[MATH] The Un-Science of Scalping!!!

Posted by Gcrush 
A comment about scalpers in another thread got me thinking about this. Just how big of an asshole is a scalper? Number science with mathmaticalize the answer for us. Strap in for some calculations.

We are Scalpers in training. Let's assume we have a "rare" toy which sells for $9.99 at retail. Now, because it is rare, let's also assume that we have to spend some time tracking this toy down before we can scalp it. Because if just anyone could walk in and buy one, it wouldn't be rare, right? For sake of this experiment, we'll count the time we spend tracking it down at 30 minutes. Having secured the rare toy, we run home to list it on Ebay in a fixed price listing so we can provide maximum price gouging to the sucker desperate enough to buy it from us. Fortunately, we strike gold and our item sells within the first 30 days of our listing. Our buyer pays us right away through Paypal. We also successfully passed the shipping charge directly on to the purchaser, so we wrap the item and take it to the post office in a small, flat-rate USPS Priority mail box with delivery confirmation. After all is said and done, we've spent another 30 minutes photographing, listing, packing, and mailing the toy. Joy! We are now victorious scalpers. Time to cackle with maniacal laughter as we count our pile of money.

So, how did we make out? Let's see.

Rare toy (retail): $9.99
Sales tax of 6.5%: $0.65
Ebay insertion fee: $0.50
USPS Priority Small Flat with delivery confirmation: $5.90
Ebay final value fee (item): 11%
Ebay final value fee (shipping): 11%
Paypal fee: $0.30 + 2.9%
1 hour of time: ???

Based on the above figures, how much would we have to sell the toy for to get a return on our investment? In other words, to get back all the money we spent on the toy, taxes, fees, and shipping?

Item: -$9.99
Sales Tax: -$0.65
Shipping: -$5.90

So far, we're already -$16.54 in the hole. But this is before the inevitable Death-by-Fees. Let's look at some of those now, starting with the fixed simple portions.

Ebay Insertion Fee: -$0.50
Paypal fee (fixed): -$0.30

Now we're up to -$17.34. We need to figure out the rest of those fees. But this is where it gets a little hairy. If we want to break even, we still need to sell our item for more than $17.34. It needs to be at least that amount plus 11% on the item and shipping. And then Paypal is going to want an additional 2.9% off of the pot. But if we don't know at what price we're going to sell it, how do we know what the Ebay and Paypal fees will be?

Damn, time for some math. So...

(9.99 + 0.65) + (0.50 + 0.30), or 17.34 = Our known costs (item and fixed fees)
X = The cost at which we need to sell to break even
(0.11 x X) = Ebay's cut
(0.029 x (17.34 + (0.11 x X))) = Paypal's cut

Which means that the follow should be true...

17.34 + (0.11 x X) + (0.029 x (17.34 + (0.11 x X))) = X

Or:

(Fixed Costs x 102900)/88681 = X

Now, the mathematically inclined will surely know more elegant ways to write this. But for now, let's just solve for X. Prest-o, change-o, X equals $20.12, though we need to round up a cent for some lost numbers and make it $20.13. Time to check our figures. If we want to list shipping as a separate line item we could list the toy at $14.23 with $5.90 shipping. In any case, the total closing cost to the customer needs to be $20.13. And this is how the money breaks down.

Customer Pays = $20.13
Ebay FV Fee = -$2.21
Paypal % Fee = -$0.58
Ebay Insertion Fee = -$0.50
Paypal fixed fee = -$0.30
Shipping Fee = -$5.90
Toy with Tax = -$10.64

Which leaves us right back where we started. So we need to charge double just to break even. Wait, what the hell just happened there? Who actually made money off of this? Well, the post office took 30%. Ebay took 13%. And Paypal cleared 4%. Though I guess since Ebay and Paypal are in cahoots, you could say they walked away with 17%. And you, Dear Scalper, made off with 0%. Good job! You spent one hour of your time connecting a person with a rare toy they desired while giving all of the money they paid you for this service to a bunch of faceless businesses.

Hmm, scalping is harder than it looks. Let's try this again, but factoring in some profit. Now our equation looks like this:

((Fixed Costs + Profits) x 102900)/88681 = X

If our time has a worth of $7.25 an hour (2011 US Federal minimum wage), we suddenly need to change the price of our $14.22 toy to $22.63. If want to double our investment, we need to charge $26.58. And if we want to do BOTH, we should charge $34.99. So if you spy two rare toys on the shelf and you want to keep one while flipping the other to pay for both, you’re going to need to charge about 150% more than the retail cost. If you want to make $20 on a $50 toy, you need to close the auction at close to $100. Unless you break that magic threshold in your scalping on Ebay you are not even going to staunch the flow of money spewing out of your open wallet. So, yeah, good luck with that.

Of course, these calculations are for items under $50 and don’t consider miscellaneous expenses, though we could easily factor those in as well. Hell, we could do these calculations all day long, but the point should already be clear. If you buy a scalped toy on Ebay, there’s a pretty good chance you’re actually ripping off the scalper. And just like that – BAM! Science has spoken. Scalpers are mathematically inept dickholes that, like someone who got their Nottinghamshire folklore completely ass-backwards, steel from themselves and give to rich corporations. Good job!

The take-away here is this: Pity the scalper, don’t hate ‘em. Besides, they might actually be doing you a favor by finding the toys you want.
I would suggest that the scalper mentality is akin to the spammer mentality. They don't really look that closely at what they're actually doing, time and effort-wise, all they think about is the 'score' they made.

There's a goodly amount of selfishness and narcissism in there as well I suspect.
It sure doesn't pay if you're Joe Scalper. Probably pays more to be Joe Plumber. But all those dudes hawking wares from their tiny booths at Frank and Son's are probably buying them by the case. Wholesale discount? Still, there have got to be better ways to make a few (emphasis: few) bucks, especially on a Saturday.

What bugs me these days isn't so much scalping, though, but those freaking morons who bend or otherwise mutilate the cards on figures. If I were a MOSC collector, I'd go nuts. Like, what's the point here, to dissuade scalpers? Right, but you're also screwing over some collectors who would prefer their cards not be disfigured. And it might not even dissuade scalpers. Idiots.
SteveH Wrote:
-------------------------------------------------------
> There's a goodly amount of selfishness and narcissism in there as well I suspect.

Shelfishness, I agree, but if you've ever seen the "toy scalper" crowd that gathers to rumage through the Hot Wheels bin at toy stores on Saturday mornings, narcissism is a hard sell for me to buy there buddy. Ouch!
First off, I think spammers make money. Don't ask me how, but Since email doesn't cost anything to send, you Don't need that many suckers to make a profit.

I won't argue that there are better, more efficient ways to make money than toy scalping. It's like the people who think collecting comics is some kind of investment. But there is profit to be had, I'm sure, and I'm also sure that's why scalpers tend to extend themselves across multiple lines. There must be some kind of fortune in tbose hot wheels, since they line up every day, not just Saturday, and it doesn't take that much longer to go through another aisle.

The worst part is if they don't manage to sell the toy. They return it in bulk, and all of a sudden that rare figure I could never seem to find is on the pegs 7 deep. Which seems like a good idea until you realize that the popularity of that wave has passed and there is no way the store will order the next wave with all that excess stock.

Are we free to discuss the even more wretched cousin to the scalper, the toy replacer? Seriously, you can't just spend the money to buy the tou, you have to go out of your way to return it with some generic 99 cents toy scotch taped to the card?
(EDIT: BTW, G, that original post is just brilliant. Thanks for working all that out - I think most of us only ebay like you do, to recoup a little cost on items we don't want or need anymore, and we don't think about just how much cost is being assessed on every item)


Supersentai Wrote:
>
> Shelfishness, I agree, but if you've ever seen the
> "toy scalper" crowd that gathers to rumage through
> the Hot Wheels bin at toy stores on Saturday
> mornings, narcissism is a hard sell for me to buy
> there buddy. Ouch!

Hell, a bunch of those guys are probably collectors. There are so many damn Hot Wheels that come out, and with the artificial rarity of the "Treasure Hunt" and "Mystery" cars, I can't imagine how maddening it is to be even a casual collector who doesn't need every single one. I only buy Hot Wheels when I'm attracted to a specific design, and it's already hard enough to find ones without defective paint jobs.


fujishig Wrote:
>
> Are we free to discuss the even more wretched
> cousin to the scalper, the toy replacer?
> Seriously, you can't just spend the money to buy
> the tou, you have to go out of your way to return
> it with some generic 99 cents toy scotch taped to
> the card?

I've seen some pretty hilarious ones, but here's the best ever (and the only one I've bothered to post a photo of):
[www.recognizer.net]

-Paul Segal

"Oh, the anger is never far, never far." -SteveH



Edited 1 time(s). Last edit at 08/25/2011 05:59PM by asterphage.
fujishig Wrote:
-------------------------------------------------------
<snip>
> The worst part is if they don't manage to sell the
> toy. They return it in bulk, and all of a sudden
> that rare figure I could never seem to find is on
> the pegs 7 deep. Which seems like a good idea
> until you realize that the popularity of that wave
> has passed and there is no way the store will
> order the next wave with all that excess stock.
>
> Are we free to discuss the even more wretched
> cousin to the scalper, the toy replacer?
> Seriously, you can't just spend the money to buy
> the tou, you have to go out of your way to return
> it with some generic 99 cents toy scotch taped to
> the card?

This is something I don't understand from US shops. Why don't they check whether the toy returned is the correct one, and why is it possible to return toys long after the fact?
In my country clerks always check what you're returning, and depending on the shop and item you only have a limited amount of time to return goods (typically 24/48/72 hours, 7/14/30 days for various goods without warranty). They also usually require the item to be sealed if it is returned for another reason than "broken in the box".
thomas Wrote:
-------------------------------------------------------
> fujishig Wrote:
> --------------------------------------------------
> -----
>
> > The worst part is if they don't manage to sell
> the
> > toy. They return it in bulk, and all of a
> sudden
> > that rare figure I could never seem to find is
> on
> > the pegs 7 deep. Which seems like a good idea
> > until you realize that the popularity of that
> wave
> > has passed and there is no way the store will
> > order the next wave with all that excess stock.
>
> >
> > Are we free to discuss the even more wretched
> > cousin to the scalper, the toy replacer?
> > Seriously, you can't just spend the money to
> buy
> > the tou, you have to go out of your way to
> return
> > it with some generic 99 cents toy scotch taped
> to
> > the card?
>
> This is something I don't understand from US
> shops. Why don't they check whether the toy
> returned is the correct one, and why is it
> possible to return toys long after the fact?
> In my country clerks always check what you're
> returning, and depending on the shop and item you
> only have a limited amount of time to return goods
> (typically 24/48/72 hours, 7/14/30 days for
> various goods without warranty). They also usually
> require the item to be sealed if it is returned
> for another reason than "broken in the box".


Because of several reasons.

1. The person working the customer service/returns desk has no knowledge of the products.

2. That person is often forced to multi-task, doing several jobs at the same time because "well, we don't get that many returns a day, they can handle this as well in their open time"

3. That person more often than not is not regularly posted to the returns desk, rather it's seen as a punishment doled out by the manager (depending on store)

4. Thanks to Wal*mart's overly friendly "bring it back we don't care" policy it is now tabu in retail to confront customs trying to scam.

All of this is from first hand experience.

(seriously. At Sam's Club I helped research a return refund for a 5 year old VCR that was PACKED with mud. Customer demanded the full retail price, roughly $300. No receipt of course. My research turned up we sold that model for about $175 and it was clearanced out at $100, and they begrudgingly accepted that. My desire was to throw the busted crappy thing at them. bah)
thomas Wrote:
-------------------------------------------------------
> This is something I don't understand from US
> shops. Why don't they check whether the toy
> returned is the correct one, and why is it
> possible to return toys long after the fact?
> In my country clerks always check what you're
> returning, and depending on the shop and item you
> only have a limited amount of time to return goods
> (typically 24/48/72 hours, 7/14/30 days for
> various goods without warranty). They also usually
> require the item to be sealed if it is returned
> for another reason than "broken in the box".


A few things make this possible. First is the notion that the customer is always right. Few retail outlets are willing to alienate consumers, even at the risk of eating a loss on a product. Because, second, the loss incurred is relatively inconsequential. The time spent on paying a clerk to inspect the goods would outweigh the potential loss. And third, most clerks aren't paid a high enough wage to motivate them in this type of duty. The only people with enough knowledge and interest in spotting these things are collectors - not retail management, clerks, or regular consumers. And if you're not going to buy the toy, the story probably doesn't care about you reporting it. Fiscally speaking, you're just wasting their time.

In short, nobody gives a shit about this except toy collectors.
...I guess the other reason for this difference might be that in Europe shops can get into a lot of trouble when a returned item is sold again in a shop and the contents turns out to be something else than expected, ends up hurting someone, etc.
You haven't factored in any efficiencies (buying many items per trip, as is natural), but still good fair analysis.

I supect most scalpers (as you've defined them here, anyway) intuitively know that they are not 'up', but their enamorment with the particular merch (toy scalpers love toys, sports ticket scalpers love sports, theater ticket scalpers...you get it) stops them from taking hard accounts to heart.

A dispassionate scalper should do better, i.e., one who has no inherent personal interest in the items being resold. Pawn shops could be a reasonable model if they somehow were taking items at retail, for instance. I'd predict that a dispassionate scalper would be more likely to develop traditional retail-like efficiencies around their trade.


Oh, also:

> This is something I don't understand from US shops. Why don't they
> check whether the toy returned is the correct one, and why is it
> possible to return toys long after the fact?

...and...

> A few things make this possible. First is the notion that the customer is
> always right. Few retail outlets are willing to alienate consumers, even
> at the risk of eating a loss on a product. Because, second, the loss...
> etc etc


Okay, this comes up from time to time, so here's the deal:

In the US, retailers figured out (most famously Nordstrom's was a front runner on this) that the lifetime value of a customer was of a magnitude that made any individual transaction functionally expendable. In short, they demonstrated that the good will garnered by accepting all returns, even at a loss, has an calculable value many times greater (we're talking 1000s of times greater) than any merchandise returned. Once businesses saw they could accurately calculate this across their entire stock, stringent return policies evaporated. There is nothing cultural about it - it's enormously profitable to accept all returns, even bad ones, unquestioned. The only stops still in place are around preventing fraud.

There are lots of areas where this doesn't apply so clearly (airline tickets, etc) but for garden-variety retail, it's known science.
SteveH Wrote:
>
> (seriously. At Sam's Club I helped research a
> return refund for a 5 year old VCR that was PACKED
> with mud. Customer demanded the full retail price,
> roughly $300. No receipt of course. My research
> turned up we sold that model for about $175 and it
> was clearanced out at $100, and they begrudgingly
> accepted that. My desire was to throw the busted
> crappy thing at them. bah)

HOLY SHIT. Packed with MUD? This has to be one of the worst retail stories I've ever heard. There is literally no limit to the amount of customer-caused damage, where WM or Sam's won't accept a return?


leMel42 Wrote:
>
> In the US, retailers figured out (most famously
> Nordstrom's was a front runner on this) that the
> lifetime value of a customer was of a magnitude
> that made any individual transaction functionally
> expendable. In short, they demonstrated that the
> good will garnered by accepting all returns, even
> at a loss, has an calculable value many times
> greater (we're talking 1000s of times greater)
> than any merchandise returned. Once businesses saw
> they could accurately calculate this across their
> entire stock, stringent return policies
> evaporated. There is nothing cultural about it -
> it's enormously profitable to accept all returns,
> even bad ones, unquestioned. The only stops still
> in place are around preventing fraud.

This makes sense, but I didn't know it had been mathematically analyzed. Makes me want to read about the history of retail strategy. (Though I'm guessing that most books on the topic are directed at people in the industry, more as a how-to than a dispassionate overview of how commerce got the way it is)

-Paul Segal

"Oh, the anger is never far, never far." -SteveH
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