A lot of people use eBay to turn gift cards they were given (but don’t want) into real money. To the gift recipient, it is “found money” or “free money,” but that doesn’t make it a profitable investment. Can you buy gift cards (at a discount) with the purpose of immediately selling them (at a profit) on eBay? I recently found out that it is possible.
Photo courtesy of Kazuhisa OTSUBO on Flickr
First you have to find the gift cards at a discount through some other source besides eBay. The discount needs to be greater than what is available on eBay for the exact same type of cards. You then need to sell the gift cards at a high enough price to offset eBay and PayPal fees and your shipping cost. This is a very difficult hurdle to clear. Using this eBay and PayPal fee calculator, I found that to break even on a $100 sale, assuming you could pass on your shipping costs to your customer, your break even point would be about $86.75 ($10 eBay fee on a $100 sale, $3.20 PayPal fee). So if you sold at face value a $100 gift card that you bought for $86.75, you would not lose money.
However, don’t count on getting face value when you sell gift cards on eBay. While there are some very large corporate gift card Power Sellers like Gift Card Mall that are able to sell gift cards at face value, most gift cards from normal sellers sell at a discount to their face value (with the exception of a few gift cards like Amazon.com that strangely sell at or slightly above face value). So look at similar cards that have sold to get an idea of what yours are worth. If $100 of a particular restaurants’ gift cards are only selling for $95, you have to find a way to acquire those cards for $82.50 (a 17.5% discount to face value) in order to break even.
Luckily, I was able to find a source for gift cards at a 40% discount to face value. My insurance company, Allstate, has a program called Allstate Rewards. Basically you plug in a device into your car’s diagnostic port and you get a discount based on your driving (amount of miles driven, hard braking, time of day you drive, and whether you keep the speed below 80 mph). In addition to the discount, you also get Rewards points that you can use to get discounts on merchandise (including gift cards). So for instance, if you go 3 days without speeding above 80 mph, you get 200 points. You also get points for logging in and putting in random promo codes they email you. A $100 gift card to AutoZone, Staples or CVS, for instance, costs $90 plus 1000 points (10% discount); same thing for restaurants like Macaroni Grill and Maggiano’s Little Italy. A $50 gift card to IHOP can be bought for $42 plus 800 points (16% discount).
However, what caught my eye was a $50 gift card for any Ovation Brands Restaurant (Country Buffett, Ryan’s, Hometown Buffett, Fire Mountain, Old Country Buffett, or Tahoe Joe’s) that could be bought for $30 plus 2000 points. That is a 40% discount and leaves the potential for profit even after you take out fees charged by eBay and PayPal and account for selling the gift cards at a discount. I purchased $50 in gift cards at $30. The shipping charge was only $1.18. (I quickly realized that shipping the cards to me was a waste; I could just put in my buyer’s name and address and have the gift card company send the cards straight to the buyer).
Knowing that I wanted to scale this up and try to make some real money, I first experimented with one $50 gift card and listed it on eBay in an auction format starting at $1. There were several other Ovation Brands cards that had sold recently and they all sold between $39 and $41. My cards end up selling at $39.10; I offered free shipping. After eBay and PayPal fees and shipping costs, I was looking at a meager $4.78 profit; it was actually slightly higher because the buyer paid for his purchase by mailing me a check (no PayPal fees). Even though the profit margin for a sale like this might only be $4.78/$30 = 15.9%, I could purchase the gift cards at the same time that I received payment for them. I never had any money tied up in inventory.
The buyer paid for and received the first $50 gift card. I asked him at that point if he was interested in buying another $450 in gift cards at the same price ($39.10 per $50). He was interested, but only if I gave him a larger discount. Knowing that I could avoid eBay and PayPal fees, we negotiated a deal at $324 for $450 of gift cards. Once I received his check and confirmed it cleared, I bought the cards for $270 plus $5.31 shipping, locking in a profit of $48.69.
The biggest challenges in flipping gift cards appear to be: 1.) Finding them cheap enough to sell and cover the eBay and PayPal fees. While I have found gift cards at a discount at Costco, at the stores/restaurants themselves, etc., it is difficult to find them discounted more than the ~13% that eBay and PayPal will take from you when you sell them. Even my 40% discount did not leave a lot of profit for me because Ovation Brands cards sell at such a large discount compared to more desirable gift cards like Amazon.com or Starbucks. 2.) You generally have to sell cards in small increments to get better pricing. Selling cards $50 at time for a sub $5 profit is not a lot of money per sale, but if you list $500 worth of cards on eBay, your buyer pool is much smaller and people expect (and bid or buy) cards at a bigger discount. It would be nice to buy $50,000 face value in gift cards for $30,000 and sell them instantly for a $5000 profit, but there are probably no buyers on eBay willing to buy that many gift cards.