market, it is reasonable to expect that if a coin dealer makes 10 – 20% profit(1) on each coin he sells, then he will have a viable and sustainable business, provided he has sufficient volume to produce enough cash to purchase new coins, and still support himself financially. Often, as is implied in our example, a dealer may add a markup that is larger than what he really expects to make, with the expectation that the final selling price may be negotiated down, but still be enough to cover the cost of the coin and a fair profit.
Factors that affect a coin’s “cost” to a dealer
Coin collectors often forget that there are several factors that contribute to what a coin actually “costs” a dealer. Not only is there the amount of cash that changes hands to pay for it, but usually, there is some amount of overhead expense that adds to what the dealer must actually spend to acquire coins.
Sometimes, a coin is seen to sell to a specific dealer at an auction, and subsequently appear in his inventory with an asking price that is much higher than the expected 10-20%. While it is certainly possible that the dealer could truly believe the market demand for that particular coin to have strengthened dramatically since the close of the auction, there could well be other reasons for the dramatic price increase.
Let consider an example in which a dealer attends an out-of-town coin show that lasts for three days (Friday, Saturday and Sunday). For our scenario, let’s assume an auction was held in conjunction with the show, and let’s also assume that the dealer typically works on a 20% margin. Now, let’s suppose that the dealer buys just two coins from the auction, a large-cent for $1000, and a rare Morgan dollar for $5000.
Without any additional considerations, our previous discussion indicates that the dealer would wish to price the large-cent at $1200, and the Morgan at $6000 – a 20% markup for each coin. Given typical negotiations, we might expect the coins to actually sell for $1150 and $5750 respectively. Thus it would appear that the dealer’s profit on these two coins will be $900 (150 + 750) – a tidy sum for the work of selling just two coins. That would seem to represent an excellent profit margin of 15% (900 / 6000).
Overhead cost
The astute reader of this article might now be questioning the plausibility of the example as given so far. What is missing from this analysis is the overhead cost of doing the show. In loose terms, “overhead cost” is comprised of ongoing administrative expenses of a business which cannot be attributed to any specific business activity, but are still necessary for the business to function. In the case of a coin business, they might be a bit less vaguely expressed as the expenses required to conduct business, but which do not occur as part of the cost of purchasing numismatic inventory.
In general, these expenses could include the cost of traveling to and from shows, hiring an accountant, supporting a website, the cost of advertising, and any number of other factors which are not directly related to the actual purchase of coins.
For the sake of this scenario, let’s assume that the dealer drove his car to the show to save on airline expenses. A simple expense sheet(2) for the dealer’s show experience might look similar to the following:
$154 . . hotel stay (2 nights), breakfast included
$ 9 . . (3) lunches
$ 13 . . (1) dinners
$ 48 . . (1) dinner with clients
$ 52 . . gas for the commute (for simplification, wear and tear on the vehicle are ignored)
$375 . . cost of table at show
$ 15 . . cost of joining club which sponsored show
$ 60 . . pro-rated cost of insurance for one show
------- -------------------------------------------------------------------------------------------------------------------
$726 . . TOTAL OVERHEAD COST
Thus, the overhead cost of attending the show was $726. If we now deduct the total overhead cost of the show from the dealer’s apparent $900 profit on the two coins, we discover that his actual profit from future sale of the coins will be a paltry $174 dollars ($900 - $726) – a mere 2.3% profit! For a typical coin company, a profit margin(3) of 2.3% simply will not support a successful business.
the actual cost of coins
Obviously, we must add the cost of doing to the show to the cost of the coins in order to be able to ascertain a more appropriate markup for the coins such that the actual profit realized will fall into the 10 – 20% range. Let’s decide to divide up the overhead cost between the two coins as $200 and $524 (200 + 526 = 726). Thus, the actual cost of the large-cent would now be $1200, and the cost of the Morgan dollar would now be $5526 - practically the retail prices that were expected before the overhead costs were considered! Adding in the 20% dealer markup yields asking prices of (approximately) $1,450 for the large-cent, and $6,600 for the Morgan dollar. Plainly, these new asking prices are substantially higher than what was calculated previously.
when a dealer’s markup seems high
For the observer who simply records what the dealer paid at the auction for the coins, and then observes his retail prices for coins, it might well appear that this dealer is marking his coins up well above the assumed market norm of 10-20%, as seen in the following table:
auction realized price . . . . . dealer asking price . . . . . apparent dealer margin
$1000 . . . . . . . . . . . . . . . . $1,450 . . . . . . . . . . . . . . 45%
$5000 . . . . . . . . . . . . . . . . $6,600 . . . . . . . . . . . . . . 32%
But as we have learned, this mistaken observation ignores the reality of overhead costs. Overhead costs are real, and cannot be ignored by the coin dealer when he calculate the retail price he will need to ask for his coins.
Conclusion:
When considering purchase of a coin that appears surprisingly highly priced, consider factors other than the dealer’s cost which may be contributing to the inflated price. A dealer’s profit must take into account his overhead costs, in addition to the actual cost of purchasing coins.
Notes:
(1) The author believes that a profit margin estimate of 10-20% fairly represents the reality of most numismatic transactions. This observation is based on numerous interviews with dealers, and by analysis of coins sold at auction, then immediately added to the purchasing dealer’s inventory. Average margins may vary considerably from dealer to dealer, and certainly from transaction to transaction. For example, some dealers who specialize in bullion items work on margins below 3%, but deal in very large volume.
(2) The numbers used to illustrate this example are based on an actual Chicago coin show attended by the author in 2001. They are an accurate reflection of reasonable costs for the show.
(3) For the purposes of this article, “profit margin” is being simply defined as:
(price – cost) / cost
Be aware that professional accountants define and use these terms more stringently and accurately than they are being used in this article
What does a dealer really pay for a coin?
factors that contribute to a coin’s actual “cost”
Introduction
Any rational coin collector does not mind (or at least, he shouldn’t mind) paying a reasonable price for coins he wishes to add to his collection. It is expected that, when purchased from a coin dealer, a coin’s asking price will include some markup above the dealer’s cost, such that he is allowed a reasonable amount of profit, without increasing the price of the coin beyond the reach of most collectors, and certainly not beyond what the market will support.
The goal of this article is not to define what an “appropriate” dealer markup should be, but rather to discuss some of the factors that go into the asking price of a coin in a dealer’s inventory. These factors must be considered when there is concern with regard to what a coin actually “costs” a dealer, and are especially important for those cases where the price of a coin is substantially higher than what seems to be reflective of current market conditions.
What is a “dealer markup”?
Given that a coin costs a dealer some specific financial amount, the dealer markup is simply some financial amount added to the original cost, which in turn becomes the “asking price” of the coin. Thus, if a dealer pays a collector $1000 for a certain coin and subsequently decides that $1200 is an appropriate price to ask for it at the retail level, then his markup is simply $200.
It is almost universally accepted by coin dealers and collectors that the asking price of any coin is negotiable to some degree, which is really a way of saying that the dealer markup is negotiable. Thus, following from our current example, the dealer may decide to accept an offer of $1150 for the coin – a $50 discount. The cost of the coin remains the same at $1000, but the dealer simply lowered his markup from $200 to $150 to accommodate the $1150 offer. The actual markup realized from the sale of a coin is referred to as the “profit margin”.
Coin dealers are entitled to make a profit
Of course, there is a limit to what degree the price of a coin can be negotiated. Only in the rarest of cases would a dealer allow a coin to be sold for even less than what he paid for it (resulting in a financial loss). It is very unlikely that the dealer in our example will price at $900 the coin that he just paid $1000 for! However, such a scenario could occur, if, for example, the availability (“population) of the coin suddenly increased, resulting in depressed demand, and a lower market value. In that case, the dealer may be forced to accept an inevitable loss. Typically, however, a dealer will make every effort to avoid taking a loss on sales of his coins.
Naturally, a primary reason for a coin dealer to be in business is to make a financial profit. In today’s market, it is reasonable to expect that if a coin dealer makes 10 – 20% profit(1) on each coin he sells, then he will have a viable and sustainable business, provided he has sufficient volume to produce enough cash to purchase new coins, and still support himself financially. Often, as is implied in our example, a dealer may add a markup that is larger than what he really expects to make, with the expectation that the final selling price may be negotiated down, but still be enough to cover the cost of the coin and a fair profit.
Factors that affect a coin’s “cost” to a dealer
Coin collectors often forget that there are several factors that contribute to what a coin actually “costs” a dealer. Not only is there the amount of cash that changes hands to pay for it, but usually, there is some amount of overhead expense that adds to what the dealer must actually spend to acquire coins.
Sometimes, a coin is seen to sell to a specific dealer at an auction, and subsequently appear in his inventory with an asking price that is much higher than the expected 10-20%. While it is certainly possible that the dealer could truly believe the market demand for that particular coin to have strengthened dramatically since the close of the auction, there could well be other reasons for the dramatic price increase.
Let consider an example in which a dealer attends an out-of-town coin show that lasts for three days (Friday, Saturday and Sunday). For our scenario, let’s assume an auction was held in conjunction with the show, and let’s also assume that the dealer typically works on a 20% margin. Now, let’s suppose that the dealer buys just two coins from the auction, a large-cent for $1000, and a rare Morgan dollar for $5000.
Without any additional considerations, our previous discussion indicates that the dealer would wish to price the large-cent at $1200, and the Morgan at $6000 – a 20% markup for each coin. Given typical negotiations, we might expect the coins to actually sell for $1150 and $5750 respectively. Thus it would appear that the dealer’s profit on these two coins will be $900 (150 + 750) – a tidy sum for the work of selling just two coins. That would seem to represent an excellent profit margin of 15% (900 / 6000).
Overhead cost
The astute reader of this article might now be questioning the plausibility of the example as given so far. What is missing from this analysis is the overhead cost of doing the show. In loose terms, “overhead cost” is comprised of ongoing administrative expenses of a business which cannot be attributed to any specific business activity, but are still necessary for the business to function. In the case of a coin business, they might be a bit less vaguely expressed as the expenses required to conduct business, but which do not occur as part of the cost of purchasing numismatic inventory.
In general, these expenses could include the cost of traveling to and from shows, hiring an accountant, supporting a website, the cost of advertising, and any number of other factors which are not directly related to the actual purchase of coins.
For the sake of this scenario, let’s assume that the dealer drove his car to the show to save on airline expenses. A simple expense sheet(2) for the dealer’s show experience might look similar to the following:
$154 . . hotel stay (2 nights), breakfast included
$ 9 . . (3) lunches
$ 13 . . (1) dinners
$ 48 . . (1) dinner with clients
$ 52 . . gas for the commute (for simplification, wear and tear on the vehicle are ignored)
$375 . . cost of table at show
$ 15 . . cost of joining club which sponsored show
$ 60 . . pro-rated cost of insurance for one show
------- -------------------------------------------------------------------------------------------------------------------
$726 . . TOTAL OVERHEAD COST
Thus, the overhead cost of attending the show was $726. If we now deduct the total overhead cost of the show from the dealer’s apparent $900 profit on the two coins, we discover that his actual profit from future sale of the coins will be a paltry $174 dollars ($900 - $726) – a mere 2.3% profit! For a typical coin company, a profit margin(3) of 2.3% simply will not support a successful business.
the actual cost of coins
Obviously, we must add the cost of doing to the show to the cost of the coins in order to be able to ascertain a more appropriate markup for the coins such that the actual profit realized will fall into the 10 – 20% range. Let’s decide to divide up the overhead cost between the two coins as $200 and $524 (200 + 526 = 726). Thus, the actual cost of the large-cent would now be $1200, and the cost of the Morgan dollar would now be $5526 - practically the retail prices that were expected before the overhead costs were considered! Adding in the 20% dealer markup yields asking prices of (approximately) $1,450 for the large-cent, and $6,600 for the Morgan dollar. Plainly, these new asking prices are substantially higher than what was calculated previously.
when a dealer’s markup seems high
For the observer who simply records what the dealer paid at the auction for the coins, and then observes his retail prices for coins, it might well appear that this dealer is marking his coins up well above the assumed market norm of 10-20%, as seen in the following table:
auction realized price . . . . . dealer asking price . . . . . apparent dealer margin
$1000 . . . . . . . . . . . . . . . . $1,450 . . . . . . . . . . . . . . 45%
$5000 . . . . . . . . . . . . . . . . $6,600 . . . . . . . . . . . . . . 32%
But as we have learned, this mistaken observation ignores the reality of overhead costs. Overhead costs are real, and cannot be ignored by the coin dealer when he calculate the retail price he will need to ask for his coins.
Conclusion:
When considering purchase of a coin that appears surprisingly highly priced, consider factors other than the dealer’s cost which may be contributing to the inflated price. A dealer’s profit must take into account his overhead costs, in addition to the actual cost of purchasing coins.
Notes:
(1) The author believes that a profit margin estimate of 10-20% fairly represents the reality of most numismatic transactions. This observation is based on numerous interviews with dealers, and by analysis of coins sold at auction, then immediately added to the purchasing dealer’s inventory. Average margins may vary considerably from dealer to dealer, and certainly from transaction to transaction. For example, some dealers who specialize in bullion items work on margins below 3%, but deal in very large volume.
(2) The numbers used to illustrate this example are based on an actual Chicago coin show attended by the author in 2001. They are an accurate reflection of reasonable costs for the show.
(3) For the purposes of this article, “profit margin” is being simply defined as:
(price – cost) / cost
Be aware that professional accountants define and use these terms more stringently and accurately than they are being used in this article
2
Comments
of dupes and low grades would require a much lower buy price.
Just be sure to do a little research before selling to a dealer. You'll do better if you have a good idea what
your coins are worth, within reason.
JT
I collect all 20th century series except gold including those series that ended there.
and it sets us apart from practitioners and consultants. Gregor
"The astute reader of this article might now be questioning the plausibility of the example as given so far. What is missing from this analysis is the overhead cost of doing the show. In loose terms, “overhead cost” is comprised of ongoing administrative expenses of a business which cannot be attributed to any specific business activity, but are still necessary for the business to function. In the case of a coin business, they might be a bit less vaguely expressed as the expenses required to conduct business, but which do not occur as part of the cost of purchasing numismatic inventory"
I disagree with the whole notion of overhead costs being built into the price of a coin for two reasons.
1) PCGS guides, CDN, trends, , numismedia, etc) do not take into account dealers aggregate overhead cost. Now if a dealer can buy cheaply enoughly and then build in his expenses to have a coin priced within the realm of these guides then fine but if he doesn't he runs the risk of overpricing his merchandise.
2)The overhead costs argument for dealers leaves out of the argument something very important. That is that overhead costs for collectors have similar, but not all, expenses that they need to build in too.
In addition, a bonafide dealer with a tax iD number I think can deduct some of those expenses from conducting their business. I don't think a collector can do that.
I give away money. I collect money.
I don’t love money . I do love the Lord God.
and it sets us apart from practitioners and consultants. Gregor
Yesterday we had a fellow come in that wanted to sell back some silver dollars he had bought here. Starting with the Peace dollars, I figured a VF 1921 that he had paid $135 for at full BID, or $115, and so on down the set. About halfway through, he looked as my worksheet and said something like "Hey! Those numbers are less than I paid for them!" I said something like "Yes, we buy them at one price and sell them for a higher price." He got very angry and said that we should buy them at the same price that we sell them at, and left.
Oh well.
TD
What the dealer paid for the coin is irrelevant to me.
<< <i>bidask... overhead must be considered.... it is very unfair to expect dealers to buy coins at grey sheet and sell them at grey sheet....which some collectors expect.... that is simply not the case.... >>
I am certainly not suggesting buying coins at grey sheet and selling them at grey sheet with no markup. I expect any businessman to build in a profit.
I guess what I am saying is that in the coin business it would seem a price paid for a coin needs to weighed so that the markup is reasonble so that a profit is made and the price sold falls within a reasonable realm of whatever guide is applied.
If I start hearing a dealer tell me that the he is pricing a coin over and above something reasonable because he has expenses my first thought is that he overpaid. In addition, the overhead argument does not take into account the many rips that dealers enjoy through a retail outlet ( again I understand the concept of overhead expenses) but the rips that these dealers in retail storefronts enjoy on the buyside go far beyond the examples given in the original thread. Is that true?
BTW, I just came from visiting a friend in "back country" Greenwich, Conn. That was the most beautiful "neighborhood" drive I have ever taken.
I give away money. I collect money.
I don’t love money . I do love the Lord God.
this world would be a different place if someone spiked the water supply with truth serum.
After that, the volume will increase again while profit margins remain lower. It's good for the collector, the investor and the dealer who remains ( or learns how to be ) competitive.
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
I'm not even sure why some people care what others paid for a coin. It is a pretty simple arrangement. Buy coin, price coin, put it up for sale, and then interested buyers can pass or play. If the coin is in inventory for too long, then reconsider the asking price. The pricing of coins isn't, or at least shouldn't be, taken personal.
BTW, RYK, it is very, very common for dealers who play the crack out game (which is a very dangerous game and one I don't recommend), to ask us to hold their checks for extended periods because they recently got "creamed" by the grading services. Most of those who attempt this venture of trying to upgrade coins are not in the business very long, or they do well for a while, and then the next thing you know their checks start to bounce or they go bankrupt. Some are successful at it, but most that try, fail. We are very strict on giving credit to those who we know to be "crackout artists."
<< <i>1) PCGS guides, CDN, trends, , numismedia, etc) do not take into account dealers aggregate overhead cost. >>
Of course they do. Price guides are based on retail market sales. Retail prices include dealer overhead. Duh.
Russ, NCNE
Russ, NCNE
<< <i>$ 9 . . (3) lunches - I took my 2 kids to the buffet at the attached hotel to the last Long Beach show and it cost me close to $60.00 (with just water to drink). Wondercoin >>
Well, they're probably assuming just three, $3 lukewarm hot dogs in hard, stale buns at the concession stand at the bourse. Maybe even a bag of chips thrown in, too.
<< <i>Oh, and for a dealer with a storefront, there is a lot more overhead that is not included in that article.
Russ, NCNE >>
And alot more coins bought at far better prices than the ( bought at $1000 sold at $1200 example)
I give away money. I collect money.
I don’t love money . I do love the Lord God.
<< <i>
<< <i>1) PCGS guides, CDN, trends, , numismedia, etc) do not take into account dealers aggregate overhead cost. >>
Of course they do. Price guides are based on retail market sales. Retail prices include dealer overhead. Duh.
Russ, NCNE >>
Maybe your right, then I guess those price guides includes my cost for flying to a show, getting a hotel, buying food, taking a taxi, and other expenses I incur too, except I don't get to deduct my expenses like dealers do.
Edit to add: as the buyer on the other side of the trade
I give away money. I collect money.
I don’t love money . I do love the Lord God.
<< <i>
<< <i>
<< <i>1) PCGS guides, CDN, trends, , numismedia, etc) do not take into account dealers aggregate overhead cost. >>
Of course they do. Price guides are based on retail market sales. Retail prices include dealer overhead. Duh.
Russ, NCNE >>
Maybe your right, then I guess those price guides includes my cost for flying to a show, getting a hotel, buying food, taking a taxi, and other expenses I incur too, except I don't get to deduct my expenses like dealers do. >>
A collector that spends $1000 on hotels and airfare has that much less to spend on coins. A collector that is local that pays $20 in gas and parking has that much more to spend. Personally, when I total my hobby costs (cost basis of my coins), I add in any travel expenses, and show admission fees into my cost basis. For some people coin show trips might be part vacation, and the costs can be prorated on a fair basis.
<< <i>
<< <i>
<< <i>
<< <i>1) PCGS guides, CDN, trends, , numismedia, etc) do not take into account dealers aggregate overhead cost. >>
Of course they do. Price guides are based on retail market sales. Retail prices include dealer overhead. Duh.
Russ, NCNE >>
Maybe your right, then I guess those price guides includes my cost for flying to a show, getting a hotel, buying food, taking a taxi, and other expenses I incur too, except I don't get to deduct my expenses like dealers do. >>
Personally, when I total my hobby costs (cost basis of my coins), I add in any travel expenses, and show admission fees into my cost basis. For some people coin show trips might be part vacation, and the costs can be prorated on a fair basis. >>
Uh, have you checked with your tax attorney or CPA on that?
I give away money. I collect money.
I don’t love money . I do love the Lord God.
<< <i> 9 . . (3) lunches
$ 13 . . (1) dinners >>
$3 for lunch? What is that a moon pie and a coke?
$13 for dinner? I shudder to think what and where.
Remember you are what you eat
CG
Just like the ebay sellers that come on here justifying their inflated shipping charges for even the energy it takes them to get off the couch to ship your package
<< <i>Bottom line, these are the costs of doing business, and the Author's expenses should be reported/claimed as a business expense with the IRS. >>
If a seller doesn't recover the costs of doing business from his buyers (he can't charge the IRS for those costs- they don't pay out money for that), I don't think he'll be a seller for long.
Edit to add, I'm not a tax person, but I am self employed.
<< <i>Bottom line...... See SIG line!!!! >>
<< <i>
Personally, when I total my hobby costs (cost basis of my coins), I add in any travel expenses, and show admission fees into my cost basis. For some people coin show trips might be part vacation, and the costs can be prorated on a fair basis.
>>
Uh, have you checked with your tax attorney or CPA on that? >>
To clarify, I add in the travel and show fees for my accounting to see where I stand. For tax reporting, it is the cost of the item plus any shipping.
<< <i>Most or all of those expenses sure look like they can be reported on schedule "C" on a tax return. Hence, taken OFF gross income. No they don't "Pay out" for these expenses but they are deductible as a business expense.
Ok- I understand.
Bottom line though- at the end of the year, a dealer has taken in $X. If he wants to stay in business, his expenses have to be less than $X, and the money to cover those expenses (including the "cost of doing business") has to come from somewhere...
But the bottom line is the free market sets retail prices and wholesale prices are set by competition at the dealer level, again a free market. If there were no competition then the only dealer out there could offer whatever he wanted and eventually people would sell him coins (not really, new dealers would move in or collectors would develop a secondary market). But since there are many competing for wholesale coins, then it is how thinly they can cut their margins, control their expenses, etc that sets wholesale prices. And online, low expense dealing has decreased overhead, thinnned out margins, and put pressure on brick and mortar businesses with more overhead.
So coins sell for what the market will pay and wholesale for a price that allows the dealer to stay in business. Adam Smith wrote all you ever needed to know about economics and published it in 1776.
--Jerry
Something to think about when you consider coins as investments, or when a dealer touts coins as investments.
Of couse, when the violins come out, ignore them and offer the price YOU want to pay for the coin.
And when a dealer sells you some coins that are a "good buy", then you try to sell it back two years later, be sure to mention your costs in addition to the coins - mileage and travel, club expenses, newspapers, books, magazines, grading fees, storage and insurance - and see how much this affects the price THEY will give you
<< <i>
<< <i>Most or all of those expenses sure look like they can be reported on schedule "C" on a tax return. Hence, taken OFF gross income. No they don't "Pay out" for these expenses but they are deductible as a business expense.
Ok- I understand.
Bottom line though- at the end of the year, a dealer has taken in $X. If he wants to stay in business, his expenses have to be less than $X, and the money to cover those expenses (including the "cost of doing business") has to come from somewhere...
Fair enough. But then I'd have to say if they can't make enough....... might be time to do something else.
<< <i>Please... Save The Stories, Just Answer My Questions, And Tell Me How Much!!!!! >>
I like stman SIG line.
Camelot
<< <i>Please... Save The Stories, Just Answer My Questions, And Tell Me How Much!!!!! >>
The coin is what it is, worth what it is worth to me, and if the price is not in that range of what I feel it is worth, the dealer can tell me all about all of his expenses until he is blue in the face and it will not influence me one bit.
Oh, and Bear, the 300% you refer to is for the furniture business
Lincoln set Colorless Set
<< <i>All this time, I thought that the average mark up was...................... 300%.
I had an incident where I bought a coin from a dealer at the show on Saturday and tried to sell it back to him on Sunday but he declined to buy it back even though I was expecting to get only 70% of my money.
Later, I learned to buy nice, problem free coins from the show and sell them to a reputable dealer 6 months to a year down the road. This time, I was breaking even but actually I came out ahead because I basically paid nothing in achieving the pleasure of owning those coins.
Now, if I like a coin, and understand that a dealer has to make a living for himself (and his family), I just go with his asking price even if it is 50%-100% above grey sheet.
<< <i>
<< <i>Please... Save The Stories, Just Answer My Questions, And Tell Me How Much!!!!! >>
The coin is what it is, worth what it is worth to me, and if the price is not in that range of what I feel it is worth, the dealer can tell me all about all of his expenses until he is blue in the face and it will not influence me one bit.
Oh, and Bear, the 300% you refer to is for the furniture business
Try going into my business where one can open up an account and trade stocks for free.
I give away money. I collect money.
I don’t love money . I do love the Lord God.
any more chairs and tables in the near future.
Camelot
<< <i>In recent years the appreciation of inventory due to bullion prices moving up must also be considered. If you Had $500K in inventory of gold and silver in the last 5 years you did quite well. >>
The rising tide of the bull market in coins during the past ten years, has been the saving grace for many of the marginal dealers. When the tide turns and the market has a prolonged down turn a lot of the marginal dealers will be washed out. The market won't care about overhead, or what the dealer paid. During a long down turn, dealers that continue to ask prices above what they paid (vs. what the current wholesale replacement cost is), will often be the first ones to go under and have to find another way to make a living.
<< <i>In recent years the appreciation of inventory due to bullion prices moving up must also be considered. If you Had $500K in inventory of gold and silver in the last 5 years you did quite well. >>
Only if you cash out and retire, or go into another line of business.
You have to have inventory to be in the bullion business. If bullion doubles, your cost of owning an inventory doubles.
TD
I told you it was a "controversial article"!
There are other factors to consider, such as shrinkage (theft) or bad debt expenses. In actuality, the coin business is similar to any other business. You have expenses and you have income. Whatever business you are in, your mark-up helps to determine your profit. The more expenses you have, the higher your mark-up needs to be to balance. The main difference between the coin business and, let's say a gas station is that the "cost of goods sold" for a gas station is more predictable than a rare coin. The coin dealer has to know what he is buying. If a coin dealer buys a coin for $5000 at auction and then flips it for $8000 because he saw something that others did not (i.e. a rare variety), then good for him.
<< <i>All this time, I thought that the average mark up was...................... 300%.
It is for toners.
<< <i>
<< <i>All this time, I thought that the average mark up was...................... 300%.
It is for toners.
clw54, I was gonna ask you to splain..... but being as grump as you've been I know it won't be pretty.
///////////////////////////////////////////////////////////////////
I can't stop laughing.
Edit to say...this is coming from a collector, not a dealer.
<< <i>All this time, I thought that the average mark up was...................... 300%. >>
Only when Fletcher or Dizzyfox walk through the door.
Russ, NCNE
<< <i> Profit margins have come down in the last few years... >>
You got that right. Because we're in the "information age" it's getting much harder to make any decent money buying and selling coins. Before eBay, if you needed to sell some coins, you either brought them in to your local coin shop, or you looked in the classifieds in the back of the coin papers to see what the dealers are paying. There was a clearer distinction between wholesale vs. retail and collectors vs. dealers. Now those days are long gone.
Nowadays EVERYBODY including dealers, collectors, and non-collectors knows about eBay, and expect to get nothing less than full market value for their coins. Most would rather take their chances on eBay than accept a fair, fixed offer from an honest dealer. I've tried to put out classified buy ads recently, and the response has been absolutely pitiful compared to what it used to be. Trying to buy coins for the purpose of resale at FAIR, reasonable prices has never been more difficult than it is now, and that's something we should all try to take into consideration.