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Customer returns: How to estimate profits before buying a truckload

The first question asked by individuals entering the liquidated merchandise business is often, “How much will I make on a load?” While we would love to give you a concrete answer, there are simply too many variables to consider when determining profits. Location can play a huge role in profits and losses. For instance, a load of tools and equipment may sell extremely well in rural areas, but may sell poorly in the cities where the demand is lacking.  However, the final results will be determined by the methods used in marketing the individual items. AML account specialists will help you find the load that is right for you.

Formula for estimating profits

While we can’t give you a hard and fast rule for the profits you’ll make on a given pallet or truckload, there are some general guidelines you can use when considering a purchase. When dealing with liquidated, distressed merchandise, there will always be an estimated amount of the load that must be repaired or thrown out, which we refer to as the “Waste Factor.”

The Waste Factor is determined by information provided by previous buyers of similar loads and through our own inspections. Some products may be broken, missing parts, torn or soiled – all of these circumstances play a role in determining the waste factor. A waste factor of 20 percent means that you can expect to discard 20 percent of the total load, retaining 80 percent for resale. This percentage varies with load types.

How can you profit when 20% of the purchase is discarded?

Example 1: We will use a manifested load with $80,000 retail. The purchase price is 10% of this amount, ($8,000). The Waste Factor is 20%.

Cost of goods

Load value                     $ 80,000 retail
For Manifested loads there is an estimated Retail Value or Wholesale cost value. The purchase percentage will vary with load types.

Purchase price             $ 8,000

Freight                           $ 2,000
Varies pending FOB point and your location.

The initial investment  $10,000

Income projections

Pending the success of individual marketing methods.

Retail value                                 $ 80,000

Less waste Factor (20%)    –    $ 16,000

Suitable for resale                     $ 64,000

Average sale 50% off retail      $ 32,000
You sell all the items at an average of 50% off the retail price.

Less initial investment             $ 10,000
(cost of goods)

Gross profit                               $ 22,000
(less expenses, to determine net profit)

Note:  If the waste factor happens to be less in the end, the profits will be greater.

This information is provided for the use of those who are new to the industry. This information is for illustration purposes only. Remember there are many load types with varying cost percentages and waste factors. Your account specialist at AML will provide the information you need to assist in your decision making process.