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Why Do Coins Cost So Much?

Tom Becker


I once had a customer explain that a certain dealer needed to charge more for their coins because they had high overhead costs. I found this statement to be bordering on the absurd. I think it's foolish to ever think the customer is responsible for supporting some dealer's lavish life style. No dealer deserves to profit simply because they are in business. That said, as coin consumers it's important to understand how the escalating cost of doing business directly impacts what we all are paying for coins.

Proof Sets & A Tank Of Gas.In general, I think it's fair to say that when expressed as a percentage, dealer profit margins have declined and are continuing to do so. That there is no shortage of coin dealers suggests the occupation remains attractive. Rising coin prices have, in many cases offset shrinking profit margins. No matter how you care to look at it, 20% of 100 is more than 30% of 50.

Not long ago, I did some consulting work for a major U.S. coin company and in the process learned that this particular firm was losing money every time they processed an order for less than $75. My first reaction to this analysis was to look for waste in the system. I reviewed hundreds of transactions and could find no way to trim processing costs. The fulfillment employees were doing an excellent job for average wages. The packing materials were already marginal. Nothing was being sent using an overpriced transportation option. The credit card company was giving one of the best possible service rates. When I broke the news to the CEO they were predictably distressed. Pay less and sell for more was not an option as this possibility had been continually explored. The intelligent thing to do was to discontinue selling certain types of coins and thus ignoring the interests of some current customers.

The Cyberspace Trap!Many coin people expected affordable website venues and electronic trading networks would streamline the coin business. Overhead costs would be reduced for the seller's and some of this savings would be passed along to the customers. Based on my experience and that of others I've spoken with, these projections have not come true or resulted in significant savings.

It can take an enormous amount of time to maintain an electronic price list. Customers who were once content to receive a modest printed list now want to see high quality images of every item offered for sale and they don't hesitate to ask that additional scans be sent to them. This may be fine for those dealers who are selling $1000 and up coins and making a 35% profit, but it can make selling less expensive coins at fair prices quite a marginal activity for some dealers. I know of several dealers who have shut down web sites after learning this supposedly great sales tool was costing them too much money to use.

Coin Shows To The Rescue!If you'd asked me a decade ago I would have said the traditional coin show would be a fond memory by 2004. Exactly the opposite seems to be the case. At least where I live in the Northeastern United States coin shows are flourishing. Surprisingly, even some of the “big name” dealers in the region are finding it attractive to take bourse space at these shows. The guy who couldn't afford to sell modestly priced coins through the mail now has a couple of employees attending a coin show every Sunday.

Doing business at shows has always made sense. Now it has become an even more attractive way to do business. Buyers and sellers are able to meet face to face. Because the potential buyer is viewing the coin, photos aren't necessary nor is a printed or electronic price list required. Customers at shows seldom expect the dealer to take a credit card as payment and so those services charges are avoided. The dealer doesn't need to worry about packing the coins and shipping them. An associate told me that at a typical Sunday show he easily saves $100 in postage and insurance costs and this more than offsets the $50 he pays to rent a bourse table. At shows, most sales are considered final and so the dealer needn't be concerned about spending time and money processing a return.

The rising cost of doing business and declining profit margins has prompted a good many dealers to offer some of there best deals to customers wishing to do business at coin shows. This hasn't always been the case. During the heyday of the numismatic mail order business dealers could affordably reap an extra 15 or 20% profit by “retailing” coins. For all but a few rare coin firms those days are gone.

 

Tom Becker is a regular contributor to the Canadian Coin Reference Site, you can direct your questions directly to Tom easily by E-mail:tom@tombeckeronline.com or visit Tom's website @ http://www.tombeckeronline.com

 




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