It took a while before breaking even

A new golfing business is hoping to mark its card with a "breakeven" after only two years.

Golfbidder buys and sells secondhand golf clubs, offering them on a website which has attracted thousands of customers.

The idea stemmed from a shop in south London set up by amateur golf enthusiast Liam Robb.

"I had a fairly expensive set of golf clubs that I wasn't getting on with and I was quite keen to trade them in for something better," Liam explains.

Far-flung

"But I realised there wasn't really anywhere to do this."

Liam's shop attracted e-mails from far-flung customers.

He designed a primitive website. Then two friends, Robert Frazer and Jonathan Price, got involved.

Together the three entrepreneurs put together a business plan. A couple of years later, Golfbidder's sales have topped �2m.

To start with the losses piled up. The team spent �200,000 on a stock control and trading system.

They took on 12 staff to handle the buying and to deal with stock as it came in, was checked over and then sent out to buyers.

High volumes

"We spent a lot of time, effort and money upfront," explains Robert, now marketing director.

"It was to create the sort of systems and processes that our traders could use to transact very high volumes, even though on day one we didn't have those volumes going through the business."

The traders buy mainly from professional shops at leading golf courses. The pros have to allow golfers to trade in their old clubs when they buy a new set.

Golfbidder gives a telephone quote based on a list of questions about brand, quality and condition and the pros are only too glad to offload the clubs quickly.

The merchandise is couriered to the Golfbidder warehouse and office in New Malden in Surrey.

Auctioned

The clubs are then photographed, checked for defects and advertised on the website.

Most are offered at a fixed price for "instant buy", but a substantial minority are auctioned over the internet.

"These tend to be stock that we have a lot of and are very slow-moving, but also some of the most desirable items," says Liam.

"We set a low reserve on the auction items and this keeps the bidding fairly busy."

To keep the business safely on the fairway, Golfbidder's directors have had to change some aspects of their strategy in mid-course.

Otherwise, the all-important breakeven point might have slipped further away.

One idea that had to be knocked into the rough was to allow customers to offer their own golf equipment for sale on the website and deal directly with buyers.

"We were hoping to create a specialist e-Bay for private buyers, but we had to stop," admits Robert.

Disputes

There were too many disputes which took ages to sort out.

At one stage Golfbidder landed in a bunker because of its pricing policy.

High quality clubs were selling well. But middle-of-the-road merchandise did not fetch the decent prices that the team had expected.

"We've had to be single-minded in lowering the price we pay for average condition clubs," says Robert.

Rather than leave the clubs languishing in the stockroom, they had to be sold off cheap.

If the founders' projections are right, the 15 staff at Golfbidder will be celebrating some time over the next few weeks as the breakeven point is finally reached.

Boost sales

The company has more than 30,000 customers and the founders believe they can boost sales by three or four times without having to invest in new systems.

Jonathan Price, who as finance director keeps the closest watch on the numbers, claims that they could have chosen to post a profit at virtually any point over the last two years.

"We kept moving into the red," he points out, "in order to invest in our infrastructure. And now we believe we've built a platform from which we can make a substantial profit."

In golfing terms, Golfbidder has only completed the first hole, but so far it looks as though it's heading for a good round.

Liam Robb and Robert Frazer run Golfbidder, the inspiration of a group of friends in south-west London.

They knew how the golf club business worked and turned it to their advantage.

Every golf course has a shop to sell the kit. They often take sets of clubs in part exchange when they make a sale.

Top notch golf shops take in top of the range equipment as their members always want the best.

Liam and Robert decided that they could benefit from this.

Their Golfbidder website sells kit they have bought from golf club shops and customers.

Have a look at the website to see how it works.

Just think...

The front page has a list of stock. Click on any item to find out how the price is set.

What will happen to the price if lots of people want to buy a club and are prepared to pay a high price?

How do you think Golfbidder decides on the reserve price?

What happens to the price if only a few people want to buy a club?

Making a profit

Liam and Robert had looked carefully at the reserve price they set for each club.

They decided that a margin of 30% was the right figure to cover their costs so they set prices accordingly.

This worked on the good clubs but they found it hard to meet on poorer quality clubs - so they were paying too much when they bought them.

It took a while to get things right.

Just think...

Why is it so important to get the margin right?

Covering costs

When the business was first set up, Liam and Robert had a lot of costs to cover - from website costs to marketing costs and paying salaries.

Most businesses can't cover all their costs immediately so it takes a while to break even.

Golfbidder's been going for two years and is about to get there.

They have to cover two sorts of costs.

Fixed costs - these don't change. If they sell no clubs or a million clubs, the costs stay the same. Variable costs - when Golfbidder buys clubs, its costs go up. The more clubs it buys, the higher the costs.

When it sells them, it has to post them to buyers so the cost of postage and packing has to be paid as well. Variable costs rise as the business grows.

When you add fixed and variable costs together, you get total costs.

To cover the costs, Golfbidder had to sell some clubs. In the first two years, it didn't do this but it will do very soon.

Every club it sells adds to its revenue. It takes a while to sell enough to cover both fixed and variable costs.

Liam and Robert certainly have something to celebrate. Once the breakeven point has been passed, the company is turning over enough to make a profit on a regular basis if sales stay at the same level and the margin stays the same.

Just think...

Liam and Robert are cracking open the champagne but they need to be careful. All sorts of things can change.

Breakeven tells you about what is happening now.

What might change to make things both better and worse?

Draw up a spider diagram for both a happy future and a gloomy one.