Dealer mark-ups on trade-ins?

TrevinDevon · May 2020

Is there's any sort of standard mark-up policy among dealers who accept trade-ins? I'm looking to put in an offer on a pre-owned instrument (it's priced in the £1.5 to £2k range), but it would be useful to know roughly what they might have paid for it. Have you traded an instrument and then seen it in the dealer's window for a lot more than you got for it? (Or I guess I could just wait for what I'm after to appear on here

)

fretmeister · May 2020

I don't think you can tell with any accuracy.

Sometimes the trade is value was really cheap because the person selling wanted rid. Sometimes the item increases or decreases in demand after the trade in.

Different dealers also have different overheads, and sometimes an instrument just needs a polish, and others need a deep clean, new strings, repair something minor etc.

And that's before we get to whether vat is on it or not.

But compared to ebay and private sales I would expect the same used instrument in a shop to be 25% more.

If I was you, I'd search ebay completed listings and compare with that.

markj · May 2020

I traded in a Gibson es335 in part ex for my Martin HD28 in January at Frailers in Runcorn, I was given £1800 for it. Frank at at Frailers sold it for £2000 around a month later.

Andy79 · May 2020

I talked about a trade with PMT, was offered around half market value. The guy advised me to sell privately

domforr · May 2020

I discussed trading my 1966 Gibson J50 at a Denmark st shop and he said he'd give me £1000 for it - also suggested selling privately. I think some of them have a big mark up.

FelineGuitars · May 2020

I think someone on here explained it like this
£1000 new value guitar

Seller gets £350 in trade in or sale to shop
Shop will sell for £700 (might get knocked down though)

HMRC will take £117 as VAT
leaves the shop £233 (assuming they didn't discount it)

This may pay towards shop staff wages & NI, rent, heat & light, phones & internet & website maintenance, business rates, business insurance.

Shop owner would have to do a lot of trade to get a Ferrari though

TrevinDevon · May 2020

Thanks for the replies. Rather a mixed bag, then. I hadn't thought about VAT, I must admit. Perhaps the best course would be to offer the eBay price with 5% or so on top for the fact that a good dealer shouldn't be selling a lemon and/or will offer a warranty and gauge the response. Of course, dealers have overheads that private sellers don't, and ultimately it's about subjective valuation on both sides.

Strangefan · May 2020

Try Facebook selling groups, I have had alot of luck there, a lot of people will say theirs a lot of time wasters etc but tbh every selling site is the same these days and they all have lowballers scammers or time wasters, and you don't get a particular sort of person using one or another, so you may as well try them all.

CMW335 · May 2020

Had good and bad offers in the past

GuitarPoint in Germany gave me €4200 trade in value on a 1962 J45 which was a lot more than I was selling it for on here.

Another reverb dealer only the eu however offered £3k for my 59 Tele refin which I sold for £8500

What is it you are buying and what are you trading in? Might find the same deal on private market

TrevinDevon · May 2020

CMW335 said:

Had good and bad offers in the past

GuitarPoint in Germany gave me €4200 trade in value on a 1962 J45 which was a lot more than I was selling it for on here.

Another reverb dealer only the eu however offered £3k for my 59 Tele refin which I sold for £8500

What is it you are buying and what are you trading in? Might find the same deal on private market

Like I say, subjective

I'm not trading anything in, just buying used and trying to get an idea of the wriggle room.

TrevinDevon · May 2020

Strangefan said:

Try Facebook selling groups, I have had alot of luck there, a lot of people will say theirs a lot of time wasters etc but tbh every selling site is the same these days and they all have lowballers scammers or time wasters, and you don't get a particular sort of person using one or another, so you may as well try them all.

Yes, I do monitor fb and every other site I can find, both commercial and private. A dealer has just come up with what I was hoping to buy, though at more than I was hoping to pay, hence the OP.

FatPete · May 2020

FelineGuitars said:

I think someone on here explained it like this
£1000 new value guitar
Seller gets £350 in trade in or sale to shop
Shop will sell for £700 (might get knocked down though)
HMRC will take £117 as VAT
leaves the shop £233 (assuming they didn't discount it)
This may pay towards shop staff wages & NI, rent, heat & light, phones & internet & website maintenance, business rates, business insurance.

Shop owner would have to do a lot of trade to get a Ferrari though

Most dealers will use the second hand margin scheme where VAT is only paid on the profit. In this example it would be £58.35.

ICBM · May 2020

Impossible to tell - it could be anything between about half the marked price right up to the marked price, if it was traded in against a much more expensive item the shop was desperate to get rid of...

Don't try to second guess, just make a decent offer and see what they say. You will not win the argument by trying to work out what they paid for it and then add on what you think they should be making on it.

TrevinDevon · May 2020

Makes sense. Thanks.

Tex Mexico · May 2020

I've never talked about a part-ex to a reputable shop where they haven't told me to sell it privately for twice what they could offer. Even if they are taking your £2k guitar off you for £750, they'll still make very little on it and most shops, especially those who mainly deal in new stock, don't necessarily want to have stock in they haven't selected.

They will do it however because it is technically profitable, but in the main I've been offered the highest (as a percentage of RRP) for a Les Paul Classic, as it would sell quickly, and the lowest for some BC Rich thing which would clearly have hung around gathering dust for months.

FunkyGibbon · May 2020

I’ve sold a number of guitars through a local shop on concession and also on Denmark Street. In both cases, we discussed how much I wanted for it and then in D St they sold it for the best price they could get and paid me what we’d agreed. Locally we set the price together and I paid them a commission which I think was 10-15% of the final sale price.

artiebear · May 2020

I used to spend hours trying to work these things out. In the end, its a) how much margin is in the FS item b) what's yours worth s/h c) how long FS been on sale, ever decreasing margins d) how much cashflow does your retailer need e) is your retailer an optimist who thinks he can get some quick return off your guitar as opposed to the long return on his/her stock f) you have a hugely rare /vintage piece that you are, obviously unaware of, then they might offer you ( after looking into your eyes ) 30% of the going rate

In truth, no issue with the guys who deal, there are more good guys than bad 'and a lot of them love guitars, which is a good thing.

koneguitarist · May 2020

I dont have a music shop anymore, but so many reasons why listed above. Most of you want guitar shops, but don't want them to make money out of you?

DB1 · May 2020

My experience is about 40-50% markup for the store on a straight sale to them.

GuyR · May 2020

Never any harm in making a bid in a polite and respectful way. I would avoid any kind of entitled one-sided rationale which is likely to antagonise the seller and make them less likely to be flexible.
Good will is the most under rated factor in striking deals.

TrevinDevon · May 2020

@Tex Mexico Although if they've taken your £2k guitar for £750 and sold you a full-price £4k brand-new one, they've presumably made the same profit if they sell yours for £750 plus any overheads as they would have done if you hadn't traded it in. If they sell it for more than that, then they've made a bit more.

@FunkyGibbon Good to know, although consignment and trade-in are different, of course.

@artiebear Of course, business is business, and bargaining is bargaining. I don't think anyone is trying to rip anyone off 99% of the time either, but both sides need to be happy with the deal.

@koneguitarist I don't think anyone is saying that. If dealers didn't make money we wouldn't have anywhere to buy our instruments from. Nothing wrong with a level playing field, though.

@DB1 Perhaps that's to be expected on a straight sale, though. No profit to them until they sell it, whereas on a trade-in the profit has been made already.

@GuyR Well said, and that's really the solution, I think. Bid what you're prepared to pay, and if the dealer agrees, happy days. If not, don't cry about it. No different from eBay.

Tex Mexico · May 2020

TrevinDevon said:

@Tex Mexico Although if they've taken your £2k guitar for £750 and sold you a full-price £4k brand-new one, they've presumably made the same profit if they sell yours for £750 plus any overheads as they would have done if you hadn't traded it in. If they sell it for more than that, then they've made a bit more.

That's true, but the key here is it takes longer to get thst £750 (or more) if you take that value in stock. That's not good for cashflow, which is the beating heart of any business, retail or otherwise. As a business you want to get your stock out of the door at the expected margin, not to take a chunk of that margin in material you then have to resell.

I'm a purchasing manager, this is a calculation I have to make every day.

FunkyGibbon · May 2020

You’re right that consignment ant trade in are two very different trading models. On reflection:

I guess my point is that ‘you pays your money and takes your choice’. If one opts for a trade in and accept the offered value one forfeits the right to object to whatever mark up the shop is able to make because one accepted their offer with ones eyes wide open.

It’s different if one have good reason to believe one has been defrauded e.g. one was offered £3.50 for your mint 1934 Martin D18 because it was ‘a 1960’s ‘law suit’ knock off.’

in order of value received, like used cars it’s:
private sale - highest yield
concession sale - predictable yield
trade in - lowest yield

If one accepts trade in the shop is entitled to make the best out of the deal. Presumably, in taking the trade in one is considering that to be the best deal.

shufflebeat · May 2020

Andy79 said:

I talked about a trade with PMT, was offered around half market value. The guy advised me to sell privately

That tallies with my experience, seems to be a formula for them.

pjf · May 2020

If you look on the North American Guitar site it tells you no VAT is payable on pre-owned instruments. I don’t know how it works or whether that means the shop doesn’t pay VAT either.

Strat_a_tat_tat · May 2020

pjf said:

If you look on the North American Guitar site it tells you no VAT is payable on pre-owned instruments. I don’t know how it works or whether that means the shop doesn’t pay VAT either.

If you're in the UK, VAT is payable on pre-owned instruments sold by dealers (the amount depends on the method option being used by the dealer). Dealers don't get to pick and choose if they pay VAT on a sale.

Whitecat · May 2020

I wonder if what they actually mean is “VAT isn’t deductibe” - someone with a VAT number obviously doesn’t pay VAT on a new item, but if they are operating on the so-called “margin scheme” then the VAT must be paid, it cannot be deducted from a sale.

ToneControl · May 2020

markj said:

I traded in a Gibson es335 in part ex for my Martin HD28 in January at Frailers in Runcorn, I was given £1800 for it. Frank at at Frailers sold it for £2000 around a month later.

bear in mind that Frank's overheads are as close to zero as is possible

guitars4you · May 2020

Whitecat said:

I wonder if what they actually mean is “VAT isn’t deductibe” - someone with a VAT number obviously doesn’t pay VAT on a new item, but if they are operating on the so-called “margin scheme” then the VAT must be paid, it cannot be deducted from a sale.

We all/should use the margin scheme on used gear - Effectively the dealer pays the vat and not the customer - No vat is reclaimable as part of the margin scheme - If I make £200 profit on a used guitar HMRC acquire £33.33 and the rest is mine - Even if you are a vat registered business you can't claim this £33.33 back - Ditto for overseas sales outside the EU as well - Only applicable to the margin scheme

guitars4you · May 2020

I can't answer the question based on what is the mark up as it is not a fixed format for me

If I buy a guitar from a customer, then I will make more profit than I would if it is a part exchange - But how much I make will depend on a few factors
a) - How much I want your guitar
b) how quick I can potentially sell it
c) A more expensive guitar then instead of making say XYZ profit, then I might accept a fixed amount of money - ie 10% on a £100 guitar is not worth bothering with - But 10% on a 10K guitar is a different proposition, so a 1K profit might be healthy at times

If the guitar is acquired via a part exchange - Then again what you are trading in + how quick I can sell it will come into play - Also how much money is coming in, along side the trade in, to enhance my cash flow - How much profit I'm making on the guitar I'm selling you - As an example ;- If you are buying a £3500 new C/Shop Fender and trading in a guitar that is worth say £500 for me to sell - On such a transaction I might well allow £400/450, as you will be paying me an additional £3000, so if I can get the £500 back on your trade in, it might be acceptable to have a small profit on the trade in, but quick cash flow

I think if a store tells you it is worth 50% of the potential selling value on a trade in, it's because it is a company default policy that is easy to teach/administer, where often the owner is not involved with the day to day activities of that business - Otherwise you try and teach your staff about the ability to negotiate a trade in, coupled with the skill/knowledge to know what all the potential trade ins are worth - I've done this job for over 40 years and only have so much knowledge - If you wanted to trade in a 7 string custom built guitars with fan frets and a host of weird options, then I would not know its value - So how do you expect a new kid in a shop on a low wage to know - I think this is partly the reason stores like Dawson's no longer accepted trade ins - Effectively offering 50% of its resale value as a company policy, is either an insult, or a 'go forth and multiply approach' and effectively means we don't want the trade in, or don't have the ability to educate our work force to concoct a deal that works for both parties

icu81b4 · May 2020

So What's the VAT position on commission sales? If I sell a guitar privately, I don't have to pay VAT, but if I ask a local guitar shop to have 'my' guitar in his shop window, and my guitar sells, and I then give him 10% - Does that 10% qualify for VAT? - just curious.

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