How to Calculate Your Liquidation Business’ Initial Investment

2014-05-04

Liquidation businesses are mushrooming by the day. One of the reasons behind their increasing popularity is their owners’ ability to make good profits regardless of how the rest of the economy is doing. In fact, there have been many instances where such businesses flourished during tough economic times as everyone is on the lookout for a good deal.

If you’re interested in setting up your own liquidation business, one of the first questions you may have in mind is how much it will cost you, especially if you plan to make it your only source of income.

However, rather than giving you a direct number, the following lines will highlight the costs your business is bound to incur and how you can cut them down to avoid burdening yourself financially.

The Costs of Setting up a Liquidation Business

First off, you need to understand that a liquidation business is anything but a “get rich quick” scheme where you won’t pay a single cent. Like any business, you’ll need to pay a considerable sum at first before you pay off your expenses and start earning profits. The following are some of the costs you’ll need to pay to step into the wholesale liquidation industry.

Licensing Fees

While liquidation businesses – especially those with sole ownership or general partnership – don’t have to register as a legal entity, you may need to spend a little money to get a retail license or register for sales tax. Expect to pay an average of $82 for the electronic filing process.

However, the cost can go up to $300, which is the highest registration fee for corporations across the U.S. The best way to discover how much money you’ll need to cover this cost is by contacting your state’s business regulation authority or its business portal.

Office Equipment and Furniture

Once the legalities are out of the way, you need to shift your focus on preparing your workspace. If you plan to start small and with only yourself as both the employer and employee, you need to invest in a good computer or laptop and a smartphone that can help you connect to your “office” even when you’re away. These can easily come up to $1,000 ($600 and $370 on average for laptops and smartphones respectively) depending on the features you need. However, this number doesn’t include software or apps you’ll need for both. On the other hand, if you’re

On the other hand, if you’re planning to start big and establish your own office, you’ll need to pay $1,000 for a business location and approximately $1,500 for your mortgage or rental.

That aside, you’ll have to pay around $3,000 per person, which is how much office furniture, a laptop, a wired Ethernet port and desk accessories will cost you. Additional costs under this category include those of office supplies (up to $10,000) and signage that indicates your office’s location.

Due to the high costs of setting up an office, many liquidation entrepreneurs prefer establishing online businesses regardless of whether they’re running them alone or with the help of employees.

Communication

Communication is essential in this business, be it with your buyers or suppliers. One of the first communication channels you should secure is the internet, which costs between $35 and $300 on average for regular connections while mobile internet (2GB) goes up to $40.

However, you may want to avoid skimping on this cost as you need a reliable internet connection or else more experienced competitors will whisk your potential merchandise (and ultimately your clientele) away.

The second communication channel you’ll need is a phone. While having a separate business phone isn’t mandatory, it’s a good addition that can help you get deductions during tax season. Your initial deposit will be less than $200 while installation and billing will average around $100 and $40 respectively. However, your deposit will be returned within a couple of years if you pay your bills on time. As for your phone bills, these depend on how often you make calls and the services you add, such as a Follow Me feature that forwards your calls to your cell phone.

Merchandise Costs

How much you pay for your merchandise depends on the type of products you purchase and their condition. When it comes to types, pallets containing articles of clothing are bound to cost less than IT and smartphone essentials. Even pallets of electronics are bound to be priced differently according to the popularity of a certain brand and how old or new its contents are.

As for the condition of your products, you should remember that liquidation merchandise is rarely found in top shape. Shrewd, experienced liquidators will take these off the market long before you find out about them. Instead, you may get slightly used, refurbished or damaged goods. The first two types are relatively easier to sell, especially since they may be in demand by secondary markets.

However, damaged goods are too taxing as you may need to fix them before you can start selling them. If you choose to invest in a damaged goods lot that is hardly in demand, you’re bound to lose your money at the end of the day. If you still seek a round figure, expect to pay up to $200,000 for pallets containing over 1,000 electronic appliances and gadgets from across different brands. However, for this price range, you can easily expect a profitable pallet since unused customer returns are what cost the highest.

Warehouse Fees

Since you’re at the beginning of your journey through the liquidation industry, you need to have a safe place for your goods. Now the average asking rent is $4.75 per square foot, but you should focus on the additional valuable services before signing the dotted line.

For instance, you’ll need excellent security features and insurance in case your goods are stolen. These, of course, mean more money, but they’ll be worth every cent since your merchandise cost more and is your only source of income at the moment. So, ask your local warehousing company how much they charge for the necessities and crunch the numbers before comparing its quote to others near your office.

Marketing

As a new business, expect your marketing budget to be as much as 50% of your sales. This, of course, will go down to 30% once you establish your position in the market. However, the initial cost will be hefty, especially of you decide to include print and broadcast advertising and print materials like brochures and newsletters.

This is why most people shift to online marketing and content marketing. While these aren’t completely free, they are less expensive and more cost-effective than traditional marketing methods. Now you can decide to forgo this cost altogether, but

Now you can decide to forgo this cost altogether, but you’ll be compromising your sales in return. After all, when no one knows about your business, how do you expect them to trust it, let alone buy from it? So make sure that you start marketing your brand the right way to increase your online exposure.

How to Save Up While Setting Your Liquidation Business

The costs of starting your own wholesale liquidation business may sound too much. However, everything you have read so far are estimates for each main cost. Luckily, you can decrease these to a more reasonable number with the help of a few tips.

How to Save on Office Expenses

If you can’t afford an office right away, choose a virtual setting and employ others who can work from home. This will help you pay your employees more without worrying about niggling expenses like coffee costs, office furniture, and utility bills.
If you still want to have a physical office, furnish it with the help of online bargains or second-hand equipment that delivers up to your expectations. You can upgrade everything later when your profits start reeling in.
Buy furniture and equipment from businesses facing liquidation. You can check your local auctions guide or scout office clearances.

How to Save on Communication Channels

Before investing in an internet provider’s services, compare their rates and services with others in your area. If you find a company that beats their offer and is known for its reliability, go for its services instead.
You can drop your home phone or the idea of owning a landline altogether. Instead, get a VoIP box and have it divert your calls to your cell phone. You can also go for 1-800 number services as these are more professional and cost-effective than a local number.
For your cell phone bills, check with your provider to find a plan that would allow you to make maximum calls without adding to your phone bill.

How to Save on Your Merchandise Costs

To reduce the cost of your liquidation merchandise, always avoid buying it from the first seller you meet. Look around and compare prices to find the best value for your money.
Work on developing relationships with different sellers. The more often you buy from one, the less they’re bound to charge you in the future. This is why it’s important that you find a reputable liquidation merchandise seller first.
Don’t start buying bigger lots before you gain ample experience. Start small and work your way to the top. Doing so will allow you to gain experience and collect profits to use for future purchases.
Start with refurbished products or slightly used ones as these won’t consume much of your capital. However, if you find a pallet of consumer returns within your budget, don’t think twice before investing in it.
Buy surplus liquidation products in January. This will help you save money since many customer returns are made directly after the holiday season. In addition, stores and liquidation merchandise providers alike will be aiming to sell their inventory quickly to make room for new products.
Research as much as possible about the type of products in demand these days and what your customers expect from you. Doing so will prevent you from investing in unnecessary merchandise that would sit in your warehouse for months.

How to Save on Warehouse Fees

One of the best ways to save on your warehousing costs is to choose a warehouse that is close to your offices. That way, you can cut down on transportation expenses and lead times.
Again, you need to compare prices in order to find the right warehouse that offers you multiple advantages in one go.
Make sure that the space that you get is sufficient, i.e. not too large or too small. If you go for a larger warehouse space, you’ll be charged a lot more than you should.
Try avoiding storing merchandise for a long time. The longer you keep your goods there, the more you’re bound to pay. You can always learn a few tricks to quickly sell any slow-selling products you have in your storage unit.

How to Save on Marketing

The best way to save on marketing is by hiring a professional to handle it for you. If you decide to tackle this on your own, you’re bound to make mistakes that will hinder your goals. So consider investing in professional marketing methods.
Use inexpensive alternatives such as social media platforms and WordPress for your website. These will reduce your marketing bills immensely while pulling off your online marketing goals.
Have a marketing plan in hand to ensure that your promotional messages are more direct, precise and effective. Without a well-designed and detailed plan, you’ll end up spending more than you should.

Parting Words

Starting any business isn’t easy and breaking into the flourishing liquidation industry is just as hard. However, with the right guidance, you’ll be able to make it in this competitive business. Finally, remember that you have to spend money to get money, so don’t be a scrooge and spend wisely on the essentials.

Henley Johnson

Henley currently works as a sales representative for Direct Liquidation, assisting businesses with product sourcing of liquidated merchandise from the largest retailers in the world. Whether you are looking for a pallet or a truckload Henley is here to help you grow your business.

View Henley’s Bio on YouTube.