Cash for gold type businesses query

[d777]

Hi all,

New here and new to the world of gold, however I well versed in various areas of it because it's always been interesting to me. I had a succesful ecommerce brand that I recently sold and a friend of mine who is a jeweller (and not a savvy business person) has come to me with a 'business idea'. This isn't reinventing the wheel, tonnes of people are doing it as you all know. It's a cash for gold type business. Where he customer sends in their gold and we assess it, send to refinery and pay out the customer based on weight/purity. We are in the UK, there are loads of these types of companies, and everyone is making money if you reserach them. There are honest ones and dishonest ones, the honest ones show you the fixed rate and what they pay off that usually paying out around 93%, the dishonest ones don't give you any price and you get given a price per gram once you've sent your gold in, hoping you;re a desperate mug and they pay anywhere from 75-85% of the fixed rate. That to me feels not very moralistic and I'd like to pay the general public the better end of the prices, but if a refiner is buying it at 98% (which is rather standard), and you are paying 90-93%, that leaves very slim gross profit margins that when you take into account customer acquisition costs and admin costs etc I don;t see how this business makes money. I guess it's a volume game, and you can get lucky with the types of stuff sent in (I suppose people don't care what they send in, they just want cash, so you can end up with Cartier etc when they think it's scrap). But I am wondering how the ones who buy at say the top end prices of 93% make any money at all if they have to sell it for 98%, could it be they are the refiners themselves and the other people who don;t advertise their prices are not, so need to make a larger margin? Is this a totally saturated market? I have very solid expertise in creating a brand and marketing as that's what I did for ecommerce, so I would use those skills but I don;t want to get involved in something which has such terrible margins if that's the case. Am I missing something?

TIA

 

[anachronism]

It's very much a high turnover low margin game D. Not something to get into without deep pockets, and even then you're up against the big boys- regardless of their honesty or otherwise.

The guys who are making 5% are doing well, and some take less of a cut but turn over a million per week.

 

[d777]

It's very much a high turnover low margin game D. Not something to get into without deep pockets, and even then you're up against the big boys- regardless of their honesty or otherwise.

The guys who are making 5% are doing well, and some take less of a cut but turn over a million per week.

Thank you! Yes I assumed you need deep pockets for it, due to advertising costs etc (not something dissimilar to what I did previously with advertising for ecommerce but ad costs are stressful), it's quite a tempting thing to get involved in due to not having stock however, my partner knows the refinery well and has trade realtionships but you can't escape the fact the refinery want 98% and you still have to be competitive with your payouts, if you want to go up against the established players. I have researched some of the smaller cash for gold companies and all of them, either paying fair values or way under are all doing quite well from a finacial POV. Just unsure if I want to put my energy into something like this really, so appreciate any words of warning or otherwise.

 

[Martijn]

Hi all,

New here and new to the world of gold, however I well versed in various areas of it because it's always been interesting to me. I had a succesful ecommerce brand that I recently sold and a friend of mine who is a jeweller (and not a savvy business person) has come to me with a 'business idea'. This isn't reinventing the wheel, tonnes of people are doing it as you all know. It's a cash for gold type business. Where he customer sends in their gold and we assess it, send to refinery and pay out the customer based on weight/purity. We are in the UK, there are loads of these types of companies, and everyone is making money if you reserach them. There are honest ones and dishonest ones, the honest ones show you the fixed rate and what they pay off that usually paying out around 93%, the dishonest ones don't give you any price and you get given a price per gram once you've sent your gold in, hoping you;re a desperate mug and they pay anywhere from 75-85% of the fixed rate. That to me feels not very moralistic and I'd like to pay the general public the better end of the prices, but if a refiner is buying it at 98% (which is rather standard), and you are paying 90-93%, that leaves very slim gross profit margins that when you take into account customer acquisition costs and admin costs etc I don;t see how this business makes money. I guess it's a volume game, and you can get lucky with the types of stuff sent in (I suppose people don't care what they send in, they just want cash, so you can end up with Cartier etc when they think it's scrap). But I am wondering how the ones who buy at say the top end prices of 93% make any money at all if they have to sell it for 98%, could it be they are the refiners themselves and the other people who don;t advertise their prices are not, so need to make a larger margin? Is this a totally saturated market? I have very solid expertise in creating a brand and marketing as that's what I did for ecommerce, so I would use those skills but I don;t want to get involved in something which has such terrible margins if that's the case. Am I missing something?

TIA

It is very well possible that the "honest ones" with the fixed rate will have more "melting losses" and you end up getting scammed (or skimmed a bit more), in stead of the 'dishonest ones', paying for what you actually sent in and what the current spot price is.
Building up good references and a sound client base because you have good and honest deals will bring you more in the end imo.

Depending if you can get it from regular suppliers and not from single time suppliers. If you focus on single time suppliers, they just have no clue what to expect and will accept whatever they're offered as they need money fast and sell grandma's jewelry. Once that's gone, they wil have nothing to sell anymore, so they will get skimmed a bit more.

And if you're in a area with a lot of these shops, don't go to far over their offer, it can cause other problems. Not all shops are legit and free of criminality. (don't piss off the local mafia)

 

[Yggdrasil]

Hi all,

New here and new to the world of gold, however I well versed in various areas of it because it's always been interesting to me. I had a succesful ecommerce brand that I recently sold and a friend of mine who is a jeweller (and not a savvy business person) has come to me with a 'business idea'. This isn't reinventing the wheel, tonnes of people are doing it as you all know. It's a cash for gold type business. Where he customer sends in their gold and we assess it, send to refinery and pay out the customer based on weight/purity. We are in the UK, there are loads of these types of companies, and everyone is making money if you reserach them. There are honest ones and dishonest ones, the honest ones show you the fixed rate and what they pay off that usually paying out around 93%, the dishonest ones don't give you any price and you get given a price per gram once you've sent your gold in, hoping you;re a desperate mug and they pay anywhere from 75-85% of the fixed rate. That to me feels not very moralistic and I'd like to pay the general public the better end of the prices, but if a refiner is buying it at 98% (which is rather standard), and you are paying 90-93%, that leaves very slim gross profit margins that when you take into account customer acquisition costs and admin costs etc I don;t see how this business makes money. I guess it's a volume game, and you can get lucky with the types of stuff sent in (I suppose people don't care what they send in, they just want cash, so you can end up with Cartier etc when they think it's scrap). But I am wondering how the ones who buy at say the top end prices of 93% make any money at all if they have to sell it for 98%, could it be they are the refiners themselves and the other people who don;t advertise their prices are not, so need to make a larger margin? Is this a totally saturated market? I have very solid expertise in creating a brand and marketing as that's what I did for ecommerce, so I would use those skills but I don;t want to get involved in something which has such terrible margins if that's the case. Am I missing something?

TIA

Welcome to us by the way.

 

[d777]

Thanks am interested in gold generally so will stick around

 

[4metals]

If your shipments of melted bars is large enough, typically 200 oz, you can get better than 98%. often as low as 99.5%. The margins are decent if you pay at 90-93% and there is a bit more profit because the buy it by the piece guys never pay on Silver or Platinum but you will get paid for Silver but only get paid for Platinum if there is sufficient Platinum in the lot.

One technique I have seen for mail it in gold buyers is a real hit. It involves on line imaging when opening a package. The buyer (you) has a table set up with a scale and a video camera so the package is opened with the video running and each piece is taken out and weighed so the viewer can see it after you evaluate it and send a link. The goods are then taken off screen and evaluated by XRF and a value assigned to the lot. Everything is then sealed or put aside and the owner of the scrap is sent a link where they can see the unloading and the weights to verify that is what they sent. They are also informed what your buy price is and they either accept or decline. If they decline they get it sent back and if they accept you put it in a melt lot. This eliminates a lot of claims that the sender sent much more weight than you received.

You will also accumulate a lot of goods with diamonds or semi precious stones. You either buy them or remove the stones and charge for the service to return the stones to the customer. Most refiners end up with stone recovery lots which they do in house or send out.

If you take care to separate your materials and remove any easy to clip off Platinum, you can make decent profits. Another thing some refiners do is have a website to sell jewelry and keep the decent goods for resale on line. This ties up cash for a while but it also gets you paid over spot for finished jewelry.

Hopefully this helps.

 

[d777]

If your shipments of melted bars is large enough, typically 200 oz, you can get better than 98%. often as low as 99.5%. The margins are decent if you pay at 90-93% and there is a bit more profit because the buy it by the piece guys never pay on Silver or Platinum but you will get paid for Silver but only get paid for Platinum if there is sufficient Platinum in the lot.

One technique I have seen for mail it in gold buyers is a real hit. It involves on line imaging when opening a package. The buyer (you) has a table set up with a scale and a video camera so the package is opened with the video running and each piece is taken out and weighed so the viewer can see it after you evaluate it and send a link. The goods are then taken off screen and evaluated by XRF and a value assigned to the lot. Everything is then sealed or put aside and the owner of the scrap is sent a link where they can see the unloading and the weights to verify that is what they sent. They are also informed what your buy price is and they either accept or decline. If they decline they get it sent back and if they accept you put it in a melt lot. This eliminates a lot of claims that the sender sent much more weight than you received.

You will also accumulate a lot of goods with diamonds or semi precious stones. You either buy them or remove the stones and charge for the service to return the stones to the customer. Most refiners end up with stone recovery lots which they do in house or send out.

If you take care to separate your materials and remove any easy to clip off Platinum, you can make decent profits. Another thing some refiners do is have a website to sell jewelry and keep the decent goods for resale on line. This ties up cash for a while but it also gets you paid over spot for finished jewelry.

Hopefully this helps.

This is brilliant advice. Thank you.

 

[4metals]

To take the internet approach a bit further, the refiner advertises and the ad has a QR code which takes them to a website where you give details and offer a free shipping package. Your package, which you send them, will not have a readable address, simply another QR code which does not give them a readable address for you. Somehow here in the US, FedEx can figure out where to mail it. Anyway this will mean no-one knows where your refinery is and security is easier.

There is, obviously, a cost to do this but it can be worked into your rate easily enough. The combination of no address or company name on the package makes theft less likely and worthwhile in my opinion.

 

[d777]

To take the internet approach a bit further, the refiner advertises and the ad has a QR code which takes them to a website where you give details and offer a free shipping package. Your package, which you send them, will not have a readable address, simply another QR code which does not give them a readable address for you. Somehow here in the US, FedEx can figure out where to mail it. Anyway this will mean no-one knows where your refinery is and security is easier.

There is, obviously, a cost to do this but it can be worked into your rate easily enough. The combination of no address or company name on the package makes theft less likely and worthwhile in my opinion.

Genius stuff and much appreciated. You’re getting me excited about something that I was sort of see sawing due to competition and margin concerns.

 

[Dreamer]

The refineries also pay out on the day of the transaction. If you can turn your dollars over every day at 2%, thats a 48% profit every month. There are many businesses doing just fine with those types of margins. The refineries themselves for instance.

 

[Dreamer]

I went to an Estate Sale a couple weeks ago and the franchise managing the sale informed me that they have a national contract with Elemetal to purchase all thier fine jewelry at 98% of spot. Thier comtract with the estate is to split sales 50/50 and anything not sold, the liquidator KEEPS! So they basically doubled the asking price on all the jewelry. If this is true, we're all going about this the wrong way.

 

[4metals]

The refineries also pay out on the day of the transaction.

The refiner that a gold buyer like the OP would be selling to will typically want larger lots to give the best rates. And they advance against an XRF and pay on fire assay result. The days between when you are advanced and the day you settle you are paying the refiner interest. These days refiners are as much bankers as they are refiners.
The guys who pay out same day may be the 98% payers which may be worthwhile while building a business to ease cash flow but when the volume of metal increases enough to routinely ship to a primary refiner it is worth the switch.
In order to get decent rates and the best deal for the OP he would have to melt the bars himself so he is not at the mercy of excessive melt losses.

 

[d777]

The refiner that a gold buyer like the OP would be selling to will typically want larger lots to give the best rates. And they advance against an XRF and pay on fire assay result. The days between when you are advanced and the day you settle you are paying the refiner interest. These days refiners are as much bankers as they are refiners.
The guys who pay out same day may be the 98% payers which may be worthwhile while building a business to ease cash flow but when the volume of metal increases enough to routinely ship to a primary refiner it is worth the switch.
In order to get decent rates and the best deal for the OP he would have to melt the bars himself so he is not at the mercy of excessive melt losses.

My partner happens to be close on a personal level with the refiner we would use and they may well become partners in this endeavour which may be a route to better prices etc

 

[4metals]

Even though you may not start out actually refining, your shipments to refiners will necessitate, for your own benefit, following some protocols for accountability on the refiners part. We will be glad to help you understand and institute those protocols here on the forum. That’s what we do!

 

[d777]

Even though you may not start out actually refining, your shipments to refiners will necessitate, for your own benefit, following some protocols for accountability on the refiners part. We will be glad to help you understand and institute those protocols here on the forum. That’s what we do!

Indeed unless I JV it with the refiner which is on the cards, but in any event I want to know what I’m talking about so I’m here to learn.