According to the National Pawnbrokers Association, most pawn shops are family-owned businesses. There are approximately 11,000 pawn stores operating nationwide. If you are curious to learn how to start a pawn shop, this article will give you some business steps to follow from getting investors, learning the business, getting pawn shop insurance, and more.
Business cost is one of the first things to figure out when learning how to start a pawnshop business. The cost to start a pawnshop will vary depending on your area and how much you want to invest right away. You can start a pawnshop for as little as a few thousand dollars initially, but keep in mind the following costs as you go forward:
| Business Expense | Cost of Expense |
|---|---|
| Pawn shop building | $1,000 |
| Employee wages | $44,000 |
| Operational costs | $500-$1,000 |
| Store signage | $100-$1,000 |
| Marketing | $200-$10,000 |
| Insurance coverage | $3,000 |
| Business vehicle | $2,000 |
| Initial inventory | $6,000-$15,000 |
Business cost is one of the first things to figure out when learning how to start a pawnshop business. The cost to start a pawnshop will vary depending on your area and how much you want to invest right away. You can start a pawnshop for as little as a few thousand dollars initially, but keep in mind the following costs as you go forward:
| Business Expense | Cost of Expense |
|---|---|
| Pawn shop building | $1,000 |
| Employee wages | $44,000 |
| Operational costs | $500-$1,000 |
| Store signage | $100-$1,000 |
| Marketing | $200-$10,000 |
| Insurance coverage | $3,000 |
| Business vehicle | $2,000 |
| Initial inventory | $6,000-$15,000 |
Do you want to know how to start a pawn shop? Starting a new business can sound intimidating. Below are several steps you can follow to become a pawn shop entrepreneur.
Every business starts somewhere. To answer the question of how do you start a pawn shop, you need to have a goal in mind for your business:
Settle on a name: Your business needs a name. Settle on something customers can easily remember and spell. Don’t be afraid to ask others for feedback before settling on it. You could make it “Devon’s Pawnshop” or speak to what you sell with “Electronic Treasures.”
Customer service: Maybe your pawnshop vision involves personalized customer service. You must acquire the necessary skills and team members who specialize in making sales and leaving customers happy. In that case, you will want to build customer service experience or take a training course.
Business location: A pawnshop will need a prime location to capitalize on foot traffic. You want to capture people walking by on the street who will stop in to see your interesting product selection. You can rent space at a mall or set up in the heart of a city. Wherever you choose, it needs to be where your customers can reach you.
Unless you already have the starting capital, you must find ways to pay for your pawn shop opening costs:
Venture capitalists: These investors seek businesses with high growth potential. Suppose you can successfully pitch your business idea to them. In that case, they can deliver seed money to start your business in exchange for an equity stake.
Angel investors: Like venture capitalists, angel investors usually want an equity stake in your company. However, they are not typically looking for fast growth. They want to provide funding for struggling businesses that they believe will succeed.
Friends and family: Don’t be afraid to ask your personal network for help. Friends and family will be more receptive to hearing your pitch and have confidence in your ideas because of your shared experiences.
For business success, it often comes down to what you know and who you know. You will need to gain experience in the pawnshop business on topics like:
How pawnshops make money: Pawnshops make money through item reselling, offering services like ATMS and cellphone activations, and offering loans to customers.
Earning potential: According to Zippia, pawn brokers have an average annual salary of $28,304. The top 10% of pawn brokers make $34,000 annually.
Item value: As a pawn shop owner, you must be familiar with the market prices of items you will sell. Everyday items sold at pawnshops include computers, jewelry, coins, and comic books.
Your business can succeed only by drawing in business through customers. Below are a few examples of good pawn shop customers:
DIY project enthusiasts: Many people love to do their own projects. These do-it-yourself customers visit your pawnshop to find inspiration for projects and low prices on project materials.
Bargain hunters: Since pawnshops have a reputation for offering lower-priced goods, they will attract bargain hunters. These customers will always be looking for the lowest deal and may be more obsessed with the price they can get for something than its utility.
Students: Your student customers will be looking for lower prices on electronics and school supplies and will be interested in unique items that your pawnshop brings in.
Registering your business opens doors to eventual expansion and other opportunities like business loans, a bank account, and protection from personal liability. Some typical business structures include:
Sole proprietorship: The business is owned and run by you. You are personally responsible for liabilities and business debts. A sole proprietorship has pass-through taxation, meaning you don’t have to pay taxes on a corporate level.
Partnership: A partnership has two or more owners who all share a portion of business expenses and profits. A partnership has pass-through taxation.
Corporation: A company owned by shareholders who is a separate entity. Shareholders get liability protection from business operations but must pay taxes twice on business and personal income.
Limited liability company: You get the benefits of pass-through taxation like a sole proprietorship but are personally isolated from business liability.
A federal tax ID or EIN is a requirement to open a business account with most banks. It is also required by the IRS when you start hiring employees or establishing a corporation or partnership. The steps for getting your EIN include:
Register your business: Before getting a federal tax ID, your business must be a legally recognized entity.
Gather business information: You must provide your name, address, social security number, and business name.
Complete the application: You can submit an application online through the assistance tool or by sending an application through mail or fax.
Your business will need something to sell to customers. You can find items to sell in your pawnshop from various sources:
Ask friends and family: Try to access items that people no longer want or need. You can help your friends and family by turning their unwanted items into profit.
Garage sales: A garage sale can be a treasure trove for your pawnshop. You can find practically anything and will often be paying a lower price.
Estate sales: An estate sale is when someone’s property and possessions are liquidated quickly. You can find items for much lower than their market rate.
It is essential to hire employees to help you run your pawnshop. Pawnshop businesses tend not to need as many employees. Many US pawnshops hire less than ten employees to keep things running:
Sales associates: These employees are the face of your business. They are tasked with providing critical customer service and must be knowledgeable about product reselling.
Bookkeepers: Manage business finances, produce financial reports, and handle business expenses.
Business assistants: Helps manage schedules, answers phones, and supports your other team member's tasks.
Appraisers: For business success, it often comes down to what you know and who you know.
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Your business will only pick pace if you know how to manage it efficiently. This next section will give you tips about how to run a successful pawnshop.
An eye for detail is crucial to develop before you discover how to start your own pawn shop. When reselling items and assessing their value, you need to be adept at analyzing everything about an item:
Diamonds: Fake diamonds typically do not float in water. You can also hold diamonds under a UV light. Real diamonds emit a blue glow.
Gold: You can scratch gold on a hard object to see it leave a golden streak. Fake gold will leave darker colored streaks. Gold is not magnetic, so you can use a magnet to test if it is real gold. Dropping real gold into nitric acid will produce no reaction. If you test a sample in nitric acid and there is a reaction, you don’t have real gold.
Cards: Many types of baseball cards and playing cards are valuable items. However, you can tell if one is fake by comparing the holographic colors on a card. You will look for tiny imperfections and differences in the font. When examined closely, Magic the Gathering cards with a fake back will lack the right color gradient
One of the best things you can do when starting is shadowing another pawnshop owner or working for them. With first-hand experience, you can understand what works and what doesn't:
Become an expert: You must project confidence in the pawn shop business. You get confidence by knowing what you are talking about.
Know your customers: The National Pawnbrokers Association estimates that 80% of your business comes from customers within an 8-mile radius of your location. This makes it easy to perform research on your customers and find out what their needs are.
You and your business do not exist on an island. You must make connections that can support your business and help it grow:
Appraisers: A personal relationship with local experts and appraisers is essential. You must rely on them to value your items and protect your bottom line. They can also help you with ledes to find more products.
Local businesses: Connecting surrounding businesses can help you with customer and supplier leads. You can connect with your community by joining a local business organization and participating in events in your area.
Business cards: A business card is simple and inexpensive and can go a long way to establishing a business relationship. Hand them out at parties, events, and anywhere you are going. You never know when that connection you made will pay off for your business.
Your pawnshop can’t and shouldn’t appeal to everyone. You will need a solid brand strategy that appeals to your target customer base:
Find your niche: Don’t stretch yourself thin by trying to do everything at once. Find a customer to appeal to and stick with it. Focus on an aspect of your business and make it the best. Aim to provide the best customer service or products and learn your target customers' needs.
Reliability: Your brand strategy needs consistency for customers. You don’t want to appeal to one demographic, like electronic buyers one week and then jewelry sellers the next week. Customers appreciate consistency in approach.
Customer buying psychology considers your store's appearance and layout. A couple of tips to improve sales based on layout include:
Floor plan: You want to set up your store so shoppers are naturally led to your profitable items. Create a natural path that lets customers easily browse your items before being dropped off at the place to make a purchase.
Lighting: Even smooth lighting helps put customers in a positive and relaxing atmosphere. For a pawnshop, you want to create a pleasant atmosphere where people feel comfortable making purchases.
Are you wondering how to start an online pawn shop? The following business tips focus on considerations you must make when operating a pawnshop with an online customer base.
When learning how to start up a pawn shop it is inevitable you also learn how to create a website:
Create domain name: You will want a domain name and URL that people can easily spell that matches your business's name and brand.
Get a web host: Sites like GoDaddy, Bluehost, and HostGator help store your website's data and maintain a stable connection to your web server.
Design the website: You can pay someone to design your website or use a webpage template service like Squarespace. You will want it to install features like a way to contact your business, page navigation, and social media links.
Add content: You must add content your customers want to see and increase website engagement. You can add FAQS, a product store, a blog, business news, and promotions.
In addition to your own website; you should utilize large online marketplaces to get access to a wider audience:
| Service | Advantage | Disadvantage |
|---|---|---|
| Amazon | Huge built-in customer base | Limited storefront customization |
| eBay | Can sell a wide variety of products | Limited customer interaction |
| Poshmark | Specialized in secondhand goods | High commission fees |
You must choose whether you will offer to ship to customers outside the US. While international customers can be a potential income stream, they come with disadvantages like:
Returning items is complicated and likely to cost you more money.
Language barriers can cause misunderstandings and sour your relationships with international customers
Higher shipping rates inflate the price of your products, which can hinder a discounted items image
Shipping to customers generally takes longer
Products can be delayed by weeks or months because of weather
Your pawnshop must be easily findable and recognizable to your online customers. Below are a few digital marketing tools for your online pawnshop business:
| Digital marketing | Description | Advantage | Disadvantage |
|---|---|---|---|
| Email campaign | Send out emails to your customers for a specific purpose like a sales promotion, to drive traffic, and increase your brand awareness. | High return on investment | May be caught by a customer’s spam filter or otherwise not be delivered |
| Pay-per-click ads | Buy ads on websites and search engines that direct customers who click to your website. | Have your business displayed prominently at the top of popular web pages and search engines | High potential costs and no guarantee that a customer who clicks on the ad will make a purchase |
| Search Engine Optimization (SEO) | Produce content on your website that drives customers searching for certain keywords to you. | Don’t have to pay for ads to rank high on search engines | No guarantee that you can rank higher than you competition |
| Online influencer endorsement | Sponsor a social media influencer to endorse and appear in ads for your pawnshop. | Instant access to a popular influencer’s devoted audience | Associating your brand with an online influencer can backfire if their reputation takes a hit |
A smart business strategy is to go where your customers are. According to the University of Maine, over 4 billion people actively use social media. Currently, the world’s population is nearly 8 billion people. This means that social media can currently reach over half the world. If everyone is on social media, then your customers will expect you to be on there, also. You will want to join social media so your brand is not left out of the conversation.
You will want to make a business account on platforms like Facebook, Twitter, and Tiktok. Facebook allows you to create a page to interact with customers and sell items on a marketplace. On Twitter, you can post promotions, updates and interact with customers directly. TikTok allows you to post content that promotes your business or products.
Your pawn shop will need insurance coverage to protect against devastating financial loss from lawsuits and other damages. The following insurance requirements will help your business boost income.
A business owner’s policy is comprehensive insurance protection that combines general liability and commercial property coverage. With NEXT, you can combine liability and property insurance at a lower price. You get quick access to online quotes tailored to your business. NEXT helps you save when you combine multiple policies and has a 4.7/5 rating from customer reviews.
General liability insurance protects your business against third-party claims of bodily injury or property damage. If a customer slips in your pawn shop, this policy helps you. Thimble is our recommended pick for general liability coverage. They offer easy-to-buy policies and short-term general liability insurance. Buying with Thimble is easy thanks to their numerous insurance resources, like their glossary. Thimble has an A+ from the Better Business Bureau.
Professional liability insurance also helps you with claims and legal costs. This coverage protects you when you make a mistake in your professional capacity, fail to uphold a contract, or are negligent in your business. Hiscox offers a superior professional liability policy. They sell specialty insurance designed to conform to your needs. When you purchase a policy with Hiscox, you get access to a dedicated service representative with a wide knowledge base. Hiscox has an A rating from AM Best.
A commercial property insurance policy protects your pawn shop building, equipment, and other property. This policy protects your property from fires, theft, vandalism, wind, and more. For commercial property insurance, you should choose CoverWallet. They help connect you to over ten top-rated insurance partners like Hiscox, Progressive, and Markel. To make things easier, CoverWallet allows you to sort policies by industry.
Your commercial auto insurance policy keeps your business vehicles safe from accident liability. It can also protect your vehicles from physical damage resulting from collisions, hitting animals, and vandalism. Tivly is an excellent choice for your policy. After calling them, they help match you with over 200 insurance partners. This company offers customers a fantastic turnaround time on commercial auto policies like gap insurance, personal injury protection, and uninsured motorist.
Workers' compensation insurance pays disability benefits and medical costs for injured employees. If your workers develop an occupational illness or injury, this policy protects them. Many workers’ compensation policies also include employers' liability coverage. This protects you as a business owner from employee lawsuits based on injuries. We recommend The Hartford for workers’ compensation. They are a long-standing insurer that has been writing insurance for over 200 years. Their pay-as-you-go policies take the stress out of insurance coverage. The Hartford serves policies to over one million small businesses and has an A- rating from AM Best.
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