Income tax refunds, and yet another stimulus check. Are your loan balances down?
Most of the industry is sharing your concern, and without a long, hard look at the way that you have always grown your loan balance, you will not be able to bring about any change. Ideas grow from challenges, and this challenge may be one that shapes our industry for years to come.
As I see it, there are two basic needs in any pawn shop: loan balance and inventory. With a 70%-80% redemption rate, we need to maximize our Pawn Service Charges while growing our inventory to keep our retail sales moving in the right direction.
I would be offering 80% - 90% loan to scrap value on properly qualified gold loans as a basic rule. I would loan 65% - 75% loan to used retail on gun loans, and treat GM as a buy, but buy aggressively.
A couple of things are going to happen here. First, your GP% may drop a bit. Second, your redemption rate may drop as well. The good news in this is that the loans that do get paid on are maximized and that means more PSC. You can sell the items that come out and keep the cash flow constant and re invest in properly qualified loans.
I ran a “Maximize Profit per Transaction” model in my career. It didn’t matter what the transaction was, I wanted to maximize the profit on THAT TRANSACTION EVERY TIME. The trick for any broker out there is to know what you can sell it for.
What can you sell a PS4 for in your store? Here’s a question…If I can sell a PS4 for $250 in my store, and I have properly qualified the loan, and I loan $225 on it, then 1 of 2 things happens. Either the customer pays on it and redeems it, or it forfeits, and you sell it for $250. What is your loss in that transaction? The answer? ZERO!
It may be time to take a hard look at how you loan, and it may just change the way your business grows.