You cannot work towards increasing your margins and profits without a standard grading system. No two Grade A batches of iPhones are the same — so your profits are also not the same.
The biggest challenge in the used devices market today is sourcing. Inventory is limited globally. Consequently, it’s important to earn the most from the devices you do source.
This brings us to pricing. Quite obviously, your cost to acquire and sell, say, refurbished iPhone 11s is not always the same. But you can’t be individually pricing devices either.
You buy a Grade A and you should be able to sell it as a Grade A or better. But who decides what’s a Grade A phone?
This is the simplest explanation for the most common problem in the used devices market. There is no uniform standard for indicating the quality of a used or refurbished device.
It impacts the whole supply chain, from wholesale vendors and traders, to refurbishers, resellers, and customers.
Why Grading is a Problem
Without a standard grading system, you cannot compare costs. An iPhone from one vendor graded A is not comparable to a similar grade from another vendor.
Businesses dealing in used, returned, or refurbished stock are all likely to have their own grading criteria. This criteria is probably dependent on their position in the supply chain.
Wholesale vendors won’t have the same view of what qualifies to be the highest grade.
At least some of them will rely on functionality testing (using solutions like PhoneCheck or Blackbelt). This helps add structure to the process to a certain extent.
Even so, as a reseller, you have to begin negotiations by asking for a vendor’s grading criteria. But you are still likely to proceed with caution until you have inspected physical stock.
In general, all of this results in refurbishers like you having to:
- Understand and work with varying grading criteria
- Pay upfront without knowing the true cost of acquisition
- Pay for labor and technology to inspect and grade the phones yourself
- Track mismatches in grades, go back to vendors to renegotiate the cost of the next batch or initiate an RMA process
Why is it Difficult to have Standard Grades
The used devices supply chain has developed over the past decade, but it is still incredibly complex. There are multiple countries, OEMs, retailers, ecommerce companies, and tens of thousands of vendors and resellers.
It would require a majority of these players to come together and agree on grading criteria for each device type.
Having overly simple grading criteria also hurts the industry. There are complexities across the distribution chain that need to be accounted for. We can already see that larger organizations require a larger range of grades.
For instance, having A+ and A to differentiate between devices that are functionally perfect but with minor cosmetic differences.
Then there’s the cost. Who’s going to pay to have the device graded? Functional tests and checks need people, software and hardware tools, and platforms that can track and save the data. It could be too expensive for businesses.
In short, the structure of the secondary market makes it difficult to have industry standards. And in the absence of widespread industry standards, you need to maintain your own data and reports to support your processes.
Benefits of Standardising Grading
Who benefits from standard grading? It helps resellers the most, but it also helps end users. Better standards would mean more trust among consumers, which in turn will accelerate the use of refurbished devices.
Currently, resellers provide a safety net to customers by offering easy returns, extended warranties, and even in-house certifications.
Any improvement in user experience improves profitability. It reduces return rates, cuts down on poor ratings, and increases the overall value of refurbished devices.
What You Can Do Right Now
- Track vendors long term, identify the ones that are most profitable for your business
Track the quality of devices provided by each vendor in detail. This gives you the data you need to negotiate favorable contracts and even cut off vendors that are not profitable in the long term.
- Implement & use a standard grading system (like CTIA) for vendors when possible
Understand what your vendor’s grading process is and then convert it to a standard that you use. You don’t have to develop one either. You can use one that is being developed to be an industry standard, like the one provided by CTIA.
- Have a fast and efficient RMA process in place
The more efficient you process, the faster you can initiate RMAs. This minimizes your losses and improves cash flow.
What Does a Typical Grading System Mean?
There are usually three grades: Grade A, Grade B, and Grade C. A large refurbished device provider might have more, like Grade A+ to differentiate cosmetic differences.
Grade A devices are usually almost like new. Functionally it will be as close to new as you can get. And often will have no cosmetic imperfections. You can clean, buff, check the battery and put it up for sale. These are also the most profitable devices to acquire for sale.
Grade B products could show signs of use but not damage. You might still be able to change the battery and sell it at a lower margin. These devices do not need extensive or costly repairs.
Grade C devices will probably need to be repaired or a part replaced before you can put it up for sale.
But it’s always better to use a more extensive grading system. Here’s what’s included in a system developed by CTIA. The first addresses functional issues, while the second addresses cosmetic issues.
What You can Do While the Industry Catches Up
Rely on data. Track all wholesalers and vendors, every batch and every device. This requires a lot of manual work — if you aren’t using the right system. A business management tool that has access to all your data will be able to provide you with reports that can vastly improve your sales and earnings forecasts.
This is one of the challenges we’re solving at Fixably. Fixably Refurb is a plug-and-play software solution that will enable refurb businesses to streamline performance, improve process efficiency, and get visibility of the sales pipeline.