Margins on High End Coins ?

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I agree. Its the same as in any business.

Look at it this way, there is X dollars to handle a coin, and then X needed to carry the money. So, if the dealer needs $50 on average per coin for overhead, and 10% to carry the money, he will evaluate his purchase that way. If you bring him another ho hum lincoln cent set, or group of proof sets, he will need to deeply discount these since he will not get his money back for quite a while, and will have a lot of overhead tied up. However, if he can buy a nice coin for $5000 and have 6 collectors begging him to sell it to them for $5500 he can do that all day long and make a great living.

Its not just a function of percentages, but every coin a dealer touches has an expense associated with it, a flat fee he needs to generate per coin to cover rent, salaries, utilities, and heaven forbid a little profit.

 

I dealt with National Gold Exchange for many years, and don't believe they had but a 10-15% spread for a low end B&M coin dealer with a relatively large staff. Would probably still be in business if they hadn't excessive personal desires.

I also dealt with Hannes Tulving for an appreciable time, and I believe he always had less than a 10% spread. It's others opinion that when he changed his business model, involving outside agencies, it cost him the "Store". Prior to that change, I believe that he personally had things in order, and most of the complaints I heard were from the "less organized" who seemingly expected a premier service at a paupers price.

For additional information Google "Tulving Post Mortem".

I wonder what the "spread" is for Heritage, who must have massive "overhead".

Rich

 

Now the thread is getting to the numbers like I originally intended. 10% and under sounds fair and reasonable to me (referring to higher end rarities, $5000+, $10K+, etc)

I know with plain run of the mill 1921 Morgan dollars or similar the dealers will be needing to make 50% or more. That's why I specified higher end coin margins. I was curious as to if there was a sliding scale type system for pricing coins or if all coins had the same markup from dealer cost. I know the former is more reasonable than the latter, but I ask this to see what different people are expecting and/or doing. As I stated, I'm thinking of going into higher end rarities for this reason, but I'm just doing my homework as I feel I should.

 

The one thing sir I would caution is that is still depends on the specific coin. A $5000 problem free, collector grade, highly desired coin the dealer can afford to have a tighter spread than maybe an esoteric "details grade" coin. This will be a tougher sell for the dealer possibly, so he has more risk and carrying costs, so he would need to discount further, and this would be very fair. I personally know dealers who have spent $1500 on a coin, carried it for a few years, and ended up selling it for $1000. This is a VERY real risk, one that has to be paid for with profit from other coins.

So, if its a nearly no-brainer, certified problem free coin from a very well traded series, THEN a much tighter spread is possible. Short of those things, and the dealer needs to accout for his risks.

 

I do not purchase coins with issues for just this reason. If I cannot afford a problem-free example, I cannot afford that coin.

I also imagine that dealers have different clients they cater to. One dealer may specialize in silver Dollars and another large cents, for example. The one specializing in silver Dollars would probably have the need to discount a Chain Cent further than the large cent specialized dealer. Is this thought accurate?

 

That can be very accurate. If a dealer does not have the client base for a particular type of coin then he/she is likely looking at sitting on the coin for a while, selling it wholesale to another dealer or pricing it quite low in comparison with like examples.

 

I agree with this. I recently purchased a 1909 VDB Lincoln MS66RD for $131. I asked the dealer why he priced so low. He told me it came as part or a larger deal and he does not handle this particular series. He would rather sell it low than have to carry it for a long time.

 

This raises an interesting point. Can there be a form of arbitrage when buying/selling coins? Buying rare cents from a silver dollar specializing dealer and selling to the copper dealer or vice versa when the time comes? This seems obvious, so maybe I'm not seeing something.

 

NO, you are correct. I have some dealers who call me when they get ancients, since they do not specialize in these and prefer to just get rid of them by selling them to me than trying to retail them. Its a very well known fact certain dealers specialize, and when selling its best to sell to specialists in the series if possible. TomB, from what I know of him, specializes in very nice coins. So, a really pretty capped bust half dime I could see offering to him. However, I may not wish to offer him something like an ugly Nero sestertius or a pile of vg buffalo nickels, since it does not appear he speciliazes in those types of coins.

 

Sounds like you have done a little business admin. I am a site noob, so I will try to tread lightly here. Business admin is a pretty boring post topic anyway, so most won’t want to read.

10% NET PROFIT for a small business may be fair (though not optimal), 10% markup is not! (particularly from an annual perspective). It is not uncommon for a company to have gross margins over 40% and still only net 5% before taxes.

Calculating overhead and break evens will have less impact after a certain level of revenue has been met, but I would never gross 10% on anything unless I was in a dire cash flow situation. If you, as a small-business person, allow yourself to succumb to the temptations of low margins for quick turnover, it will only serve to justify even lower margins when cash is tight. There are many reasons why most businesses fail, and this is one of them.

 

It was just an example sir to show how there are fixed components and variable components to the situation, so putting everything in terms of percentages makes the analysis troublesome. But yeah, I have done a little business administration, I taught MBA courses and am a CFO. Unfortunately, in my industry 10% gross profit is considered a good return, so volume is our critical need to profitability.

Like I said, it was not perfect, nor meant to be. Just an example highlighting ANOTHER reason why static percentages are never used in such a situation.

 

But that would be about $7,000,000 in today's dollars : - )

 

So explain to me this;
I can sell on great collections roughly between 10-15% cut.
I can sell on ebay for a 13% cut.
I can sell on heratige my higher coins for roughly a 27% cut.

If I can sell on just these three venues without putting effort in finding others for the above noted percent cuts do you really think I'm going to be ok with less? Maybe once in a blue moon a dealer will offer me a larger precut valuation but is it really going to be something that happens that often? Will it really compensate for what the dealer considers fair percent cut for himself? Despite pretending I am a dealer by throwing a few coins in a suitcase and selling at shows I am a retail buyer. So explain to me the retail buyer why I'm selling to a dealer for anything less then the above? It is a new world and the internet has revolusionized coins just as much today as tpg's did at their inception. No one cares about my cost to provide services I deliver and in a free market why should I care if you the dealer can or cannot make a living. All I want as a retail buyer is the best coin for the best price. And with the internet combined with pictures, tpg's and a return policy you the dealer are basically now competing for my money with every collector and every coin dealer selling any coins I might be interested in. So I don't have to be ok selling anyone my coins for less. Yes you may have some esoteric coin best sold to a dealer but for the 99% other coins I wager the internet and auction companies will offer more. This is just how this collector sees the world. But I'm a minor league player so take it for what it is worth.

 

I spent most of my career in the automotive industry. Not the retail end, but the manufacturing and supply chain area. 10% gross margins is standard and it sickens me. Many suppliers end up going out of business because of the additional demands placed on them that quickly eat into those skinny margins.

I now work in an industry that's more niche and our margins are much healthier. I agree with Chris Robinson's post re: margin and business success, especially at the retail level.

 

I too was in the automotive component industry for a time. That industry is just tough overall.

To say, though, that X margin is "required" is simply completely ignoring the obvious. Some industries, mainly commodity type industries, will NEVER have such high margins. Econ 101 will explain why. So, in such an industry, the key to profitability is efficiency and volume. In the coin world, a firm like Heritage or Ebay, moving as much as they do, do not need to make very much per item. A traditional dealer selling one millionth of what Ebay does will have to make higher margin per coin. Neither business model is RIGHT, both set their margins based upon what the market will bear and what they have to have in order to make an overalll profit. Usually with volume comes competition, so usually in business you do not have the luxury of both huge volumes and very high margins. If margins are that high, that will attract a ton of competition knocking margins back down.

 

Agree about the generalization. If one tried to address all variables, the post would turn into a novel.

BTW, I have a BS in Economics. Yes, BS is right! LOL.

My point is that most retail business live on higher than 10% margins. Yes, you have the Walmart model and those catering to the price crowd, but my suspicion is that most retail businesses have much higher GM. Now take a small business, which usually has additional inefficiencies (cost) and I don't see how they can successfully live on 10% GM.

 

Retail, no. But, remember many dealers are more wholesale dealers than retail. Point being there are price and margins points within all industries. I sell to a customer, (private label), who gets probably 80% margins on what they sell, and I make 10% on that sale, but they spend a TON on advertising. There simply is no "right" business model. You are certainly correct, though, that a retailer cannot survive on 10% gross margins.

We had better stop before they kick the econ geeks off a coin chat site.

 

At least I can use my degree for something!!!!

Where did you work in the Automotive industry? I spent my first 10 years working for GM/Delco Electronics. Learned a ton! Great area to work. Automotive electronics! Then I worked for a Japanese automotive supplier in human machine interface.