How much to pay for liquidation inventory

Why percent of MSRP is the wrong first question

Percent of MSRP is popular because it is easy. One number, one comparison, one answer. The trouble is that it measures your price against a figure that has very little to do with your revenue.

• The retail value on a liquidation listing may be MSRP, a retailer's original ticket price or a number from the seller's system. You often cannot tell which.
• It does not change with condition. A new-in-box unit and a unit with a crushed corner carry the same MSRP.
• It does not know your channel. The same item sells for different amounts in a showroom, on a marketplace and at a flea market, after very different costs.
• It does not include freight, which can be a small or very large share of the deal depending on distance and how bulky the goods are.
• It says nothing about time. A load that sells in three weeks and one that takes four months can look identical as a percent of MSRP.

You can still calculate the percentage at the end, as a sanity check or to compare listings quickly. Just do not let it set your price.

Retail value versus what it will sell for

Your starting number is expected sellable revenue: what the units will actually bring, in your channel, in the condition they arrive. If the load has a manifestManifest A manifest is the supplier's list of what is on the load, typically model, quantity, condition and a retail reference value., you build this line by line or category by category. If it does not, your only honest source is your own history with that seller.

Group the load by category and by condition, then put your own expected sell price on each group. Use prices you have actually closed at, not asking prices you have seen listed. If you have never sold a category, either discount it heavily or treat it as unknown.

Mix matters as much as condition. A load's value often depends on a few categories that you sell well, and the rest can drag it down. Ask yourself whether the categories that carry the value are ones your channel actually moves. A manifest heavy in items you rarely sell is worth less to you than to someone who sells them every day.

Channel matters too. The same unit can sell at a higher price in a showroom where the buyer can see it, and at a lower price with more costs on an online marketplace with fees, packing and returns. Price the load for the channel you have today, not the one you plan to open.

Working back from your resale price

Once you have expected sellable revenue, you work backward to a price. The order matters: you take out your margin and your costs first, and the purchase price is whatever is left.

Your target margin is gross marginGross margin Gross margin is revenue minus COGS, usually shown as a percentage of revenue. It is what is left to cover everything else.: the share of revenue left after the cost of the goods. It is not the same as markup, which is measured against cost. If you are unsure of the difference, read Markup vs marginMarkup vs margin Markup is measured against your cost. Margin is measured against your selling price. The same dollar of profit produces a bigger markup number than margin number. before you bid, because mixing them up is a common way to overpay.

Set the target margin high enough to pay for the things gross margin has to cover: rent, payroll, insurance, software, your own pay and room to be wrong. Your break-evenBreak-even Break-even is the sales level where gross profit exactly covers fixed costs, the point where the business stops losing money. tells you the floor. There is no universal right margin. It depends on your costs and your channel.

The result is a maximum, not an offer. You can bid lower. You should not bid higher just because the listing is popular.

Landed cost: freight, fees and labor

Landed costLanded cost Landed cost is what a unit really costs you once it is in your building and ready to sell, purchase price plus freight, handling, parts and the cost of what could not be sold. is what the inventory really costs once it is in your building and ready to sell: the purchase price plus freight, handling, parts and the cost of what could not be sold. It is the number that goes into COGSCOGS COGS (cost of goods sold) is what the items you actually sold cost you, not what you spent on inventory during the period., your cost of goods sold, and the number you price against.

The costs people leave out are the ones that break the deal:

• Freight. Distance, the type of truck, liftgate or dock delivery, and fuel all move it. On bulky goods it can change the whole answer.
• Unloading and receiving labor. Somebody counts, checks, photographs and stages every unit.
• Testing, cleaning and repair. Time and parts for every unit that needs them.
• Channel costs. Marketplace fees, payment processing, packing materials and returns.
• Delivery. If you deliver bulky items and do not charge the full cost, the difference comes out of the load.
• Disposal. Units that cannot be sold still cost money to haul away or recycle.

Divide the total by the units you can actually sell, not the number that arrived. Dividing by the manifest count makes every unit look cheaper than it is.

Condition and sell-through risk

Sell-through is the share of the load you actually sell, and how fast. Two forces push it down: condition you did not expect and demand you overestimated.

Condition codes are not standard across sellers. "Customer return" can mean unopened, used once or broken. "Scratch and dent" usually means cosmetic damage on a working unit, but grading varies. Ask what each code means in practice, and compare it with what you have received from that seller before.

Build a realistic unsellable share into your estimate: units that do not work, are missing parts or only sell for scrap. Your own receiving records are the only honest source for that number. If you do not have records yet, assume more loss than you hope for and size the buy so it does not matter much if you are wrong.

Then check the tail. If the top handful of units carry most of the expected revenue, the load is fragile. One missing or damaged hero unit and the math falls apart.

Time is margin

Inventory does not improve with age. In reverse logistics, time is margin. Every week a unit sits, it costs you space and ties up cash, and in many categories its resale price drifts down as newer models arrive and the season passes.

That is why the same load is worth less to a buyer who will take four months to sell it than to one who will sell it in three weeks. Slow sales mean markdowns, and markdowns come straight out of margin. The field guide on pricing suggests deciding your markdown schedule before you buy, so age is part of the price from day one.

Time also controls cash flowCash flow Cash flow is where the cash actually went, money in and money out, in the order it happened.. You pay for a load now and collect as it sells. The faster the cash comes back, the sooner you can buy again. That is what inventory turnInventory turn Inventory turn is how many times you sell through your average inventory in a period, COGS divided by average inventory value. measures, and why a thinner margin that turns quickly can earn more over a year than a fat margin that sits.

Watch inventory agingInventory aging Aging groups your unsold inventory by how long it has been in the building, typically 0–30, 31–60, 61–90 and 90+ days., how long unsold stock has been in the building. If a load from a seller keeps leaving units past 90 days, your price for that seller's loads is too high, or the mix does not fit your channel.

Setting your maximum bid

Put it together in one line you can write on the back of the manifest:

Then test it before you commit:

• Lower your revenue estimate by 10%. Does the load still make money? If not, you have no room to be wrong.
• Ask how long it will take to sell at your current pace, and whether you can fund the cash it ties up for that long.
• Ask whether you could buy this kind of load again next week. A one-time bargain you cannot repeat builds less than a fair load you can.

If the asking price is above your maximum, walk away or offer your number. Wanting the load is not a reason to pay more for it.