Profit margins, prices and turn over: main ingredients in selling used guns

Shooting Industry, March, 1989 by Chuck Karwan

Profit Margins, Prices And Turn Over: Main Ingredients In Selling Used Guns

As dealers, when we buy and sell new guns the prices we sell them at are easily established. Invariably there is a suggested dealer price and a suggested retail price established by the manufacturer, importer, or distributor. These suggested prices give us a consistent starting point to work from. Admittedly, we rarely have to pay full dealer price if we take advantage of various discounts and buying programs offered by most distributors. However, competition from major gun distributors is high enough that there is rarely a significant difference in actual dealer purchase prices between distributors for the same model firearm. Often availability, free shipping, or a toll-free phone ordering service will make more of a difference on what distributor we buy from than the actual price of any given item. Regardless, our purchase price on new guns is largely decided for us. Naturally, we have more control over the selling price but the fact is that it will not be too far from the suggested retail price. To sell at a price much under suggested retail price will realize an insufficient profit margin and to try to sell at over retail price will be futile except for the rare gun that is in extremely high demand and short supply.

Things are not so cut and dried or simple in the world of used guns. Neither the buying price nor the selling price is established for us. On new guns the selling price is almost completely dependent on and linked to the buying price. On used guns this is not necessarily true. Used guns have no fixed purchase price and the selling price should be near the fair market value, which is an expression of supply and demand. There is often no direct correlation or link between the purchase price and the market value.

All too often, dealers make the mistake of making their used guns retail sale price a simple function of the purchase price plus a normal profit margin. While this formula is generally useable for new guns, it is a lazy approach for used guns that will invariably lead to lost profits.

With used guns everything from the selling price to the maximum allowable buying price must depend on establishing the fair market value of the piece first. In a past column the methods for establishing the fair market value, including using various price guides, was covered in detail so I won't dwell on it here. Once the fair market value is established for a gun, this is about what the retail selling price should be.

Maximum Allowable Purchase Price

To get the maximum allowable purchase price we simply work backwards. The normal profit margin in the used gun field is a minimum of a full 50 percent markup. To arrive at the maximum allowable purchase price you subtract 1/3 from the selling price. Thus, if you expect to sell a gun for $150 you should not pay more than $100 for it. Noticed that I used the term "maximum allowable" purchase price. That is because there is no necessity that the purchase price be that high. Using the example of a gun that should retail at $150, if it is offered to you at a price under the $100 maximum allowable purchase price obviously you should take it.

However, the retail price should stay the same or at most only be adjusted downward slightly to make it sell faster. The lower purchase price should be used as a means to increase your profits.

If the above approach of establishing a retail price first and then working backwards is not used, there is a high probability the piece will be sold for far less than it could have been. Typically what will happen is someone will offer a dealer a firearm at an obviously good price. The dealer takes the lazy approach and just marks it up his normal percentage without establishing the market value. It sells and he says to himself: "I got my profit so I am happy." Unfortunately, for him, his profit may have been a small fraction of what it could have been if he had done a little homework. From personal experience I have seen many dealers under price guns by hundreds of dollars, taking the above markup approach. At times I have practically made a living finding such guns and reselling them. Invariably I made more profit than the original dealer did but he never knew it.

Naturally, when a dealer grossly under prices a gun it tends to sell quickly. If you know a dealer that consistently under prices guns, it is necessary to visit him often to take advantage of it. The best times for such a visit are immediately before the weekend because under priced guns will invariably move during the high weekend traffic. The other best time is just after a weekend because that is when guns that have been brought in during the weekend will have been booked in priced, and put out for sale. While it is nice to make profits off of another dealer's mistakes the point of this is not to make the mistakes yourself. Price guns by what they are worth -- not be what you paid for them.