FYI - Average Dealer Markup above CDN Ask seems to be 21%

[Houston Investor]

I use this figure as a basis or tool for retail pricing of inventory as I like my inventory valuation / analysis based on CDN. I have found this to be CDN ask + approximately 21% based on dealer ads from numismatic publications and price lists they have sent me (about $250 k worth, hundreds of coins, many different dealers. I have quite an extensive excel spreadsheet anlyzing this so far. This computes to CDN bid + 31%. To me CDN Bid represents standard inventory value (similar to standard cost) while ask represents replacement cost. INVENTORY COSTING EXAMPLE: You purchase coin AA in year 1 at $120 (CDN Bid = $100). The additional $20 is expensed to the commissions account. At year end coin AA has not sold but bid had increased to $135. You then book a positivie reval entry to DR Inventory $35, CR Reval $35 - taking the $35 Reval to Book P&L and now coin AA reflects an inventory value of $135. At a show in year 2 you sell coin AA for bid + 5% to another dealer for $142, booking $7 to Operating Income.

 

While I deal in investment rare coins and currency a great deal of my other income is from financial consulting (Chemical Industry) and I teach college level accounting classes (I have MS in Accounting). I also have investment income from long term and short term bond and equity investment. Consequently, as a financial analyst, and since taking tables at shows in 1990 plus operating a web site, I have developed a fascination with rare coin business accounting methodology and pricing models.

 

This 21% is an average number as there have been some wild swings - one guy had his 1914-S PCGS 65 Saint at 51% above ask while another had his 1902 PCGS 64 Barber Half at 48% above ask and a 1923 MS 65 Peace Dollar at ask + 8%.

 

I input the name of the dealer, description of the coin (s) his selling price and then CDN Bid and Ask along with source data of the ad. I have been maintaining this spredsheet for sometime but the average pct has remained constant. Many of these coins are picked at random from a pricelist, ad, etc.

 

Example: CDN Bid / Ask for coin A is 900 / 1000. 1.21 x 1000 = $1210 computed retail. So if you have coin A in your inventory (same condition) then your asking price of $1195 lets say is probably competetive with other dealers. I realize there factors like luster, eye appeal, strike within the grade range here but what I am seeking is a ballpark percentage in my analysis. Of course the toning crowd is going to jump on this and say "way too low."

 

When I discussed this with a dealer collegue who is mainly a show dealer he asked if these people had shops (he says the 21% markup seems too low) as he has to pay at least bid for everything he sells and it takes a markup of 40% to make it in the coin business he says implying that these guys have walk in traffic wholesaling these coins significantly below bid (consequently they are possibly able to sell their stuff much more above replacement cost than just 21%). My intent here is not to define what is an appropriate markup (heck 100% is not uncommon in many retail venues) but what is a good benchmark to price inventory compared to what others are selling theirs for. Consequently if you have to price yours at x to be competetive, then considering your overhead costs, what is your "buying it right" target.