Could You Make a Living from Stamp Dealing?

Could you make a living from stamp dealing? 

I will start by supposing that you are modest and that a “living” is as little as £25000 per year, before tax. That’s 30 000 euro or 32 500 USD. To achieve that you will probably need to achieve sales (turnover) of the order of £100 000 (120000 euro, 130000 USD). I arrive at that figure by assuming that you achieve a 100% gross mark-up on sales, so that you get back £100000 on stock which cost you £50000. But there are costs to running a business. There are the costs of acquiring stock - travelling to auctions, visiting the homes of dead collectors, etc. There are the costs of selling it - taking tables at fairs, running a shop (forget it!), advertising, paying commissions on sales on ebay or at auction, travel and hotel costs, postage and stationery - I include postage and packing costs within the gross turnover. There are the more or less fixed overhead costs of websites, telephones, office space, an accountant to sort out VAT and digital tax returns, insurance if you are so inclined. In my experience, it will be impossible to get all those costs below about a quarter of turnover, so £25000 - which then leaves the £25000 pre-tax profit I set as the lower threshold.

So if your working year extends to 50 weeks, you have to sell, on average, £2000 worth of material each week, every week. If you work a 40 hour work, then you need to be selling £400 every day, £50 every hour of your working week. How is that possible? Leave aside for the moment working 60 hours each week…. working 40 hours, you are earning for your time and effort the grand sum of £12.50 per hour, before tax. It's easy to reduce that hourly rate, harder to increase it.

In the UK there are dealers who travel around the country attending small stamp fairs. Table costs are often low (£25 - £100) but so is turnover - £500 might be acceptable to someone with a small stock and the cheapest table; a bigger table and £1000 would be rather better but still implies two fairs each week, every week - and an awful lot of travelling and bad food.

An online shop would need to show a very big range online to turn over £2000 each week, which is why most online shops offer more expensive material to cut down the number of transactions needed to achieve the sales target.

Buying in bulk and breaking down for resale at auction is another possibility but requires enough capital to contemplate large purchases and confidence that they can be profitably broken down, one way or another.

And so on. I think you will get the picture; it’s not going to be easy to make a living from stamp dealing even if your “living” is as little as £25000. 

I am lucky that I started up as a full-time stamp dealer when I already had a pension from past employment. When I got to 65 and added to that a state pension, I took the opportunity to reduce the scale of my business. In the UK, there is a very high registration threshold for VAT - currently with turnover under £85000, your business is exempt from VAT; you neither claim it back or pay it. So I scaled back to under the threshold (which, remarkably, has gone up every year since I scaled back). 

It does mean that I cannot make a “living” from what I now do, but I don’t have to. But I still work long hours to achieve the turnover I aim at.

The stimulus to writing this Blog post was the fact that the UK tax year has just ended - it runs from April to March, not January to December - and I have just assembled my draft calculations to pass to the accountant who does the fine tuning which tells me in due course how much net profit I have made and how much tax I will have to pay on it. I already know that it wouldn't be enough to live on.

Thinking of Becoming a Stamp Dealer?

Well, it can be fun .... But here are three things to think about:

1.
You are probably thinking about a one-person business. Now, a one-person business can only be as good as the one person. If you are well-organised as a person, it will show in your business. If you are lazy, the same. If you are mean, the same. Etc. Usw.

2.
If you choose to stock just a few expensive items, then it will be easy to see if you are making a profit and what kind of profit. It will be quite easy to keep records. But most dealers end up with stocks bigger than the stock of the local IKEA. It's very hard to keep a record - it could take 100% of your time. It's very hard to know what profit, if any, you are making when you sell one item on the Internet or at a Stamp Fair. At best, you can have a general idea. So maybe you bought 1000 items for 1000 euros. So you know that if you are selling each one at more than 1 euro you are doing something right - if you sell them all. But if you sell one item for 100, you know that means that you can afford to sell some other items for 50 cents. The only method I have is this: when I buy 1000 items I try to put a price on them all before I even sell one. That way I at least know what Total value I have placed on them. Maybe if I was starting again I would use bar - coding and store everything in a data base. But I still think that maintaining the data base could be a full-time job. You will neglect the important things: studying what you have in your stock, picking out forgeries, picking out damaged things,noticing good things, doing a bit of research when you get something you have not seen before.


3.
Trust. If you don't trust other people, it's difficult to be a stamp dealer. I don't have a problem trusting other people and it saves me a great deal of time. Here is a short list of things I don't do: I never make photocopies of things I send out on approval or of things in my boxes, I never use "Premium" postage or shipping services, I don't insure my stock. Sometimes I say to a client "Go through them" - maybe it's a bag with 1000 stamps in it - "pick out what you want and then we can agree a price". And I have no idea what is in the bag. Oh, and another thing: I usually say, Pay me when you get the stamps I am sending you today. That way, when I get a cheque or a bank transfer I know that the transaction is finished. (Among themselves, dealers constantly rely on trust).

Of course, sometimes I lose things this way. But it's rare, actually very rare. And I save so much time. If you asked me why I think my business is profitable, I have to say: well, partly because I trust other people. Having clients you trust is a very big business asset. It makes life so much simpler.

Auctions or Stamp Shows? One Dealer's Perspective

Here in the UK, the tax year ends 31 March or 5 April (you can choose a bit - to me 5 April is dumb though it goes back a long way). So as we enter March my mind concentrates on putting my accounts in order - and gently approaches the question, Have I actually made any money this year?

At the same time, I am looking at my results from the Corinphila auction just closed. It looks like I sold 19 of the 35 Lots they accepted - 54% -  which is in the Could Do Better class. But the 19 Lots which did sell sold for 57% over their combined Start prices. That is in the Good or more likely Quite Good class since the Start prices are meant to be attractively low.

The gap between what an auction buyer pays and the seller gets probably averages about a third: buyers pay 20 - 25% in commissions and VAT on premiums and so on and sellers pay 10% in their own commissions (maybe 7% on very big consignments). Some inefficient auction houses create a difference of 40% or even more between buyer price and seller payment, but the average seems to be 30 - 33%

That's still a big gap. However, if a small dealer like me takes a Stand at a big stamp show, the cost of the Stand, travel, hotels, food ... will easily eat up a third of the gross turnover. Big dealers aim to work on a smaller ratio of costs to turnover and some may achieve 10% - 15%. In the past, more dealers than now probably achieved lower figures like that - today, fewer collectors attend stamp shows and there is less money being spent.

However, there are two big difference from a dealer's perspective between Auctions and Shows.

At Auctions, prices can go UP and quite often do; at Shows they can only go DOWN and quite often do because every one wants a DISCOUNT. I have even been asked the question, What is your Discount? before the inevitable question, Do you have Tierra del Fuego?

In addition, an auction can  reach a world wide audience through catalogues and online catalogues. Provided these are precise ("450 covers" not "hundreds of covers") and profusely illustrated, the cost to the buyer of participating in an auction can be almost non-existent  - it's not necessary to travel to view - whereas the costs of attending a  stamp show a long way from home are considerable.

As a result, dealers now tend to shift better material to Auction since they can avoid the tiresome debates which selling at stamp shows involves and they can reach a wider market. But moving material away from stamp shows creates a vicious circle - collectors start complaining they can't find anything to buy and so spend less, pushing up the share which expenses take for the dealers who have taken selling stands.

Of course, shows provide an outlet for material which sells for prices below those a serious Auction house will accept for Start prices. So shows remain outlets for items under, say, 100 (£, $, € )

There is also a low cost alternative to auctions and stamp shows. This is supplying clients by post, where expenses drop virtually to the cost of postage and keeping the office warm. For this reason, I try to treasure my regular postal clients. They always see new stock first, they are offered it at a competitive price, and usually (except for small transactions) they will get some kind of discount without having to ask. Of course, they have to put up with my way of doing business - my handwriting, my efforts to sell them a bag full when they only want one ... and so on - but over time I hope they get used to me. And additionally, their own costs are virtually zero - no travelling to stamp shows or auction viewings.