How The Liquidation Business Works (And Why It Could Work For You)

Small business owners make money in many rewarding ways. They get to chart their own path to success, relying on their own talents and making their own decisions. It's the American dream, and it is one that a lot of dreamers are chasing these days. About 28 million small businesses are operating in the United States right now, and at least as many owners and co-owners of those businesses. Among that number are businesses and sole proprietors that specialize in the liquidation business.

But what is the liquidation business? How does it work, and how can you get involved? More important, how can you make money doing it? Here's what you need to know.

How Liquidation Businesses Make Money

A liquidation business is a type of company or sole proprietorship that makes its money by buying products on liquidation or off of return pallets in bulk. The business then unpacks those pallets and resells the items on an individual basis — for a profit, of course.

What Is Liquidation, Anyway?

Liquidation businesses make money by buying return products or items on liquidation and reselling them individually at a profit. But where do these cheap products come from in the first place?

Liquidation is the broad term for the practice of selling a business' assets to pay off creditors. It happens when a business is going out of business entirely. Creditors want their money and they want it fast, so liquidation is about selling things quickly and in bulk, not always at the best possible price. That's why liquidation businesses can get more products for less money from liquidation auctions.

And then there are return pallets. Return pallets aren't much like liquidation pallets in a strict sense, but they're similar on a practical level as far as liquidation businesses are concerned. Return pallets, as the name suggests, are pallets full of products that were sent back to big-box stores and e-commerce giants such as Walmart and Amazon. These companies are so big that they often sell off these pallets at a cut rate rather than sorting out everything and putting the items back on sale. For the liquidation business owner, that makes return pallets pretty similar to liquidation pallets— they represent another way to get products in bulk and on the cheap.

Buying Liquidation And Return Pallets

You don't have to know anyone at Walmart or at a retail company that is shutting down to get started in the liquidation business. Generally, liquidation and returns pallets are purchased through online auction sites. These sites grab the pallets from Amazon, Walmart, and liquidated companies then put those same pallets on auction. Savvy bidders can get liquidation pallets for even less than they'd normally go for, further maximizing their profits. Of course, you won't have any profits until you sell the items.

Selling Products For A Profit

The final step to making money in the liquidation business is to sell the products that you bought at those cut rates. Most liquidation businesses use online marketplaces to do this. Amazon and eBay are great examples of online marketplaces that allow third-party sellers.

It's a good idea to learn about the product you're selling. If you specialize, you'll get a better sense of how much you can get for — and how much you should pay for — a given type of product. Eventually, as you become more efficient and more knowledgeable, you'll sell more quickly and make bigger and bigger profits.