Year of the Customer for Pawnbrokers in 2016

Happy New Year to all my fellow Pawnbrokers.

Well, we are off to 2016.  Have you set your annual goals?  What is there to do in 2016?

What is going to drive your business with limited time and resources?

I got all fired up for this year talking with Nygel Scourfield  at C3 Partners U.K. who is a former Director of Albemarle & Bond.  He has launched a new customer generation platform specifically for Pawnbrokers.  Nygel knows his stuff, spent time really understanding the pawn customer and shared common sense findings about the value of a customer and what you can expect to extract from a new customer over time.
 
The Customer

So, the chicken and the egg.  What comes first in the Pawn business?  Customer or Merchandise.  Yes - Customer.  Whats more important to the Pawn business?  Customer or Merchandise.  Yes - Customer.

Its the customer.  Always the customer and nothing more.  Customer rule.  More customers the better.  Never heard of a bad customer.  Customers are always right.  Get it.  Customer are everything to business.

Without customers you have zero value.  If the number of customers your store support is growing you are in good shape.  If the total number of customers is going down, your business is on the decline.

One way to measure the success of your pawn business is total customers, total loans, average loan amount, and average number of items in loan.

Customer Acquisition Cost - CAC

If you have only one take away from this blog, this is the most important business metric that you need to know about your pawn business.  What does a new customer cost you to successfully transact a new loan or sale?

There are a number of ways to figure this out, and most importantly it does not have to be a perfect calculation, but go to this link if you would like a more in depth understanding and methods how to calculate.  click here.

The acquisition cost can vary from a minimum of $50 to $500 per customer.  The average is approximately $75.

Customer Lifetime Value

How much does a customer contribute to your business over time?  Have you ever thought about it?  Isn't that the reason why you have a store?  

Pawn brokers most commonly only see what is in front of them,  "The Merchandise".  

The result of a transaction that maybe a loan or buy that results into a interest revenue or profit after the re-sale of the item you may purchase.

If you can put yourself into the mindset that you look at the customer as a $1200 dollar bill of future revenue over a 3 year period, how would look at the opportunity.

The average Pawn Customer Lifetime Value contribution is approximately $1200.00.

533% Per Year (ROI) return on your CAC - 3 year

My spending 30 years behind the loan counter and on the sales floor, I want to puke to think how many customers I let walk?  How many customers did I not attend to as appropriately as I should have?  How may telephone calls did I not get to in time?  How many new customer acquisitions each day walked out of the store?

And yes, if I had only accomplished one transaction with a new customer it would have resulted in $1,200.00 in revenue over the next 3 years.

The pawnbrokers that effectively complete the customer acquisition that turns the customer opportunity status into a new customer wins.

Think about what you can do at the loan counter to make that loan.

Think about what you can do when a customer is interested in purchasing an item in your store to complete that sale.

Let 2016 be the year of the customer for your store

Steve Mack
Bravo Pawn Systems

What is the future of Pawn for 2013

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I get asked all the time, where do you think Pawn is going in the future?  Developing software every day you need a vision of the future.  And since Bravo is industry specific for pawn, I am constantly researching our business.  In this email, I have decided to focus on 3 areas.  

1. Commodities

2. Regulations

3. Small business.

1.      Commodities. – Gold, Silver and Diamonds.  This topic is really difficult to forecast and I caution any dependency because it’s market and politics driven.  But I believe Gold and Silver will continue to slide downward and within the next 2-3 years gold will slide to $900.00 per ounce.  Diamonds will hover and slide as well until Jewelry Market finds its way back into affordability for lower and middle income.  It’s China stupid.  Global growth is still pointed to ASIA and commodities will hold firm while China develops.  The Chinese are spenders and as they move their population to lower and middle class, they will purchase Gold and Diamonds.  What about America?  I think our lower and middle income earners are spent keeping up, and gold at $900 makes it hard for our general public to afford jewelry, especially anything past a wedding ring.

How does this affect Pawn?  What percentage of your assets and business is Gold and Diamonds?  60 – 70  - 80 percent or more?  If it’s higher than 30% of your business, it’s really important.  The Gold Rush is over and simmering fast.  Everyone and their mother are in the gold business today.  You are starting to see these fly by night businesses shutting down, but many are looking to get into pawn business, and these future competitors will continue to try to peel off your business.

a.      Navigating the price of gold.  Really think this through.  It’s always profitable when the price goes up, but you can get stuck and go broke on the way down.

b.      Supply – There are fewer items out there.  It’s time to think about diversifying your loan portfolio to replace the lost revenue from the lower value and supply.

c.       Scrap, Refining vs. Retail – it’s time to think about allocating dollars back into selling jewelry to the retail public.

Retail Sales – There was nothing to do with Jewelry over the last 5 years other than smelting and refining, it was the right move.  However, the best pawnbrokers are the best retailers.  Pawnbrokers that find the most efficient liquidity for their buys and defaulted loans are the ones that win big.

2.      Regulations.  Yes, a constant stream of more effort will be required over the next 5 years.  First you need to know that, I am a Conservative Liberal that believes strongly in Capitalism.  I don’t believe that our industry information will be targeted specifically as an impediment to the safety of our government, but our stores, industry, and relationships with the citizens of America are a conduit to a big percentage of the Real America.  I have always believed that our customers are the real people of America.  Simply, our customers are the ones that are impacted first by the forces of the economy and what they hear on the TV, Radio, Twitter, Facebook, etc.  As a side note, be aware that pawnbrokers have a high moral responsibility in our society.

a.     The pawnbroker industry is stuck between law enforcement, because we touch merchandise from the public, and banking, we charge interest.  We collect data every day for law enforcement and banking.  We have all heard over the last 30 years that data is everything. Well these entities are starting to see they can’t live without data.  They will be looking for more.  The most recent Boston Bombing incident has set precedent how the collection of data can solve what has happened.

b.      $Money$ - Taxes.  This is what is going to suck.  Our transaction will be taxed somehow in the future.  Government is going to clamp down on all business’s tax collection.

c.       Pawn Stars and Hard Core Pawn TV shows has brought our industry into the mainstream.  They are both 2 of most watched shows in the World.  The Pawn Industry is no longer just known by those that use them.  I happen to love both shows.

Pawnbrokers of the future will have to be compliant and report accurately to Law Enforcement.   I mean accurately with accuracy.   ID’s, Finger Prints, Images, and more are all growing requirements across America.  There are more arrests and citations of pawnbrokers than ever.  The ATF has stepped up their audits; the ATF compliance division has increased their staff by 300%.   Pawn regulations across America have increased city by city over 100%, and that’s this year, alone.  Watch your legislatures changing language from as, to should, to require,  to must.   Taxes.  Many small businesses are known to curtail the reporting of taxes.  Bottom line our government is broke, they are spending more, and they will look more aggressively for sources of tax revenues.  Be wise.

3.      Small Business. – We are the backbone of America.  We make it happen.  We create jobs.  We work hard.

a.      Competition.   One very clear way to get ahead today is to own your business.  Small business growth over the next 5 years will be unprecedented.

b.     Big Business.  These guys are fierce and want small business market share.  From Online to the Big Business on the street they have big money and data.

c.      Safety and Real Estate – the cost of opening a safe and secure store today is expensive.  Retail locations can be leased at the best prices in over 20 years.  Make sure you get great terms and long options.

HOW TO BE A BETTER PAWNBROKER?

What is a better pawnbroker?  You all have different ambitions and measures, and they are all correct.  For this discussion I will focus on Customers, The Store, and Profitability.

1.      FIGURE OUT HOW TO SPEND MORE TIME WITH YOUR CUSTOMERS.  I love small business and I believe that small business is what makes America strong.  It’s you that makes it happen and it’s why I write articles like this and create software to help you. Bottom line, it’s going to get harder.  Only the strong survive and if you play ball the correct way, there is more success available today than ever. Yeah, that’s right.  It is all about the customer and you.  And while the Big Retail boys have to depend imagery, you have the customer in your hand, face to face, every day.  The key though is to figure out how to make sure that you have the time to stay in front of the customer.  With all of the pressure that I describe above, today’s small businesses need to figure out how to stay lean, efficient, and profitable.

2.     THE STORE NEEDS TO BE PRESENTED IN THE BEST WAY POSSIBLE.   This is a huge effort but the experience that you offer your customers is the respect you have for this this business and yourself.  I used to look at these factors.  Your parking lot,  behind and under the counters, back room, safe, bath rooms, light bulbs exterior signs.  If these are all in place then your store probably looks pretty good.  This is Retail 101, it does not take a lot of money and everybody can do it.

3.     PROFITABILITY.  At the end of your career or passing along to your kids, it’s all about how much you have created in value.  What did you start off with and how much did you sell it for?  Just like the pawn business the day you started. 

a. The 2 highest prices paid ever for a shop company?  Highest price paid by number of stores and dollars in inventory and loans.

i. SuperPawn – 2004

ii. SuperPawn Franchise 2012 – Giles Family Tucson Arizona.

I bring this up for two reasons.  There is effort handsomely paid for when done correctly and both were accomplished with the same 

• Pawn Systems

• Execution

• Philosophy

THE SECRET TO THE BUSINESS

Well, there are a few dozen secrets and the Giles paid for these secrets through our SuperPawn franchise and the got rich paying for it.  So, let’s start off with one of the most important, the acquisition process of the item.   The basic item brought over the counter, through the doors of your store, or parked in front of your building.  Every item has a form of profit.  How do you translate each and every opportunity in a profitable transaction?  How do you maximize each opportunity and squeeze out the cost in creating the profit?

I look at incremental profit in each and every ounce of effort.  If you write 20 loans a day, 6 days week, times 50 weeks that’s 6000 loans a year.  Focus on making $5.00 - $10.00 more per item, this adds up to 30 – 60k per year just on your loan business.  Most people focus on margin.  What do you think?

               

I figured this out by analyzing the life cycle of the pawn transaction and the physical effort, cost for dollars invested, the space it took up, how many times you have touch it, for each full transaction.   It’s crazy how much time we spend on each and every item and quite frankly there is a ton of waist,  an unproductive investment.  After you think about it, it becomes obvious and then where is the easiest fat to cut.

answer     In the beginning and that’s it.  You start the transaction with the best research, compliance, consistency, accuracy, and organization.  The transaction should be completed within 3 minutes.  When I say complete, I mean the complete life cycle of the transaction.

The system should do everything.  And I mean all the way to selling or collecting interest for the item. I mean cash in your register without any extra effort.

Its sounds easier right?  It is.  It was.  It worked.

Steve Mack

Former founder and CEO - SuperPawn

How to maximize your Metals Recycling Business.

How to maximize your Metals Recycling Business.

Metals recycling project flow, all the way through refiner has become a critical component in the Pawn Industry.  The business has become more competitive and there is a “Gold fever” in every corner – more competition  to come.  Everyone is working on a smaller margin and the Gold Market is volatile.  Pawn Brokers have had a win fall in earnings while gold has gone up.  For those that have been around for a while,  it will/may go down as it did in the late 70’s.  Get ready to navigate and everyone needs to pay attention.

Turnover is critical and the faster is better if you are business that does not hold the gold for a rainy day.

1.      At the counter – accurate testing is becoming more critical because the margins are thinner.  You don’t have as much room.  The dollars a larger and you need to be accurate.  Measurement and accuracy at your counters need to managed and verified.  This is the greatest risk when you have employees and multiple stores.  You should deduct the actual weight of stones in Jewelry to accurately weigh the metals.

2.       While loans are in your safe in loan or a buy hold.  Periodic audits are good idea.  Although the way our business functions there is constant random audit going on.  A systematic audit is always a good idea and curtails internal shenanigans.

3.       When expirations occur and the envelopes are opened this is the 2^nd area of internal control that need to be managed and controlled.  This needs to be done other than the originating employee.  This deters individual self-dealing and again shenanigans.  During this process the item get reviewed, sorted, and processed for recycling.  This process insures that process 1 is measured and deviation is managed.  When deviation is out of whack, you have something to pay attention too.

4.       When you have your batch ready, a total pre-melt assay should be calculated.  Today’s gold price.  And estimated total value before it is sent to the refiners.  You should also know what your carat of diamonds and colored goods are contained in batches for “Soak”.  A separate cost for Metals – Diamonds – and Colored Stones should be in hand and before the batch is sent to the refiner an estimated net profit calculated.  Then send to the refiner.

5.      Total weights should be verified and (pre-melt assay and refiner assay) should be compared and deviation measured each time.  There are many reasons for deviation and when one occurs it’s time to investigate and figure it out.  Diamonds and Colored stones is the biggest opportunity today!  I believe this is an area Pawnbrokers can really get good at in the future, liquidity channels, and creative businesses.  You should be receiving more carats than you are estimating at the counter.  The deviation of carats you are getting back should be measured and managed as well.

Pay attention to the market price you send your gold in on, and what the day’s gold price you get paid.  Agree with you refiner what market price you are getting paid by.  Remember you get hurt on down day’s and you win when the market goes up, you should keep very close track during this volatile times.

Good news, in Bravo this is completely automated, measured, and gives you insight each time you recycle your most valuable opportunity and profit channel.  Metals Diamonds and Colored Stones.

Good Luck,

Getting a full return on your gold refining. Checks and Balance

I don’t know about you, but when I sent out my gold to the refiners, it never seemed right. With my suggestions you should earn an extra 5% of gross profit. In my 25 years as a pawnbroker, the number one focus on operations was having honesty and integrity within my ranks, including your vendors. You must create a log of the results from the refiners you utilize. You will see comparative results. It's that accounting, bean- counting stuff I learned. And let me tell you, those refiners have the same issues with employees stealing as we have, except the refiners loss is your loss. Their employees steal from the gold batch before it is refined. So it is very difficult for you to know where the slippage comes from. And who believes that refiners are 100% honest. And even if we are giving them the benefit of the doubt, how competent are they? So there are three factors in the refining process that you must rely on.

1. Refineries employees being honest
2. Refineries themselves being honest.
3. These companies are competent and accurate.

There is a very simple process to follow, and as I like to say, "You will only know, when you know". Here is my recommended scrapping process. Start out with 5 coffee cans.

1.   Can1 - 10k and below

2.   Can2 - 14k

3.   Can3 - 18k

4.   Can4 - 20k - 24k

5.   Can5 - misc gold items with stones. (Diamonds that can't be removed with a simple prong pry, it should be soaked.)

What is a soak? - From Can5 stone removal lot is placed in an individual chemical reactor. A technician will monitor each reaction as your gold, platinum or palladium and any remaining residue is dissolved leaving your stones clean and ready for sorting. It's best to accumulate a good size batch for this type of stone removal because they usually charge an additional $250.00 per batch. This can be negotiated.

As you are processing your defaulted loans, the items that you wish to scrap, put the items in a marked can separated by karat. Look at the stamp mark, no need to gold test. And for items without marks, either guess or test utilizing an analyzer or acid test.

Keep your envelopes so that you can tally the amount of weight and amount as an audit trail if needed. If you have other people doing this routine, I recommend adding the weights marked on each envelope and compare to what you actually sent out.

Whatever timing you prefer (to send out the material) is your call. Ready for the next step?

I first suggest that you select 2 independent refining companies. Then you take each can and split into equal parts. Take a plastic baggy and mark the bag with the karat and weight. You should have either 8 or 10 bags depending if you are sending out a soak. You will send out a batch (containing 10k, 14k, 18k, 20-24k, and soak if included) to each vendor. Write down the carat category and all of the weights of each bag and totals. Indicate in the instructions, " if there is a discrepancy” to contact you. Specifically, indicate that you want to be paid for silver, platinum, and palladium. Otherwise, they keep what you don't ask for? That took me years to figure out.

After you receive the check and specific results, you should have a better idea how different the results can be. Given the type of materials we accept in our trade, there can be a legitimate margin for error. My experience over the year’s showed consistent and similar results when I was dealing with top refiners. Request a new assay if the results don't make sense. There are not supposed to sell your lot until you approve the payment. Separate your scrap batches every time and use 2 vendors. Try new vendors every 6 months and don't get comfortable.

From Hoover and Strong - suggested this check list for optimization.

•Anything used in precious metal manufacturing should be turned in for refining with sweeps in a container. This includes store buffs, brushes, emery paper, etc.

•Include name, address and instructions.

•Include the weight of the scrap.

•State Assay Instructions (i.e. Assay for Silver, Gold, Platinum, and Palladium)

•Separate metals, not karats.

•Separating your scrap increases your bottom line by minimizing your refining charges.

•Separate magnetic from non-magnetic material.

•Treat it like the rest of your inventory; turn it at least twice a year.

•Know the basics of refining.

•Track the scrap in your shop.

•Promote the fact that you buy scrap.

•Send your scrap to a reputable refiner, not a middleman.

How to weigh gold

When I was in the business 5 years ago, gold was $350.00 - $390.00 per ounce. I am so pleased at the raise from the days when it was swinging around $250.00. All I can say about today's price is WOW; it's just hard to believe what that raw material is worth. And the way the economy is today, the price of gold is going to stay high for long while. This topic is magnified--what I am going to share with you today is 5 times more important than what we discovered in 2002.

The stones in a jewelry setting weigh something. A carat is a weight just like ounces. We shouldn't be adding in the stone weight when we are loaning or buying on an item. If we are estimating correctly, we should be evaluating the stones as well. If it is a diamond or a precious stone there is a higher level of expertise needed just for those stones. If it is a semi-precious, simulant, or imitation stone, the value of the gem is worth very little to zero; however, the weight of the stone needs to be subtracted from the weight of the item. Our experience dictated about 3 to 4 percent of miscalculated weight. That can add up at year end; especially taking into account the worth of gold today.

When we developed PRIMA we built a grid with the specific weights of each stone class and category. Size and type of stone weigh differently. As we entered a jewelry item into the system, the loan estimator subtracted the weight of the stones from the gold. Bravo will also have this function.

This can be done manually, but it is very time consuming. The weights of the stones can be found on the Internet.

You will find in my articles a common theme of hidden and small treasures. Little saving here and there, but come June 10th 2011 at the NPA come see Bravo, it amounts to real money savings. I appreciate your following my blog.

Pawnbrokers hit pay dirt - Gold is good !

Pawnshop windfall the last few years has never been so good. Gold is good. Gold is great to loan on and the easiest to turn to cash. Most of you have converted to scrap before retail. I don’t believe that this is a wise strategy but some of you have completely abandoned retail all together. It makes common sense, customers are pinched and scraping is easy. Diamonds have become soft and the market to resell is soft as well. I believe there are a lot of issues that we need to be asking ourselves. Where is this business going in the future? What happens when customers run out of gold?  How are you going to react?  How much should you be lending at $1300.00 per ounce?

If logic dictates, your loan portfolio should have gone up 4 times in the last 5 years. The price of gold has. There should be a sizable increase. If 80% of your loans are gold and diamonds and you have not gained one single customer, your loans should at least be three to four times higher. If you added customers you are doing really well. Most pawnbrokers are reporting fewer loans in their safe. Many stores have showed a mild increase. Why do you think this has happened?

One interesting discussion was in the U.K. Pawnbrokers’ magazine discussing total market gold tonnage. Is there as much gold in our customer’s pockets? The jewelry business is down so much, I believe our customers will have less to pawn in the future. Pawnbrokers have 70 - 80 percent of their loans in Jewelry.

Do you believe that lending more wins customers? I believe that good customer service and more money lent on an item wins business more often and that those customers remain loyal. Let’s discuss how jewelry loans works. Let’s start with a plain gold band. First we weigh the item with a scale. We check and test the gold purity. Generally the most common is 10k, 14k, 18k, 22k, 24k, but there is also 20k and 9k. A simple calculation against your "loan price per ounce," and out comes a number. Some of you will lend against the gold based on what you think it will sell for if it defaults.

Does your system calculate the value automatically?  What if this customer has a long record and has never defaulted. Would you loan more? If you had a highly desirable antique ring that would fetch a value greater than scrap value, would you lend accordingly?

Do you change what you lend daily, weekly, monthly? Do you re-price your jewelry inventory to reflect these changes? After all, what you lend is a very important decision and what your prices say on your merchandise sets an important impression as well.

I am a numbers junky and having written a million loans a year, we were able to mine the data through 5 cube views of each loan, purchase and sale. One of the fascinating finds we called psychographics, which were customer habits associated with merchandise. We looked at age, gender, race, and location. We looked at category, manufacturer and model. I was taught that you lent on an item based on what you could get for it. Would you believe that men default on their wedding bands more often than women? Answer is yes. Would you believe that some jewelry items sell in the store for 20% more than scrap in 30 days or less? Answer is yes. Would you believe that in many jewelry categories only 5% default? Answer is yes. Would you believe that many jewelry categories default 90% of the time. Answer is yes. If you had this information for an item you were going to make a loan on, would you consider these factors? The really good system doesn’t tell you what to pawn. A really good system enables you to make better decisions. We standardized the jewelry pawn inventory to 70 categories.

Let me ask you this: if you want to lend 10% more than the basic calculated amount for the plain wedding band based on information that tells you the category defaults only 10% of the time and has a quick turnover, would you lend more? Would you lend 10% more than the basic calculated amount for the plain wedding band based on a 90% default and quick turnover rate? It's your decision.

We applied supply and demand economics. We also looked at turnover rate. I like turning an item 10 times a year. I like items that have slow turnover and high margin. Before we had this system, we were forced to generalize our pawn brokering principals on all categories. This simply allows you to make decisions on the many categories that come in to your shop based on category customer habits.

This is one example of 6 million loans we studied. This information is real time, therefore up to date. As the market changes you need to make better decisions. This powered our business off the charts. We gained more customers because we lent more money every time. In some cases we would lend 50% more per gram. We never lost margin because the items never defaulted. Doesn't this make sense? Now you will have the chance to make better decisions.

I have shared many opportunities with out the need for system assistance.  If you just looked at default history from your current customers, its wise to give them a benefit.  It builds loyality and you have more cash on the street earning you interest.

How to weigh your gold ! You could be losing money

When I was in the business 5 years ago, gold was $350.00 - $390.00 per ounce. I am so pleased at the raise from the days when it was swinging around $250.00. All I can say about today's price is WOW; it's just hard to believe what that raw material is worth. And the way the economy is today, the price of gold is going to stay high for long while. I have something very important to share with you. We discovered this in 2002; and today it is more important than ever.

The stones in a jewelry setting weigh something. A carat is a weight just like ounces. We shouldn't be adding in the stone weight when we are loaning or buying on an item. If we are estimating correctly, we should be evaluating the stones as well. If it is a diamond or a precious stone, there is a higher level of expertise needed just for those stones. If it is a semi-precious, simulant, or imitation stone, the value of the gem is worth very little to zero. Either way, the weight of the stone needs to be subtracted from the weight of the item. Our experience dictated about 3 to 4 percent of miscalculated weight. That can add up at years end; especially taking into account the worth of gold today.

When we developed PRIMA we built a grid with the specific weights of each stone class and category. Size and type of stone weigh differently. As we entered a jewelry item into the system, the loan estimator subtracted the weight of the stones from the gold. Bravo will also have this function.

This can be done manually, but it is very time consuming. The weights of the stones can be found on the Internet.

You will find in my articles a common theme of hidden and small treasures. Little saving here and there, but when the end of the year approaches, real money is saved. I appreciate your following my blog.