Profit <> Net
Guitar flipping is fun – but you want it to be profitable too. When deciding on what price you should pay for a guitar, there is one number that is almost set in stone – the price the guitar will sell for.
Sure, you’re going to add value by installing new strings, doing a setup, cleaning, polishing, etc. But there’s a limit to how much any particular model/color/condition guitar will bring.
(Part of the problem with this limit is that most guitar players don’t realize the value of a good guitar setup. Part of your job in marketing will be to sell that value.)
Guitar Prices Reference Guides
You need to open a (free) account on Reverb. You’ll then have access to Reverb’s “Price Guide”, which shows the price ranges for various models, over a period of time.
eBay’s Terapeak product research tool (link above) is stunningly awesome! You can filter your date range, “new” or “used” and even a particular model of guitar and get recent sale prices.
After awhile, you’ll develop your own internal “price guide” and be able to bid on most guitars without referring to an outside source, but until then, do your research.
Guitar Business Overhead
Let’s say you’re looking at a Mexican Fender Strat and you’ve decided that this particular guitar is in excellent condition and should sell for $399. You want to make $75, so you’ll offer $325, right? (wait for it…) WRONG! You may have to pay $325 but you will not make $75.
Why not? “Overhead” is the reason. You’re going to drive to meet the seller, right? That’s gasoline and depreciation of your automobile (but deductible!). You’re going to clean the guitar. That means #0000 steel wool, rags, Naptha, and polish. New strings? There’s another four bucks. These things add up and if you’re unaware of these rather hidden expenses, you’ll find yourself working hard with little to show for it.
If you’re guitar flipping for profit, you have to run it like any other business. We’ll discuss bookkeeping, mileage tracking, and all that other “fun stuff”, in more detail later. For now, let’s just throw a rough estimate out of $12 overhead per guitar. We’ll call that our “pack”. We’ll pack $12 expense* onto each guitar we buy as we mentally figure how much we can afford to pay for the guitar and still make it worth our time.
* My spreadsheet actually says more like $10 per guitar – $6 for material we need to do service and about $4 for the actual trip to buy the guitar. Here’s a pdf with the cost per guitar breakdown and here’s an open format spreadsheet with cost per guitar in case you’d prefer to plug in your own figures.
Yes, that comes to just $10 per guitar, but I’d recommend adding $2 for tool replacement. As you wear out nut files, screwdrivers, etc. – and you will – you want to figure in the cost of replacing your guitar tools.
Did I mention “time”? I guess we should figure out how much you should earn per hour. You are both the boss and the employee, so you need to negotiate your wages with yourself! LOL!
Determining the Price You Can Pay For a Guitar
So let’s say you want to earn a gross income of $800 per week after expenses. That’s $160 per day. So you figure that’s $20 per hour. And let’s say you’ll spend an average of 2-1/2 hours prepping each guitar. That would come to $55 per guitar, right?
Oops – we forgot about those dang overhead things again! So we’ll need at least $65 per guitar. But wait! You won’t have seven and a half hours of time on your workbench each day. You’ll spend maybe an hour on the phone or with customers. Another hour driving. An hour on your bookkeeping and website and social media blogs.
That leaves five hours of bench-time. Now we’re down to just two guitars per day. Something has to give! Less time per guitar and/or better time management. And this is why time management is so important. Of course, we’ll cover that topic in depth later. For now, you just need to know that you can’t be off driving around checking out guitars to buy everyday. In fact, you may need to plan those days for your “days off”! Hey – buying guitars is fun – you can handle this! 🙂
By the way, you can average just an hour and a half bench-time per guitar if you’re careful buying and inspecting. We’re going to cover guitar inspections in a whole lot of detail…you guessed it – Later! (But soon – in this chapter).
The point I want to make here is that not all “profit” is “profit”. Or in accountant speak, “Gross Income does not equal gross profit, and gross profit does not equal net profit.” And we haven’t even discussed taxes yet! Sheese! So guitar flippers must have all these things in mind when buying, selling and setting prices.
For more about Hidden Expenses of Buying & Selling Guitars, click.