The Blueprint for a Profitable Resale Business

Karri: Hello, and welcome to the ReCommerce podcast, the podcast where we talk all things re-commerce and circular businesses. Today, we're going to go through the blueprint for profitable resale business. We're going to go through operations, inventory, sales, marketing, and financials in general. And like always, I'm joined by Tuomo Laine, CEO and co-founder of Twice Commerce. Welcome.

Tuomo: Thank you, Karri. Excited for today's topic.

Karri: Absolutely, absolutely. Let's start by going through all the different parts that actually affect the profitability of a resale business.

Tuomo: Yeah, the common sense, the definition of profitability is, of course, making more money than you spend. So there's two big elements that people usually look into. How much did I pay for the item? And then what was the price that I sold it for? That gives you a good overview to the profitability, but there are other costs that need to be taken into account also. So in resales, it's not only about buying stuff and selling them forwards. There are costs related to inspection, grading, potential repairing, or refurbishing of the product, or just holding onto that stock. So the warehousing cost of holding to that product. So I think it would make sense for us today to go through some of those more interesting cost basis than just purely the purchase price. So these are, in practice, essentially the intake engine. So what are the costs of taking in the product and what are the costs regarding to serialization, so creating the entity for that product, listing it, marketing it, and then finally selling it?

Karri: Sounds good. So let's get started with the intake engine.

Tuomo: Yeah, so the intake engine is essentially the heartbeat of your operation. It defines how fast you accept new items to your inventory and how do you inspect and grade them as part of that process. So it defines the speed in which you're able to take in supply. And the engine is a big part in defining how granularly you can define things like the grade or the price points of the products and whether you are able to kind of inspect products in a detail where you can say that this is exactly that make and model and the manufacturing gear, or whether you have to be a little bit more vague, which usually means that you have less pricing power than later on. And a big part of that intake engine usually is the time that is needed for an employee or staff member to do all of those tasks. You can do some of that with AI nowadays, but there's probably always a bit of a human element involved to it. Someone needs to be there to snap the photo of the item, or someone needs to be there to kind of extend the AI's assessment a bit further to actually find that edge in your business. So one big metric for that intake engine is how much time does an individual need to spend when looking at an item until that item has been registered into your stock as a serialized item with descriptions and pictures and conditions and grades marked down. And then the other question is that after all of those have been done, is that item immediately available to be listed to your sales channels or does it still have to wait and go through some hoops and loops before being able to be listed? So how much time do you need to spend in each item and how well that process defines that item is a crucial part of the so-called intake engine?

Karri: Absolutely. And that's probably something that some might not even think as a cost if they have, let's say, an employee that they are paying something. If it takes 10 minutes, 5 minutes, or 2 minutes of that person's time to register one item, it's quite a big difference when you actually start to calculate how much costs are related to this item. And this is, of course, something that when the volumes increase is something that is even more important for your business.

Tuomo: Yeah, and definitely it also relates to the value of the items that you take in, what kind of items are you looking for in the first place. So if you're reselling very low value items, your intake engine needs to be faster and faster and faster, which means that you need technologies like AI or other solutions to allow an individual to be able to take in rather tens or hundreds of items in an hour than a few items. If you're buying in items that are valued in hundreds or even thousands of dollars, then you probably want to take a little bit fewer items and make sure that you have a very well tuned inspection and creating process because there's money to be made in each percentage of improvement that you can have in your intake engine. But I think it's fair to say that if you're dealing with, let's say, items that are valued in tens of dollars, and then if your intake engine can take in, let's say, three items or four items per individual per hour, you're likely in a place where it's very hard to make it into a very profitable business. It can work as a side hustle or a side revenue stream. But if you want to scale that to be a big revenue driver and margin driver, you probably need solutions and digitalization on your intake engine to help you process the supply faster.

Karri: How is twice commerce maybe helping with this intake engine?

Tuomo: So there are a few critical things that we've enabled. So first of all, we have very robust APIs. So if you have, for example, a product return form or any form in your website that is customer facing, you can connect that already to twice, meaning that when a customer registers a product return or a trading process, you can turn that already to be a kind of a pre-registered item in twice, which allows your employees to not spend time marking information down, but rather just validating whether that information is true. That can already be a huge lifesaver. The other one is that our AI tools can help enrich those that input from the end user and customer by connecting it to your existing SKU mappings and so on to again make sure that that initial information from the customer can be already enriched by AI with all of the knowledge about your catalogs and so on, so that again, your employee can focus more on validating the input rather than creating the input. That's, I think, one big element that we have. After the validation, if you find some errors, for example, in condition, it's a lot quicker for your employee to just quickly adjust it rather than kind of creating everything for the first time every time.

Karri: Sounds like the online form type of intake is well taken care of, but what about if somebody just walks into your store or you are in some place and you wanna quickly register an item that you have in front of you?

Tuomo: In those cases where someone kind of arrives to your store and essentially hands you an item that you don't necessarily know even what it is, or maybe you have some vague idea, what we've enabled is that you can register stock also by just snapping a picture of that item. So essentially a staff member can use their phone or a shop iPad or tablet to snap a photo of the item, and then our AI compares that to the SKU base that you have and tries to identify what is this item against your existing SKUs or then creating a new registration kind of outside your existing SKU base. Then it does all of the basic stuff of figuring out what is this, what are the brands and what are the conditions and so on. So again, your staff member can very quickly register the item in, maybe based on that already handled the customer case there, and then later on refine that process further. So that's again where some of the advancements on AI and item recognition comes in very handy that product returns or that inflow of products can be as easy as snapping a photo of the item.

Karri: It seems like there is a lot of things that can help both online and offline. And next about the serialization. So something we already touched upon is that the unique item that you are registering or taking into your inventory is actually stored as individual item rather than just being one of many under a one SKU, but actually having detailed condition that is like a digital twin of this item.

Tuomo: Yeah, for sure. So like the alternative would be that you kind of just say, maybe you have a skew for return and you just kind of manage the quantity there. But the benefit of serializing that intake from the very first step is that as you kind of validate that information and enrich it further to that serialized entity, you can also start attaching unique costs and so on. So if there's a cost attached, for example, to the time spent on that item, all of these can be starts tracked individually. So it helps you in two ways. It helps you to first of all, in overall, evaluate the efficiency and operational level in which you're kind of running your intake engine. So you can do it like analysis later on, but also it allows you to kind of double click on individual items on seeing that, all right, all of these are, for example, of the same make and model, but there's a little bit different conditions or the source from which it was acquired, different a little bit. And these can be then used both in your pricing decisions later on as you list these item out to be sold, or they can be used as you analyze profitability in general, seeing that are there certain purchase sources or certain conditions or certain makes and models that you wouldn't otherwise catch with a generic skew that drive profitability to be better or worse. So that's realization, I think, is at the core of allowing you later on to make decisions on an individual basis on how do we wanna list it out, how do we wanna price it, and then analyzing what are some of those profitability drivers in your overall operation or in the kind of supply that you're acquiring.

Karri: Absolutely, and it sounds like when you go to the item level, you are still of course able to aggregate. You can easily say that, hey, this is how much revenue and this is how much costs I have going on in my business, but when you are able to actually later on analyze on item level or maybe SKU level, you can see that even some items actually are, they have a very high resale price, but they are actually the ones that are also occurring a lot of costs. So maybe the profitability actually comes from different items that might be lower value and so on. So I think having that data on like the most granular level, like on the item level, of course, enables you to aggregate it, but it also enables a lot more analysis and understanding of your business, like what are actually the profit drivers.

Tuomo: Yeah, for sure, I think like you said, the key thing there is that serialization that goes beyond simple SKU aggregation which just allows you to both understand and achieve a lot more regarding your business and the items that you sell out as your business. So serialization is a thing that should exist from the get go and then services like twice allow you to be flexible and smart with the serialization that you can have traditional SKU tracking alongside having a serialized view to all of your items and you don't have to make like catch all decisions that everything is serialized. You can kind of make decisions that certain items are serialized, certain items are not certain items. You just wanna kind of follow more in a batch level because maybe the value is such that it makes more sense or so on. But it is the dynamic and flexible nature that is needed if you truly wanna scale your operation as a multi-channel. So meaning that you sell both online and in store maybe in marketplaces or even as a multi-location retailer you need that ability to be able to gather serialized data to be able to make better decisions as you improve your business. And that's really at the core of it but it's not a game of either or it's actually kind of both. You need traditional SKU mapping with that extended ability to serialize items in those cases where it's needed.

Karri: Absolutely and especially when we are talking about maybe higher value items, those that information that you capture during the refurbishment or maintenance and like that can actually also be something you communicate for the new buyers. So you can say that, hey, for this specific item we actually, we put a new battery in it or something like that that can also increase the value and the perceived quality of that item. And if you have that in your record you can also use that to communicate for them towards the buyer.

Tuomo: For sure and I think this is a great example on what I also was driving after when saying that all of these events that you record to that item can be turned into also kind of pricing power since customers most likely in many categories value the fact that you can have a item specific declaration of the kind of whether it's a refurbishment or kind of track of the source of where this item arrived to you and all of these parts. So that serialization allows you to produce a lot more trustworthy and valuable documentation to be attached to the resellable item.

Karri: Next we can move into the sales and marketing aspect. So now we have intake engine that's working efficiently. You are getting unique items into your inventory. And next it's about turning these into listings and then making sure that they are available for purchase. And of course this can happen online, offline, maybe in your own online store or marketplaces. And maybe some cases you actually have it in multiple sales channels at the same time but in this world I guess it's even more important that you have the availability and everything under control and there is one source of truth for this.

Tuomo: Yeah, definitely. It's kind of when you have a serialized inventory tracking that is also connected to your warehouses. So if you have a multi-location operation, it is very important that you can be very flexible in how you decide in how you actually put these items out to be listed and to be purchased by customers. And what I mean by this that you have many layers that you want to probably make some decisions on. I think the simplest to understand decisions are like, okay, in which channels do I wanna sell this item? So and in those channels as I list them out, what kind of a listing do I have them for them? You might want to have different prices for different sales channels. It's maybe cheaper in store, more expensive online and so on. You might want to take into account that marketplace a specific nature. So if it's for example, a very niche marketplace for product enthusiasts in that specific product category, you might want to spin out a listing that is more granular in its details, more techy, more catering towards that customer base. Whereas on another channel, which might have a more generic audience, you might wanna keep it more generic. So it can be these kind of decisions that you want the flexibility that this one item that I'm selling, I want to be able to list it in multiple channels, but I want the listing information and the product details to be a bit different based on the channel. So this is one of the examples that can make sense. Then there might be that out of the whole stock that you have, some items you don't wanna list in specific channels, maybe due to the channel economics that you would lose too much money in logistics or you would be paying too much commission for this specific item in that channel. So it wouldn't make sense. And this can be even channels that you own yourself that. If you have, for example, clothes that cost maybe $10 as a reasonable thing, if you're running like a secondhand shop, you don't necessarily wanna sell them online because purely the logistics costs might eat your margin. But it doesn't mean that you wouldn't necessarily wanna like make them visible in your online store. So you might wanna publish that, hey, I have this item, but for this specific listing, you have to come to the store and buy it. So there are a lot of these kind of omni channel related decisions that you wanna control. But behind all of this, you still have only one, like in this case, you would have one item that you're looking to sell. You're just trying to optimize the right prices, right information, right way to sell it based on the channels that you have in use. So this is where the value of that, like flexibility of having a one single source of truth when it comes to inventory, but then being able to spin out a lot of listings across your channels in a feasible way. And I think one thing that you might have touched upon, but once the availability of these listings are based and connected all the way to your actual stock, it is kind of first come first served thing. So if someone is then whatever the channel is, whoever buys that item first, it automatically is removed from availability. Thus it's removed from the channels if they have this real-time availability connected. But this is again one of the benefits that you can have. Twice has a single source of truth with your stock items, with all of the needed data there. We make it very easy to spin out multiple listings pointing to that one item, but that source of truth is still your inventory. So when that item is sold and committed to a customer, it automatically then is set out of stock for the other channels. And this works for resales and it works also for bookings, but in this case, we're talking about resale business. So it is one of the kind of key values that I think we bring to the table here.

Karri: Sounds good. And you touched upon our interesting aspect of like having online store or online presence, even if you don't sell there. So if you have like a brick and mortar, resale, fashion, secondhand fashion stores and like that, you probably wanna highlight what you actually have there and then maybe try people into your store. So that can be, let's say an Instagram post just highlighting that, hey, look at this, cool. Cool things we have available. And maybe the next version of that is that then you have like link in your bio to the online store where they can reserve it. And of course, if it makes sense for you, then you can also enable like online shipping from the online purchases. But I think it's a very interesting idea that you have your inventory or your listings available and they can be both marketing assets, not just basically sales assets for you.

Tuomo: Yeah, 100%. So for example, if I would be running a resale operation, depending on the product category, but let's have for example, just secondhand shop or a thrift shop, I would likely set it up so that to avoid some of the hassle regarding shipping, I would probably do so that I have my inventory tracked in a system like twice. I spin out the listings, I have an online store where my customers can go and browse all of my offering and availability is in a very traditional e-commerce way. They can filter by price models and see I can arrange my items to collections. It's a very nice modern online store experience. I would go a bit further what you said there. I wouldn't just allow them only to reserve items. I would allow them to buy them online, but with the fulfillment option of they need to come to the store or like click and collect experience so they can buy it already online to be 100% sure that they have it. I will pick it up in my store, put it aside, but the actual fulfillment will happen so that that customer needs to arrive to my store. And then you mentioned Instagram posts. I would probably, yeah, I would probably market my business in Instagram. I would have some highlights of some of the items that I have always link a link to that specific listing in my online store because I do wanna teach the users that at any given moment, they can go to my online store to browse my availabilities, be able to even buy stuff online and then come and pick it up later in store when it's a suitable time for them. I do wanna sell both offline and online at the same time. I wanna make sure that people commit to their purchases online. It's more of the fulfillment part that I'm maybe optimizing that. Maybe trying to avoid some of the shipping costs if I have a local customer group or for some items I might be even willing to ship them because they are so valuable that it makes sense to do that extra hassle on that part. The other reason why I would be doing this is probably that I will, I know that every customer who arrives to my store, even though they purchased something online, it's gonna probably browse through the store environment also and maybe learn that, hey, maybe they can bring their supply in also here. So maybe I can acquire some new stock from these customers from items that they're not using anymore. This is very similar to when we did our episode with Kit to Kit and Uptown, chipskate that it's like, they're thinking that they are local community retailers. Online sales doesn't always make sense unit economically, but online marketing makes a lot of sense for them. From my point of view, solutions like TWICE allows you not to say that, hey, I don't have an online store because it doesn't make sense to ship online. You can still have an online store, you can still have your pretty much your whole catalog available there to be browsed. You can just make sure that that online store has a fulfillment setting set to click and collect in that in-store environment. The customers can easily see what's the availabilities in your store or multiple stores if you're a chain of stores. And this is something that I would even see that if you are running secondhand shops in a city, you might even locally wanna kind of join forces to make sure that all of your stock is available in that online store just to drive general awareness across different stores. But that would be my thinking around on how to optimize your online sales for secondhand or resale operations.

Karri: Sounds like a great plan. And I think that kind of has to benefit in either case or even if the customer only comes and picks up that one item that they purchased online, it's still a lot faster because it's already been paid and they just kind of come and collect the item. But as you mentioned, most likely when they come to the store, they might be looking at the other stuff and there might be some advertisement that, "Hey, we also buy back stuff." And so on. So it's gonna basically work as an advertisement and kind of creating this relationship a lot more than if you just ship it and maybe this way they are actually learning that, "Hey, there is this cool shop "and maybe I go there next time just to browse "or maybe that's the place that I wanna sell my used items." So that's a really nice way to handle the resale business both on and offline.

Tuomo: Yeah, for sure. And if you look at many of the secondhand shops, I think many of them might have an operation where they have some stuff or some marketing at some marketplaces like Vinted or similar. But based on our insights on asking why it hasn't been more, let's say widely adopted model that they would have, all of their items also listed online and to be purchasable there and then collected in store, it kind of connects to all of the parts that we talked about. Historically, it has been too burdensome for them to create that digital twin for all of the items that come in. So it has been too burdensome to create that digital stock and then to spin that stock into sales listings. And even though they would have done it online, they would have not had it like being smoothly connected to their in-store sales. And if that would be the case, then having kind of an inventory that can handle this multi-channel, so online store, any in-store sales paradigm. And I think this is one of the key value points that we're bringing as a service to these players is that they can now have a very quick, efficient way of registering stock in a professional, digitalized way, have that traditional in-store environment where they can sell items out in a traditional way and automatically while doing so, having their own line catalog and online store stay in sync with everything. And I think that's really at the core of how to do things. And it's really kind of constantly creating this digital footprint online for your customers, whether they're new or returning customers to see your catalog, what kind of items you've had had and what might be coming in, because then all of this is kind of almost like free marketing. So the friction points of that intake engine, once that is solved and then this kind of automatic syncing across channels, then it becomes very easy. And I think that's something that twice has now done. And historically, that hasn't been easy. And that's probably the reason why historically, many secondhand or thrift stores or resale operations have not necessarily run operation where they both sell online and offline at the same time.

Karri: That makes sense. And it's true if I look at a lot of the secondhand resale shops that I've been visiting in my hometown Helsinki or abroad, it's usually very much offline and they might have some type of presence in Instagram or some listing somewhere. But yeah, it's very true that most of them don't actually have like online store or even online catalog where you can browse and see what they have available in wider terms. So yeah, makes sense. And great to hear if twice it has pretty much solved this and helping in each of these steps.

Tuomo: For sure. And I think it's worth while repeating is that for anyone listening that there's always then the levels in which you can go about it, you can do a very simple way of this, not focusing too much on fine-tuning the listings and just like making a very lightweight way of keep doing this. Or you can go very granular if that's your thing. So you can have like very descriptive listings and multiple pictures per listing and so on. So anyone who's listening and mis-considering this, it's good to understand that you don't have to go like deep. And immediately you can do first step can just be that you have one picture, for example, or even no picture per item and some high level description text and so on and maybe just use the defaults that the AI generates. You can always fine-tune your operation to be more precise as you go. So just to kind of put it out there that it's very valuable and you can do it in various different levels of depthness and complexity that suits you and your operation. So it can be very simple and easy as you kind of want it to be.

Karri: Absolutely. And I think there is huge benefit of just having very simple listings with one image and then if you see that it's working and then you can try to improve it and see if that has an effect on it. So absolutely. And great to hear it's easy and lightweight to start and it kind of almost comes automatically if you are using twice only for your offline store. You can just easily also say that, "Hey, this is also available in my online store." So that sounds really good. But let's move on to the last step in our blueprint, which is about the circle or flywheel and what kind of effect that can have to your LTV and one aspect is absolutely just lowering the acquisition cost. For example, of course new buyers, but also getting new inventory supply into your business.

Tuomo: Yeah. So I think the key thing is that if you have a customer who's already buying a pre-loved, refurbished, secondhand item, it's very likely that they're also a potential customer for bringing in some new supply for you. So you should be thinking on how do you build this flywheel of inviting supply from your existing customers to your store. Of course, it can be simple messaging things like making sure that in your order confirmations and general messaging and receipts, you might say that, "Hey, we buy or accept new items in these categories." Or you might want to bake it into your initial sales proposition also. So let's say if you're selling a very, let's say a valuable design handbag or if you're selling a valuable electronics item, you might say that, "Hey, we have a six to 12 month guarantee buyback on this." So if you buy it for $2,000, we guarantee to you that after 12 months, we buy it back from you for $800. So that's another way of kind of giving someone the guarantee that, first of all, they can always bring it back. And if it's in certain condition or some other criteria that you defined, they can get some money back and they can look to upgrade to a new model or similar. This is something that has been done in some car financing companies, provides you already with a guarantee buyback price for your car at the end of the financing, which makes it a very nice deal. And I think the same model works for many pre-la, refurbished item categories. And that flywheel effect then provides you a certain visibility and ease of supply planning then.

Karri: Absolutely. I remember this one company who is selling like refurbished iPhones. I'm not sure if it was five or six times, but because they are tracking everything individually and they're using the serial number, they actually saw that the same item came back to the system five or six times. So the profitability of that item is actually really good because all of the buybacks, they didn't have to do any marketing or anything like that to get the attention of the current owner, but because it was the same person who bought it, they also sell it when they want to upgrade their phone. They're basically able to just utilize the same item and maybe do some refurbishment and keep on selling that. Then it's more about actually just purchasing and reselling it with a profit rather than spending a lot of money to try to acquire that supply.

Tuomo: For sure. It's about kind of building a brand and what does your brand stand for. And if you're able to build a brand that does not only stand for selling good as new refurbished items, but it also stands for being the solution for your old stuff, it is a very good brand position to have. And I think that's something that many players in the resale and re-commerce market want to have. It would be easy to forget to say that, hey, we are also here for your old stuff. And of course, there are secondhand players that do not take in supply from end users, but rather they buy from aggregators. But in principle, I would say that it's always good to highlight that last or first, however you want to kind of think about it, part of the flywheel of inviting the supply into your business.

Karri: Absolutely. But I think we covered all of them and maybe good idea just to go through of them again. So first we went through the intake engine or the intake speed and how much that actually affects the profitability of your business if you're able to take stuff in and you have all the operations in order to inspect it and maybe do some refurbishment on it and so on. And then it's all about actually capturing every item in serialized unique way. So every stock item has its own history, condition, costs and all of this. And then it's about selling, marketing, multiple ways to do it, multiple sales channels. But here it's super important that the source of truth for those items is the inventory. So if it's sold on one channel, it needs to be out of reach on the other channels. So there are not any unhappy customers who are purchasing something that you don't simply have anymore. And then it's all about creating these loops or these flywheels where you are able to acquire the supply cheaper without actually needing to spend money on acquiring or the marketing cost to acquire more. And of course, when you have good relationship with somebody who purchased something from you and they know they can trust you, they are more likely coming and actually purchasing more from you again. And it sounds like twice commerce has pretty much something for all of these steps to actually help pretty much any size company to get up and running and start to optimize their business.

Tuomo: For sure, that's the mission we are on and on which we kind of improve continuously. So any resale business, I'm pretty sure that we can help you in all of the steps or at least part of those and in that way make your business a lot more profitable and often more fun exercise to run.

Karri: Absolutely. All right. Thank you as always Tuomo for sharing your knowledge.

Tuomo: Thank you, Karri.

Karri: Thanks for listening to the Recommerce Podcast. This podcast is produced by me, Karri Hiekkanen. You can find us on Apple, Spotify, YouTube or wherever you like to listen podcasts. If you like it, please remember to share and leave us a review on Apple Podcast or like and subscribe on YouTube. See you next time.