Today’s smartphones last far longer than their 1st-gen predecessors — and that means a growing market for second, third, or even fourth-hand devices.
7 Minute Read
What you need to know:
- In 2017, global revenue for used smartphone sales was close to $20B. It’s expected to hit $44B by 2025.
- The used smartphone market is expected to grow 4-5x faster than the overall smartphone market, with an anticipated 50% YoY growth in units sold.
- As of 2016, analysts predicted about 50% of old smartphones were traded in for new smartphone credits with manufacturers or carriers, while the remainder were sold to retail shops, second-hand device specialists, or online.
How you can capitalize:
- For sellers: A phone retailing at $880 new can fetch as much as $440 in a secondary sale — particularly on newly-mobile overseas markets in India and China.
- For builders: Fixing and flipping newer phone models can generate 54%+ profit margins per unit. To make $1k a month, you’d need to fix and flip about 25 cracked iPhones (a little over eight hours of labor).
- For investors: The market is still highly fragmented. There’s plenty of room at the top for brands that can win buyer/seller trust and own the end-to-end repair and resale process.
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The 64GB iPhone 8 in my pocket has lasted longer than my past few relationships combined, and each imperfection tells a story.
The most prominent is the Scuff of Winter ‘17 on the top left corner, inflicted when my poor companion fell down a subway staircase, nearly bouncing to a gruesome fate in front of an on-coming L-train.
I captured another near-death moment a few years before that:
After each catastrophe, I was left weighing my options. They’re pretty simple:
- Buy a new iPhone for around $750 to $999.
- Buy a new used iPhone for around $250 to $500.
- Hire a third party to fix your phone for around $150.
- Fix the screen yourself for around $30.
As a consumer, the economics of owning a smartphone favor the latter options. As an entrepreneur, million-dollar businesses can be built out of your living room catering to populations with an increased preference for used phones.
The Lay of Used Phone Land
The used phone economy has two general entry points for entrepreneurs: Fixing broken phones and selling used phones.
A few years ago, trying to buy a used phone or finding a third party to fix your phone meant using eBay, Craigslist, or a sketchy electronics store and taking a gamble between having your phone fixed or your kidneys stolen. Today, there are several marketplaces and phone repair chains that provide visitors with peace of mind, still at a hefty markup.
A cell phone repair shop in Greenpoint, Brooklyn.
To get an idea of the scale of this industry, let’s take a walk through the almighty Google with the hopes of selling a used phone. A quick search for “sell used iPhone” throws you into a results page littered with ads reminiscent of those Cash4Gold commercials of the last decade.
On a few of these sites, my average condition 64GB iPhone 8 (released September 22, 2017) sells for:
- $265, or $125 with a cracked screen or other defects (BuyBackWorld.com).
- $238 or $132 with defects (Trademore.com).
- $283 or $158 with defects (Worthmore.com).
However, on Swappa, a popular used electronics marketplace that allows users to “Buy and sell newish tech,” the average used 64GB iPhone 8 can be bought for around $392.
On eBay, you can snag a phone for $344.99 from seller Worthmore — the same company that buys them for $283 (average) or $158 (cracked, broken).
So, we can already see companies taking advantage of the price discrepancy at scale. Sites like BuyBackWorld and Trademore pump money into advertising to get people to sell their used phones for cash. Then, they do any repairs necessary and put those same phones back on the market at a premium, but still significantly cheaper than a new phone.
Using Worthmore.com as an example, used phone resellers can make a profit of around $61.99 per used iPhone 8 purchased, a profit margin of about 18%. However, if the iPhone 8 was cracked or broken, they could turn a $186.99 profit per device — a juicy 54% profit margin.
Flipping phones is cool, but you know what’s really cool? Fixing them, then flipping ‘em.
Sure, there is money to be made flipping old phones and exploiting the phone supply and demand markets, but the real money seems to be in refurbishing and cosmetic repair. At least that’s what the stories of two different entrepreneurs tell us.
Justin Wetherill co-founded uBreakiFix, a tech repair shop that specializes in fixing broken phones. The inspiration came in 2009 after a 21-year-old Wetherill dropped and cracked his new iPhone 3G. Wetherill found opportunity in his dissatisfaction with the sketchy repair shops was enticed by the profit margins, and he and his team ended up scaling the company from a mail-in only living room operation to a chain with over 250 corporate and franchise locations bringing in about $140m per year.
AJ Forsyth founded iCracked as a student at Cal Poly in 2010 (see his story on The Hustle), scaling the company to $25m+ in revenue per year by 2014.
Forsyth’s inspiration also came from accidentally breaking his phone. iCracked, which was acquired by the insurance company Allstate, aimed to build a technical support network in which users could summon up a technician to fix their phone wherever they are. However, instead of making money from fixing the phones, iCracked makes its bread from selling parts to their network if iTechs, essentially mobilizing their network to fix more phones and come back for more replacement parts.
Don’t Cry, DIY
A few weeks ago, my phone flew out of my pocket while biking in Miami, reminding me life and glass are fragile. Fortunately, it didn’t break, but it inspired this article. If it were to break, it would cost me about $119.99 to have an iCracked technician come to me and fix my cracked screen iPhone 8. Alternatively, it would cost me about $149.99 at a uBreakiFix location near me.
For those heavily dependent on their phones, an out of commission iPhone is like a missing appendage; shelling out any somewhat reasonable amount of money to make the problem go away is a painful, but necessary ransom. Every time I hear that gut-lurching “KKRK” sound, it meant 150 bones were about to leave my bank account. I used the services above or similar ones a handful of times from 2011 to 2013 before I wised up to the world.
When the terrorizing “KKRK” reared its ugly head again in 2014, I took to Facebook and Craigslist to find someone that could do it on the low, finding a fellow college student who offered to do make the fix for $40, provided I ordered the $20 screen replacement myself, bringing the total to around $60 for about 20 minutes of work.
That’s when the idea of starting a phone flipping business coalesced into something tangible, with opportunities to expand into something more lucrative. I identified three rudimentary opportunity tiers, ranging from a simple phone fixing operation to building a burgeoning network of used phone sales to underserved areas.
Tier 1: Fixing other people’s phones
This is essentially how Wetherill and Forsythe started multimillion-dollar phone repair companies. All it takes to get started is a phone repair kit ($5 to $25 on Amazon) to fix a cracked screen or broken LCD. The wonderful world of DIY Internet has plenty of videos to guide you through fixing a replacing a broken iPhone screen, such as this one.
Of course, you’ll need enough technical savvy so you’re not going around permanently ruining people’s phones, but if I can figure out how to do it, it shouldn’t be a stretch for anyone else. Every time someone’s phone goes “KKRK,” you will hear “Ka-Ching” or whatever the Venmo notification sound is. Every iPhone fix could be another $40 in your pocket for just 20 minutes.
Once you have the tools, a DIY screen replacement will only set you back about $20.
As a one-person operation, fixing other people’s phones essentially turns into a math equation where you are trading your time for money. Hypothetically, if you were to do 10 iPhone repairs in a week, you could make $400 in a little over 3 hours of work.
You would also have to account for things such as time spent traveling, marketing, and customer service. But, as long as you don’t accidentally mess someone’s phone up for good, the time you spend fixing phones will generally yield a positive return on your time.
Tier 2: Flipping used phones
Once you’ve developed some technical savvy and generated some working capital, you can enter Level 2. This involves being able to make a decision on whether a used phone is worth buying and for how much in a limited time frame.
Using your experience as a fixer-upper, you can fix minor cosmetic issues to bring it to its peak market value, and then list it on one of the many marketplaces (Facebook marketplace, Craiglist, Swappa, eBay, etc.)
However, there’s more risk here. Not only do you have to deal with a similar amount of time traveling, marketing, and doing customer service, you also have to deal with inventory and the risks involved with that, such as purchasing a stolen iPhone which has little to no commercial value.
Tier 3: Building a used phone empire
Admittedly a leap from Level 2, Level 3 is a playground for those entrepreneurs that are able to develop an intimate understanding of the used phone supply chain and how to monetize it. Level 3 involves developing the distribution channels to current and new markets that allow you to source used phones and deliver them at scale, whether that be within the United States or to new, international markets.
This may seem easier than it reads. Since there is actually a ton of money to be made doing this, the competition is pretty fierce. Succeeding in this level requires sourcing quality used phones at good prices (you can start as small as Facebook or Craigslist), listing them in the appropriate marketplace (there may be some international marketplaces that aren’t as saturated as, let’s say, eBay), and developing the adequate distribution of the products.
For example, an Axios report found women around the world lag significantly far behind men when it comes to cell phone adoption, which is at least a $700B problem. Cell phone operators are losing an estimated $140B in annual revenue in those global communities where most of the women don’t own cell phones.
In developing countries, 197m fewer women own cell phones (10% gap) and 313m fewer women are connected to mobile internet. Finding a way to deliver operational phones to markets such as these could be a lucrative opportunity that also does some social good on the way.
You know what I love about used phones, man? I get older, and they
stay the same age get older with me.
Used phones present an opportunity with a low barrier to entry that anyone can get started with for under $50. You’d need to fix 25 cracked iPhones to make an extra $1k a month, for little over eight hours of labor. Of course, profits will vary based on the devices and materials needed, but it’s not an overly complex business model. You can also start flipping phones and make a 15% to 55%+ profit margin on every device.