How to buy pallets for resale

Choosing categories that resell

The best category for you is one you can buy again, price without guessing and sell where you already sell. A category you know beats a category that looks hot.

Ask four questions about any category before you buy it:

• Can I tell a good unit from a bad one quickly? If testing takes expertise you don't have, get the expertise first or pick another category.
• Do I know what it sells for? Look at what comparable items actually sold for recently, not what sellers are asking.
• Does it sell in my channel? Bulky goods like furniture and appliances tend to sell locally, because they are expensive to ship. Small, light items ship anywhere, which also means you compete with everyone.
• Can I get it again? A category you can source repeatedly builds a business. A one-off lot is a gamble.

Mixed general merchandise pallets are popular with beginners because they're easy to find. They are also among the hardest to process: dozens of different items, each needing its own research, photos and listing. A narrower category can take far less work per dollar of sales, even when the pallet costs more.

Matching pallets to your sales channel

Your sales channel is where you sell: an online marketplace, your own store, local listings or bulk sales to other resellers. Each one wants different inventory.

• Online marketplaces reward items that are easy to photograph, describe and ship. They take a fee on each sale, and buyers expect easy returns.
• A physical store or local pickup handles bulky goods well and avoids shipping, but it needs local demand and space.
• Local listings can move goods quickly with little or no fee, at the cost of plenty of messages and no-shows.
• Bulk sales to other dealers move volume fast at lower prices, and are a common way to clear what's left.

Buy for the channel you have now, not the one you plan to add. If most of a pallet is items your channel can't sell, the discount doesn't matter. The field guide on choosing your first sales channel covers getting good at one channel before you add a second.

Estimating resale value

Estimate value from the bottom up, before you buy.

1. Group the items on the manifest or listing by type.
2. For each group, find recent sold prices for the same item in similar condition, in your channel.
3. Subtract the channel fees, payment processing and any shipping you'll pay.
4. Take off a share for items that will be unsellable or need repairs you won't do. Once you have your own receiving records, use them. Until then, be conservative.
5. Add it up. That is your expected net sales, the number you compare against cost.

Don't start from the retail or MSRP value. It is a reference number the seller provides, not what your buyers will pay. The guide on how much to pay for liquidation inventory goes deeper on turning this estimate into a price you can offer.

How much work each pallet takes

Your time is a cost, even if you don't pay yourself yet. Processing is everything between the pallet arriving and the cash landing: unloading, sorting, testing, cleaning, photographing, researching, listing, answering buyers, packing, shipping and handling returns.

Estimate it before you buy. A pallet of identical items needs one round of research and one listing template. A pallet of hundreds of mixed items needs hundreds. Track your hours on your first few pallets and divide the profit by the hours. If a category pays you less per hour than you would accept from a job, it isn't a good category for you yet, however good the markup looks.

Costs that eat your margin

The pallet price is only the first cost. Before you decide a pallet is profitable, add:

• Buyer fees or premiums charged by the seller or platform.
• Freight or pickup costs, which can rival the pallet price over long distances.
• Supplies: boxes, tape, labels and cleaning products.
• Parts and repairs.
• Channel fees and payment processing on every sale.
• Shipping to your customers, if you pay it.
• Returns from your own buyers.
• Storage space, and the time goods sit in it.

The costs of getting goods into sellable condition belong in 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., spread across the units you can actually sell. Selling costs, like channel fees and outbound shipping, come out of each sale. As units sell, their landed cost becomes COGSCOGS COGS (cost of goods sold) is what the items you actually sold cost you, not what you spent on inventory during the period., and 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. is what's left of revenue after COGS, shown as a percentage of the selling price. If markup and margin still feel interchangeable, 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.. They are not the same number.

Sell-through and cash conversion

Cash conversion is how long it takes a dollar spent on a pallet to come back as a dollar of sales. For a small reseller it matters more than markup, because you can't buy the next pallet with money still sitting in the last one.

Track two things on every pallet: what share sold within 30, 60 and 90 days, and how many days it took to recover what you paid. That second number is your payback time. It shows up directly in your cash flowCash flow Cash flow is where the cash actually went, money in and money out, in the order it happened..

Inventory turnInventory turn Inventory turn is how many times you sell through your average inventory in a period, COGS divided by average inventory value. is the same idea across the whole business. A lower-margin pallet that sells out in a few weeks can earn more over a year than a high-margin pallet that takes months, because you can buy and sell the fast one several times in the same period. 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. too. Inventory does not improve with age. It takes space, ties up cash and usually loses value.

When to reorder

Reorder from your records, not your memory. After each pallet, look at:

• Net result: everything collected after fees, minus total landed cost.
• Payback time: days until you recovered the cost.
• Sell-through: what share sold, and how fast.
• Hours: how much work it took.
• Accuracy: how closely the pallet matched the listing.

Buy the same category from the same source again when the result was good and the lot matched the listing. Time the reorder to when most of the last pallet has sold, not to when it arrived. One good pallet is one data point, not a trend. Give a promising source and category a few lots before you size up.

Change course when units are piling up past 60 or 90 days, when your hours per dollar keep rising, or when a seller's lots stop matching their listings.

What to do with leftovers

Every pallet has a tail: items that won't sell at a reasonable price in your main channel. Decide what you'll do with them before you buy, because the tail changes what the pallet is worth.

• Mark down on a schedule you set in advance.
• Bundle slow items into lots for other resellers.
• Sell for parts or repair, if there's a local market for that.
• Donate or recycle the rest and keep records. Ask a tax professional how to record it.

Holding leftovers because of what you paid won't get that money back. The cost is already spent. Your space and attention earn more on goods that sell.