$180,000 inventory, $60,000 in sales in 1 year

[tyclin]

Would like to share and also want to hear your experience....

I started investing in Lego in Jan, 2013.

I don't remember where I read this in Brickpicker forum. However, I remember some experienced member wrote something very similar to the title, "in order to sell $60,000 worth of Lego in one year, you should have $180,000 in inventory".

Because I read that, I decided to actively sell for one year starting late Jan, 2015 to see whether that was true or not.

According to the Brickfolio, current value of my inventory is $ 183,597.18.

After almost one year of active selling, I have had $ 59,485.52 in sales, minus all the fees/shipping cost, and original cost of sold sets, the net profit is $16,646.05. The original cost of all the sold items was $29,218.82.

So, the numbers are quite similar to the statement made by that experienced member.

Over this one year, I spent time researching/learning how to sell, how to pack (gradually getting more and more efficiently)...... I do enjoy the process, and I see this as my hobby. Even it takes time, but It does not affect my job at all.

Investing in Lego is fun and hope it would last for a while. But we are all witnessing the gradual change of Lego investment environment.

 

[redcell]

Is your net profit before or after taxes?  If it's after tax, I would say that you've done pretty well.  You made a net margin of over 50% on around $30k of inventory, which is great, particularly during a time when margins have been trending downward.  That's a lot of inventory to move and to do so within 3 years of starting.  It took me years to get to that level, but that had more to do with risk-aversion on my part.  If you're continuing to scale your operation, you're heading into territory where things start getting more interesting (at least in my opinion) because of the increased flexibility that you will have with your growing capital base.

[waddamon]

Ebitda is what matters.  The rest is massaging.  IMO.

[exciter1]

Ebitda is what matters.  The rest is massaging.  IMO.

Is that technical jargon?

[Seeyounexttuesday]

1 hour ago, waddamon said:

Ebitda is what matters.  The rest is massaging.  IMO.

Why would ebitda matter? To me the only thing that matters is net profit.  Net profit = what you're left with after all costs, including tax.  

17 minutes ago, exciter1 said:

Is that technical jargon?

It means something like earning before interest, tax and something else

Edited January 9, 2016 by Pjking

[waddamon]

Earnings before interest taxes depreciation and amortization.  It matters because is the real earnings.  All the rest and random variables.  None of which are fixed from tax payer to tax payer.  The effectiveness of a business in its valuation is very heavily based on ebitda.

[tyclin]

1 hour ago, redcell said:

Is your net profit before or after taxes?  If it's after tax, I would say that you've done pretty well.  You made a net margin of over 50% on around $30k of inventory, which is great, particularly during a time when margins have been trending downward.  That's a lot of inventory to move and to do so within 3 years of starting.  It took me years to get to that level, but that had more to do with risk-aversion on my part.  

That would be before tax. I don't know at this point. I also document the overhead cost, including packing materials, and anything to do with this selling business.

in 2014, from May to Dec, $10,620.26 in sales, net profit $2807,08, cost of items $5703.87, after tax, I think I kept the profit. But I would not know what is going to happen in 2015.

"If you're continuing to scale your operation, you're heading into territory where things start getting more interesting (at least in my opinion) because of the increased flexibility that you will have with your growing capital base."

- I know you already explain the reason but I don't quite understand what does it anything to with increased flexibility?

[tyclin]

1 hour ago, waddamon said:

Ebitda is what matters.  The rest is massaging.  IMO.

Initially, I have no clue what this message about. But I like to google.... that is what I hope to hear from other knowledgeable members and their opinions.

I think I am relatively practical. I do my best to make sure that I don't feel overjoyed about the profit because I know there are other costs involved.  The net profit is before tax. To my knowledge, the annual inflation rate is about 2-3%. I am certain the 50% return is definitely not what I will end up with. it might 40% or lower.

I never want to be a "businessman" because I don't think I could be one. However, I have certain desire of doing buying and selling business, probably like lots of people. It is not for the income purpose. Part of fun is also from customer service. I like to hear customers' compliment about how great my service is, how great my package skill is. When customers are angry (and obviously unreasonable), I learn how to calm them down and change them into leaving me positive feedback. That makes "mentally profit"....

However, how long will it last?

 

[exciter1]

37 minutes ago, waddamon said:

Earnings before interest taxes depreciation and amortization.  It matters because is the real earnings.  All the rest and random variables.  None of which are fixed from tax payer to tax payer.  The effectiveness of a business in its valuation is very heavily based on ebitda.

We'll add it to the list of acronyms.

[waddamon]

Sorry, I am a business man, I own an investment and financial planning firm.  We help clients create valuations for their businesses, determine profitability etc.  So when I came to the Lego opportunity I see no other way to approach it.  I enjoy the toy with my kids, but that isn't a business.  So how to manage that, squeeze max profit etc. Is of utmost import to me.  Every business has a learning curve, this one is no different.

[legone3]

28 minutes ago, tyclin said:

Initially, I have no clue what this message about. But I like to google.... that is what I hope to hear from other knowledgeable members and their opinions.

I think I am relatively practical. I do my best to make sure that I don't feel overjoyed about the profit because I know there are other costs involved.  The net profit is before tax. To my knowledge, the annual inflation rate is about 2-3%. I am certain the 50% return is definitely not what I will end up with. it might 40% or lower.

I never want to be a "businessman" because I don't think I could be one. However, I have certain desire of doing buying and selling business, probably like lots of people. It is not for the income purpose. Part of fun is also from customer service. I like to hear customers' compliment about how great my service is, how great my package skill is. When customers are angry (and obviously unreasonable), I learn how to calm them down and change them into leaving me positive feedback. That makes "mentally profit"....

However, how long will it last?

 

To calculate the return rate (or whatever it's call), should we divide the profit by total cost of all items?

or

   2015's ROI = 16,646.05 / total cost of your $183K inventory x100 = ... (%) 

(pros please correct me here).

Anyway, I really admire your commitment to this. Just wow!

[tyclin]

2 hours ago, legone3 said:

To calculate the return rate (or whatever it's call), should we divide the profit by total cost of all items?

or

   2015's ROI = 16,646.05 / total cost of your $183K inventory x100 = ... (%) 

(pros please correct me here).

Anyway, I really admire your commitment to this. Just wow!

Maybe Waddamon could shed some light on this.

The buying and selling happen at the same. I buy, I add; I sell, I subtract. I update my inventory to the best of my knowledge. I have two tracking systems. One is in Brickfolio; the other in Excel file. Excel file would be the most accurate how much I exactly buy in the items. Brickfolio provides current market value for all the items. 

The $ 183 K inventory is the current market value, not exactly how much I really spent buying in. So, the true current inventory is $ 164K.

However, this current inventory value does not include the items sold. Therefore, I am not sure whether it makes sense to calculate based on the inventory. That is why I think it might be more appropriate to calculate the return based on the items sold.

I guess I currently like the process of investing in Lego. It kind of reminds me of from 2009 to 2102, I, originally an orchid novice, became an orchid enthusiast, from one orchid to 400 orchids collection. I spent time researching everything to do with orchids. I also learned how to sell orchids too (but it did not work that well). It was my hobby and it is still though I killed 3/4 of them. I still get excited and enjoy watching my orchids spiking, blooming, growing fresh roots, happily living in its ecosystem. I just stopped buying more because of losing too many.

I am currently into my fourth year of investing in Lego. There are more and more people knowing about investing in Lego and doing it. Lego company is probably throwing out strategy to somehow suppress "investors". There is news about investing in Lego is even more profitable than investing in gold. Lego market is kind of like stock market (I might simplify it).

But I am afraid this would not last long?

 

[conceptmachine]

Im in the 46% or so tax bracket.   If I make 1M a year they get basically 330,000 of it.   I don't pay taxes on what they take so BASICALLY they tax earnings.  670k.  

Sometimes that confuses people.  your taxes shouldn't be killer but on that 16k profit, depending on what tax bracket that puts you in with total earnings for the year.  Around 1/3 of that 16k will be the govs.  You keep the rest.  They claim to get the scraps hu?!  Someday we'll be getting the scraps.

Edited January 9, 2016 by conceptmachine

[waddamon]

Well in concepts case he/she might need to determine if hobby income is better than sole proprietorship.  Or set up an llc as a sub chapter s.

[brickinfinite]

I just want to say that I admire the business acumen, knowledge, and insights that many of the members posses. Thank you for sharing them with the rest of us. 

Edited January 9, 2016 by brickinfinite

[waddamon]

1 hour ago, tyclin said:

Maybe Waddamon could shed some light on this.

The buying and selling happen at the same. I buy, I add; I sell, I subtract. I update my inventory to the best of my knowledge. I have two tracking systems. One is in Brickfolio; the other in Excel file. Excel file would be the most accurate how much I exactly buy in the items. Brickfolio provides current market value for all the items. 

The $ 183 K inventory is the current market value, not exactly how much I really spent buying in. So, the true current inventory is $ 164K.

However, this current inventory value does not include the items sold. Therefore, I am not sure whether it makes sense to calculate based on the inventory. That is why I think it might be more appropriate to calculate the return based on the items sold.

I guess I currently like the process of investing in Lego. It kind of reminds me of from 2009 to 2102, I, originally an orchid novice, became an orchid enthusiast, from one orchid to 400 orchids collection. I spent time researching everything to do with orchids. I also learned how to sell orchids too (but it did not work that well). It was my hobby and it is still though I killed 3/4 of them. I still get excited and enjoy watching my orchids spiking, blooming, growing fresh roots, happily living in its ecosystem. I just stopped buying more because of losing too many.

I am currently into my fourth year of investing in Lego. There are more and more people knowing about investing in Lego and doing it. Lego company is probably throwing out strategy to somehow suppress "investors". There is news about investing in Lego is even more profitable than investing in gold. Lego market is kind of like stock market (I might simplify it).

But I am afraid this would not last long?

 

Well, you measure gain or loss net of expenses on the particular asset you sold.  The remaining inventory has its original basis intact and will be realized when it is in fact sold.  So your rate of return is based on the net income(after expenses) divided by your basis.  I just ran my sales for mainly the 4th quarter of 2015, me net return was 92%+.  This was after expenses and around 24-25k in gross sales, I cannot remember exactly.  What drug it down was my poor decision to invest in epic dragon battles and a few others.  Prior to those I was sitting at a net return of around 115% or so.  That is darn good.  Selling stuff invested in from mainly late 13-15.

[fabioso79]

Just want to thank you for sharing this .

It is always enlightening to get other's experience as a reference.

collecting and selling is fun , but revenue and actual profitability is an interesting goal for many of us too.

[redcell]

9 hours ago, tyclin said:

 

"If you're continuing to scale your operation, you're heading into territory where things start getting more interesting (at least in my opinion) because of the increased flexibility that you will have with your growing capital base."

- I know you already explain the reason but I don't quite understand what does it anything to with increased flexibility?

I don't think I explained previously, but what I meant was that as your capital base (or the amount that you borrow) grows larger, you have more money to spend on sets and more decisions to make about how to spend that money.  Do you go incredibly deep on a small number of sets or spread your money over a larger number of sets?  How many copies of that modular do you buy now that you have the money to go 50 copies deep if you want?  Etc., etc.  Basically, once you have more money to play with, the possible combinations of how you can spend that money grow...that's what I have found interesting as my business has grown.

[redcell]

4 hours ago, waddamon said:

Well in concepts case he/she might need to determine if hobby income is better than sole proprietorship.  Or set up an llc as a sub chapter s.

I'm converting over to the LLC/s corp structure this year...that works out to a nice little savings.

[redcell]

4 hours ago, waddamon said:

Well, you measure gain or loss net of expenses on the particular asset you sold.  The remaining inventory has its original basis intact and will be realized when it is in fact sold.  So your rate of return is based on the net income(after expenses) divided by your basis.  I just ran my sales for mainly the 4th quarter of 2015, me net return was 92%+.  This was after expenses and around 24-25k in gross sales, I cannot remember exactly.  What drug it down was my poor decision to invest in epic dragon battles and a few others.  Prior to those I was sitting at a net return of around 115% or so.  That is darn good.  Selling stuff invested in from mainly late 13-15.

That's an outstanding rate of return.  So did you dump your EDBs last year?  I haven't done so yet, but am getting close to pulling the trigger.

[waddamon]

2 hours ago, redcell said:

That's an outstanding rate of return.  So did you dump your EDBs last year?  I haven't done so yet, but am getting close to pulling the trigger.

I did, sold them all.  Broke even, no money made.  So for being a dog, I at Least got my money back.  Had to be rid of them.

[conceptmachine]

My CPA has told me for several years to convert to an llc but I kept putting it off.  Maybe I'll do it next year (said that for 3 years now)  He's a very good CPA and never really actually jumped on me about it, just recommended that I do it. 

Edited January 10, 2016 by conceptmachine

[pete411]

EDB? Electro Doggy Bags??

[waddamon]

11 minutes ago, pete411 said:

EDB? Electro Doggy Bags??

Epic dragon battle

[waddamon]

18 minutes ago, conceptmachine said:

My CPA has told me for several years to convert to an llc but I kept putting it off.  Maybe I'll do it next year (said that for 3 years now)  He's a very good CPA and never really actually jumped on me about it, just recommended that I do it. 

Llc is a state entity and for various reasons makes lots of sense.  For federal purposes it is a disregarded entity so you must then elect what way in which it will be taxed.  Sole prop, partnership, s corp or c corp.  All are options for federal purposes.