Calculating True Net Margins on Liquidation: Accounting for Freight, Fees, and Scrap Rates
A complete costing framework for liquidation buying — landed cost, recovery rate, channel fees, labour, and the scrap line most buyers forget.
Key takeaways
- · Divide landed cost by salable units, not total units — scrap is paid for by the units that sell.
- · Your recovery rate, measured over several lots, is the single most useful number in the business.
- · Labour is a real cost even when it is your own time; price it hourly or you will misjudge every lot.
- · Estimated retail value is a reference figure, never an input to a margin calculation.
The five cost layers
Every liquidation purchase carries five costs: the lot price, inbound freight and accessorials, processing labour, channel fees on the sale, and disposal of what cannot be sold. Buyers who track only the first two consistently overestimate their margins.
Write them as a single worksheet and fill it in for every lot. The discipline of completing the same five lines each time is what turns anecdotes into a purchasing rule.
Landed cost per salable unit
Landed cost is the lot price plus freight plus accessorials plus the labour to unload, sort, test, clean, photograph, and list. Divide that total by the number of units you realistically expect to sell — not the total unit count on the manifest.
Worked example, illustrative only: a $900 pallet with $400 freight, a $95 liftgate charge, and 9 hours of work at $25 an hour comes to $1,620. If 140 of the 220 units are salable, your landed cost per salable unit is about $11.57, not the $7.36 the total unit count would suggest.
Recovery rate and scrap
Recovery rate is the share of units you actually sell at a meaningful price. Scrap rate is its inverse plus anything you must pay to dispose of. Both vary enormously by grade: new and overstock lots scrap very little, salvage and raw returns far more.
No universal figure exists, and any supplier quoting one should be treated sceptically. Measure your own, per grade and per category, across at least three lots before you let the number drive a large purchase.
Channel fees and shipping out
Marketplace commission, payment processing, outbound shipping, packaging materials, and buyer returns all reduce the realised price. For most online channels these total a meaningful double-digit percentage of revenue once outbound shipping is included.
Model them as one blended percentage for your category mix. Then apply it to your expected median sold price, not to the retail value shown on a manifest.
Costing your own labour
Unpaid labour is the most common accounting error in reselling. Assign yourself an hourly rate — whatever you would earn doing something else — and log hours per lot against unloading, triage, testing, listing, and packing.
Once labour is costed, the picture often inverts: a cheap mixed pallet that takes three days becomes worse than a pricier single-SKU lot that takes an afternoon. That comparison is only visible when the hours are on the sheet.
Holding cost and time to cash
Inventory sitting on a shelf ties up capital and occupies space you are paying for. Track days-to-sell by category and treat slow inventory as a cost, not a neutral asset.
A 40% margin realised in three weeks is a far better business than a 60% margin realised over nine months, because the first one lets you buy again. Turn is the number that compounds.
Setting your maximum bid
Work backwards. Start from expected median sold price, subtract channel fees and outbound shipping, multiply by your measured recovery rate against total units, then subtract freight, accessorials, labour, and disposal. What remains is the most you can pay for the lot at your target margin.
Write that number down before you look at the asking price. Buying discipline is almost entirely the practice of deciding your ceiling before you feel the pull of the listing.
Frequently asked questions
+What is a realistic net margin on liquidation?
It varies by grade, category, channel, and operator, and no honest universal figure exists. What matters is that your own measured numbers — recovery rate, labour hours, and fees — clear your target after every cost layer is included.
+Should I use estimated retail value in my calculation?
No. Estimated retail value is a reference figure supplied with a listing, not a forecast of what you will recover. Use median sold comps from your own channel instead.
+How do I estimate scrap before buying my first lot?
Be conservative and assume a worse outcome than the grade suggests, then measure the actual result. After three lots in the same grade and category, your own data replaces the guess.
+Should freight be a fixed percentage of the lot price?
Many buyers use roughly 25-35% as an upper guideline, but it is a rule of thumb rather than a rule. What matters is the landed cost per salable unit relative to your expected sold price.
+How do I value my own time?
Use the rate you could earn elsewhere, or the rate you would pay someone to do the same work. Any figure is better than zero, because zero makes every slow, cheap lot look artificially good.
+What margin should I target before buying again?
Set a threshold that covers your fixed costs and leaves capital to reinvest, then hold to it. Lots that fail the test are easier to skip once the ceiling is written down in advance.