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Most readers might not know that for the past 10 months I've been working as a Value Engineer for a major company. In this role, my job is to look at the parts we currently use and find ways to reduce the cost without impacting the quality or functionality of the parts themselves. So far, I have found it to be an interesting crossover between my natural love of engineering and my acquired love of everything financial thanks to my past nine years in the Magic: The Gathering finance realm.
Calculating Profit
One of the big challenges I face at work every day is defining the true cost of a part. For us, the actual factors that go into that valuation can differ based on whether we purchase the part or make it ourselves. Lately, I have seen parallels between that work and my Magic finance life. It's made me wonder how we in the Magic Finance realm calculate our "true cost" of a card.
Profit = Final Sale Price - Total Cost to Sell a Card - Total Cost to Purchase a Card
Ironically, calculating the profit is easy if you have a good understanding of the two total costs listed above.
Total Costs To Selling a Card
Total Cost to Sell a Card might include factors like:
- Final Sales Price
- Selling fees
- Marketplace fees
- Transaction fees (like PayPal or credit card processing)
- Shipping Costs
- Envelope/Bubble Mailer
- Stamp
- Printer Ink
- Paper
- Tape
- Shipping Fees
- Taxes/Tariffs
- Federal
- State
- Local
- Labor Cost
- Either the cost of your time or that of an employee to sort and list your inventory.
- Either the cost of your time or that of an employee to collect the items in the order as well as pack said order.
- Either the cost of your time or that of an employee to manage your inventory.
- Either the cost of your time or that of an employee to deal with customer issues.
Total Cost to Purchase a Card
Total cost to Purchase a Card might include factors like:
- Final Purchase Price
- Transportation cost
- Cost of getting the card to you.
- Shipping costs
- In person travel costs
- Cost of getting the card to you.
- Packaging costs (if these aren't baked into the final purchase agreement)
- Labor Cost
- Either the cost of your time or that of an employee to review potential buys
- Either the cost of your time or that of an employee to grade cards before purchase
- Either the cost of your time or that of an employee to price out each potential card
- Either the cost of your time or that of an employee to review potential buys
- Taxes/Tariffs
- Federal
- State
- Local
- Warehousing/Storage cost associated with operating a business (this could fall under either category depending on your choices)
So Now What?
First, I want to make sure that everyone is aware that not all of the items listed in the section above may apply to you and your business. The main purpose is to highlight that they COULD be relevant.
The biggest issue I see a lot of small business owners making, especially those who operate a fully online business with no other employees, is that many of these factors get ignored. This causes many of these store owners to wonder where all their profit is, and many times, they operate in the belief that they will just need to raise their selling prices and lower their buying prices. While that may work in an environment with little competition, thanks to the world wide web, my little home-based TCGplayer store is directly competing with well-known stores with big names and lots of employees.
Death and Taxes, But Mainly Taxes
As I stated in my article back in April, while we at QS always advise everyone to operate above board, I know plenty of small-time sellers who do not report this additional income on their income taxes. At least here in the US, this is no longer an option as of 2022. The marketplaces you sell on are required by law to report any accounts in which the total sales exceed $600. This rule has been in effect for quite some time, though prior to the passage of the "American Rescue Plan Act of 2021" the limit was $20,000. I suggest you read over my previous article covering all this information as 2022 is almost upon us. For additional information regarding taxes on collectibles, I suggest at a bare minimum you read over this article from Investopedia. For many of the small-time sellers, this change is likely to mean that you will now have your profits reduced by 28%.
A True-Costed Example
As I like to teach by example let's look at Ydwen Efreet
Let's say you bought a copy back in early 2017 for around $28 from a friend. You looked it up the other day and saw it's now sitting at $151, so you listed it and sold it. You didn't get $151. You lost $23 to TCGPlayer fees + shipping it in a bubble mailer with a top loader.
Profit = $151 (Final Sale Price) - $23 (Fees + Shipping costs) - Purchase Price ($28)
Going forward, in 2022 you will need to include the collectible income tax of 28% which gets taken out of the profit line. So what would have been your profit of $100 is actually $100-$28 0r $72. Arguably it was always $72, but there is a reason that the backpack traders are able to pay more than most store's buy lists and sell for near TCGPlayer low. In 2022 they will not be able to do that without a massive tax bill in 2023.
Knowing this information now, for those who plan on continuing operations next year, the 28% tax from your profits will need to be baked into your buy and/or sell prices.
Conclusion
While I didn't really want to harp too much on the change to the tax rule that I already covered back in April, the key takeaway from this article should be to encourage all sellers to review their costs and get a better understanding of all their business costs. Hopefully, some of you find new factors that you need to account for so that you can track your profits more accurately moving forward.
