Be Careful Building Inventory

The biggest mistake newer dealers make is the inventory trap. They go out, buy some stamps and begin to resell them. Generally, they get very good prices for some of the things that they offer (“very good” defined as far more than they expected), good prices for some material, weaker prices for more and no prices (that is, no sale)for the rest. This is par for the course, but it is what a dealer does here that determines success. Most dealers add up what has sold and add up the inventory that is left (reducing the value by the margin they made on the sold material) and figure that they made a profit if that amount is greater than the cost of goods minus selling expenses. The problem with this method is that it tends to greatly overvalue the unsold portion of your inventory. Despite all your rationalizations the main reason that material you offer doesn’t sell is that it is unpopular or overpriced or both. Such material is saleable but it will need to marked down. And it is in handling markdowns and valuing potential markdowns in relation to sales that trips up most newer stamp dealers evaluation of whether they are making money or not. An accountant customer of ours uses a very simple method to see if he makes money in his part time stamp business. He come to our auction, buys a group of stamps, and breaks them up and offers them on EBay and Stamp Wants. What doesn’t sell the first week he marks down 15% and 15% more the third week, finally putting it up for absolute sale the final week. Then he adds up what he sold and subtracts his cost of goods and selling expenses. Each month he sells out everything he has bought so he has no inventory valuation issues.  He considers it a pretty good month when he has netted 20%

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