When Buying Customer Returns – What is my actual cost per piece?

Lets talk today about your actual cost of a pallet or lot purchase when buying customer returns. How do you figure your actual cost per item after shipping and merchandise assessment? If you are going to profit from a salvage purchase you have to figure your bottom line each time a new shipment arrives at your door.

For example: You order a mixed assortment of customer returned watches. In our example lets assume you paid seventy-five cents per unit for a total cost of $75.00. Once you add the hypothetical shipping charge of $17.00, you now have the watches at your door having spent a total of $92.00. Your total cost per unit delivered is now .92 each. After a careful inventory (count) you realize that your order was “Short-shipped” and you actually have 98 watches.

Here is the formula:

$75 (original purchase) + $17.00 (Shipping) = $92.00 divided by 98 Watches (actual quantity received) = .94 total cost per unit (Watch)

We are not done as you have purchased customer returned watches and you must factor in the damages to find your ultimate cost per unit. Further inspection of the 98 watches has revealed that 39 of the watches will need new batteries before you can resell them for a maximum profit. After replacing all 39 batteries for a cost of .25 per battery ($9.75) your total outlay looks like this:

.94 X 98 (Watches) = $98.94 + $9.75 (repairs) = $108.69 divided by 98 (total number of watches) = $1.11 total cost per watch

Why is this formula important?

You should be in the habit of factoring in shipping and damaged merchandise when buying customer returns. In the above example what started out as a seventy-five cent watch ended up costing $1.11 per unit! Can you still make a profit? You can profit if you factor in shipping and damaged or unsellable merchandise when buying customer returned merchandise.

You will not find a closeout or salvage dealer who will offer a “Return Policy” when you buy your lot or pallet (This is an industry standard phrase, “All Sales Are Final”). So it is critical to assume a certain percent of either damaged or unsellable items when buying customer returned merchandise.

When I buy customer returned merchandise I always factor in a freight estimate and at least 50% damages and/or unsellable. Did you stumble on the 50% damages? I have never had a load with more than 50% damages so I use that as my “Baseline”. Better to be conservative when projecting profitability. Hey, good news…if you expect half of your load to be unsellable and then the actual damages come out to 30%…you are ahead of your profit projection formula!

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