So here’s is another one of those questions that some people will ask but don’t always have the greatest answer to, and not for any fault of their own.
You see, there really isn’t any one great answer to this question that will cover all bases equally and effectively.
The fact of the matter is that there are as many different pawn shop operations as you might expect and as a result, there are all sorts of varying degrees of profitability involved in the pawn industry.
As such, there is no real way to give you one answer that is going to tell you exactly how much you can expect to earn or make if you were to open and run a successful pawn shop.
So instead, what I’m going to do is tell you some of the different ways in which pawn shops do make money and hopefully you will be able to take that and expand it to your own vision of how you would want your pawn shop to run and determine how much you could make from there.
Pawn Shops Make Money From Loans & Buys
The first source of income that we will talk about when it comes to pawn shops is the loans and loan balance. After all, when you run a pawn shop, making pawn loans is going to be one of your main focus areas in your daily operations.
When someone comes into your store to make a loan on an item, typically speaking you are going to be lending them roughly 40-60% of whatever you think that you would be able to resell that item for in the future should you have to.
That’s a figure that you can pretty much run with across the board. It doesn’t matter if we are talking about electronics, tools, jewelry, etc. Maintaining that range will help you pay for any additional expenses that arise from the possibility of having to sell the item(s) such as repair, cleaning, or online sale listing fees.
At the end of the day, you can expect to earn a 15-25% markup on the items that you take in on loan, default and that you have to resell at a later point in time.
Now, the other side of this is just because an item came in on a loan doesn’t mean that you are automatically going to get to resell it at a later point in time. The truth of the matter is that most people who make loans on items want to come back and get them at a later point in time.
In doing this, you are going to be collecting between 3-25% interest on the loan balance every month. So if you pawn shops has $500,000 in loans out on the street, then you should be collecting roughly $15,000-$125,000 a month in interest. Of course, that isn’t always going to be true because you are going to have people that don’t pay on their loans – and those are the ones that get forfeit and you turn around and sell the items at the already stated 15-25% markup.
Now when we are talking about buying items, typically speaking you are going to be paying a little more for the inventory than if you had just made a loan on it. That’s done for a variety of reasons, but in these case, expect to pay closer to the 60% expected resale value.
That will then in turn mean that your profit margin on the items you resell may be slightly less – and I say MAY for a reason.
You see, when you take something in on loan, you are going to have to hold it for at least a few months. In some cases, people will pay the interest on their loans for years and then one day just decide to stop and then you can resell the item.
But at that point in time, the value of the item may have decreased and so will your profit margin on the sale of that item.
However, the flip side of that is that you will have collected interest on that item during the entire time that they were paying so you will end up on top no matter how you look at it.
On the other hand, when you buy an item, you typically only have to hold it for a week or two depending on your state’s laws before you can resell it. In that case, you will have a much more clear idea of what the real resale value may be and you can protect your profit margin slightly better in knowing that.
Other Services Pawns Shops Make Money On
That’s of course not to discount the fact that pawn shops make money on a variety of other potential services that they offer in addition to just pawn loans and the sale of merchandise that has forfeit from those loans.
For instance, there’s check cashing that you can typically make up to 3% of all of the check you cash. So if you cash $100,000 in check a month, you will end up adding $3,000 to your bottom line pretty easily.
In addition, there’s services such as Western Union that will pay your pawn shop for sending funds and that will of course add up at the end of the year to increase your pawn shops profitability.
You can also add in services like cell phone activation (which pays very well), bill payments services, faxing services, copying services, etc.
At the end of the day, your pawn shop can make as much money as you want it to assuming that you can generate the customer base for it.
Thinking About Opening A Pawn Shop
If you are considering opening a pawn shop then head over to Successful Pawnbroker and check out what’s offered. You will be doing yourself a real favor.
It’s said that if you want to be successful, find a successful mentor and that’s exactly what Successful Pawnbroker is all about!
WordPress junkie, music lover, and consumer of all things pizza-oriented. I’ve run pawn shops and check cashing operations for years. I developed the most successful digital marketing marketing strategy for pawn shops known to date, and flip items on eBay for fun.