The pawnshop business model first emerged in ancient China as a way of issuing short term loans to peasants, using an item as collateral for the loan issued. The model traveled to Greece, Rome and came to America more than 100 years ago and today, there are more than 10,000 pawn shops across the United States.
The business model of pawnshops is very precise, one has been caught up in a cash crisis and they need access to quick cash, then they can choose to get a quick loan against any item in their possession at the nearest pawn shop. The model was perceived to be suited to low-income individuals but today six-figure earning individuals pawn their signature bags, luxury watches, and sophisticated electronics to access a loan fast. A pawn shop is with no doubt a viable business model and more profitable as outlined below. For more information on starting a pawn shop, you can also read countless blogs on the internet.
Is a pawn shop a good business?
Issuance of Loans
Loans form the first method, which pawn shops make most of their money from. When a client visits a pawn shop with an item, seeking a quick loan. The owner of the shop is obligated to access and calculate the resale value of the item and probably offer the client 40-60% of the resale value as a loan to the client.
The common conditions associated with such a loan are; monthly interest rates of between 5-25% and the option to put up the item for sale should the client default on their loan repayment after a month or the given repayment period.
Pawn shops earn an interest from their loans on a monthly basis, with the option of pushing the loan further by only paying the interest accumulated that month, pawn shops are set to earn even more from the interests. This is mainly the way pawn shops make their money. Due to the intricacies of getting loans from banks or any other financial institutions today, pawn shops are well-positioned to attract a huge percentage of clients in need of quick loans to fix their problems. In case of any defaults, the shop is at liberty to keep the item and plan on selling it to reclaim the amount of money loaned out.
Most people have damaged their credit score rating because of defaults in the past, not to worry pawn shops provide them with an alternative being viable to access a loan using the items in their possession. Pawn shops make more money from interest charges when issuing such loans because their interest rates are normally higher than the normal rates charged by banks.
Pawn Shops Retail
Pawn shops just like any other business, continuously look for ways to increase their revenue streams. Another way they do this is by putting up items for sale. We sometimes find that we have some items within our possession that we no longer need, most people take these times to the pawnbrokers. The shop acquires such items at a lower price and put them on sale.
The presence of great competition in the pawn business has compelled most shop owners to get creative in how to sell their items to avoid having their inventory depreciate in value. Shelf organization and advertising are two ways that enable pawnshops to attract clients to purchase their items.
People buy items like rings, luxury watches, phones, television among many other items in a pawn shop. The shop has the chance to make a killing from retailing items in their possession. On average, the shop can make a profit margin between 10-15% from reselling items, if the shop has great salespeople within the store then they are set to make a good amount of money from retailing items.
Provision of Extra Services
There are other extra opportunities pawnshops can take advantage of to make more money other than loans and retailing items. Provision of secondary services like check to cash, money transfer can result in a significant amount of revenue for the shop.
Individuals in need of quick ways to cash in their checks can use the pawnshop service to access the cash, this way the shop can make a little money from such a service. There are other services like bill payments and cell phone activation which can bring in a good amount of money as well.
Provision of storage space or pick up station for the shipping companies like UPs and FedEx is also another service. Given that the number of items shipped by these companies being huge then the shop can take advantage of the opportunity to gain a few coins to add to their growing stream of revenue. Lastly, pawn shops have a huge number of shelves used in displaying the pawned items, mostly those up for sale.
It is strategic to consider renting shelf space to clients who want to display some of their items for sale, this way the shop can also get a commission from this arrangement. There are a ton of extra services to pick from and the shop owners should access them to find the services that best suit their clientele based on their location.
The pawnshop business is set to grow even further in the future; with credit scores of most people getting lower daily, then pawn shops are the only hope to bail people out in need of quick access to a loan. It is prudent for pawnbrokers to look beyond loans, retailing, and start thinking of other possible streams of income that can be implemented in their shops. Considering secondary services will help bolster the shop’s profitability and growth tremendously.
However, making money with a pawnshop business model should be considered an easy task, because of the presence of huge competition in the business. Competition is good so that shops can get innovative in how to manage inventory, organization of the shop, and communication with their customers, this way the business becomes more viable and sustainable long-term. Constant innovation and flexibility to change are highly recommendable to make more money with a pawn shop business model.