The market for used cell phones is projected to grow 4.9 per cent per year for the next five years, adding $15.3 billion in volume by 2028. This market growth is a large-scale opportunity in a highly fragmented industry that is open to new entrants. In short, there’s never been a better time to join the phone reselling business.

How do you enter the game of entrepreneurship and become a phone reseller? Read on for an introductory guide to the basics of the used smartphone business.

Launch Your Wholesale Cellphone Empire:

A Thrilling Start-Up Adventure!

Form a Real Business

When starting a business, it’s important to build on a solid legal foundation. While most U.S. states will implicitly designate you as a sole proprietor if you don’t file for a more specific designation, being a sole proprietor may not be your ideal form of business. A sole proprietor has no legal separation of personal and business assets and carries unlimited personal liability for their business activities — so if someone sues you, all your assets are at risk.

In the American context, most experienced business people will either form an LLC or a C Corporation. An LLC, or limited liability company, isolates you from legal liability for business activities and separates your business assets from your personal assets. A C Corporation is similar but is built from the start for distributed ownership through the issuance of shares in the business. A C Corporation is more expensive to run than an LLC, but forming a C Corporation makes it easier to sell equity and thereby raise money.

Pick Your Strategy: High Volume or Value Added

Broadly speaking, there are two approaches to the used device wholesale business. You can either be a “phone flipper” (purchase many devices, do the bare minimum of processing, and resell them at slightly higher prices), or you can purchase a smaller number of devices, perform meaningful services on them (such as re-grading and repairing), and sell them at a higher margin.

A phone flipper operates through speed and volume. They have small but consistent margins in the low single digits, and by developing relationships with reliable sources of supply, they can control their risks. The flipper’s main risks are phones that are not as described (i.e., wrongly graded phones) and adverse market moves (such as rapid depreciation in the value of phones held in inventory).

A value-added reseller must have expertise in grading and basic repairs. Refurbishing phones can require a substantial investment in parts and repairs, but offers the highest resale margins in return.

Secure a Consistent Supply of Devices

Once you’ve committed to a high-volume or value-added-services business strategy, it’s time to shop for suppliers. Volume players (phone flippers) often prefer to buy large lots from online marketplaces or larger distributors. Pay careful attention to the grading of the lots and try to deal with trusted sellers. With this strategy, your margins are slim to begin with, so it’s virtually impossible to overcome the cost of inaccurately graded devices (as they won’t sell at the originally projected prices).

One risk mitigation strategy is to stay at the top end of the market (for example, by only purchasing high grades of recent iPhone models). This will have the highest capital costs on a per-device basis but will protect you from the price volatility and rapid depreciation of the mid-grade Android market.

Reach Your Customers

Critical to any business is your approach to finding customers. Are you a brick-and-mortar storefront in a high-foot-traffic area? Are you an entirely online business selling through your own website? Do you plan to start just listing on major marketplaces like eBay, Amazon, and Swappa? Each of these approaches has merits and risks.

Many new entrants to the phone reselling business will cut their teeth in online marketplaces. If you can offer competitive prices and quality listings with accurate information and good photography, it’s certainly possible to succeed in this area. Be aware that the abundance of competitors will drive your margins low. Building your algorithmic reputation on each site also takes time, which controls how high you appear in product search rankings. Initially, your search rankings may be so low that you can only close sales through aggressive pricing.

Compared to highly competitive marketplaces, it can seem attractive to strike out on your own and build an e-commerce website. Services now exist that make setting up a working online storefront much easier than it used to be. However, owning and operating your own website is a long-term play that requires significant marketing efforts to drive traffic. Expect to spend money on ads, dedicate time to SEO, and write content relevant to your audience. You don’t have to be an innovator in this area: market your business by following industry best practices.

Exercise Sound Retail Fundamentals

The fundamentals of entrepreneurship in a retail context are simple but not easy. To succeed, you need to:

• Consistently secure inventory at a reasonable price.
• Introduce that inventory to customers through a marketplace, website, or storefront.
• Close sales at a sufficient margin to keep the lights on.
• Reinvest in the next batch of inventory.
• Net a small but meaningful profit margin that makes it worthwhile to run the whole operation.

You can improve your business by securing quality inventory at an attractive price point and marketing in a way that lets you connect with customers. As you gain reselling expertise, you’ll learn to better evaluate device grades and suss out the more reliable suppliers, which will help you secure devices that reliably sell at a decent margin. Eventually, you’ll get better at marketing as well, as long as you pay attention to who your customers are and how they found you. As your target customer becomes clearer, your advertising will become more effective, and your SEO can become more targeted.

If you stay in the game long enough, your marketing dollars will stretch further while your unit economics improves due to high-quality suppliers who give you good bulk pricing. The phone reselling business isn’t easy, but the opportunity to succeed is there for hard workers who are committed to learning the business.