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How Do Junkyards Make Money?

How does a junkyard make money?
Owolabi Oluwasegun
Owolabi Oluwasegun
05/13/2022 · 8 min read
junkyard, scrapyard, junk car junkyard, scrapyard, junk car junkyard, scrapyard, junk car

Don’t you just hate how information is all scattered across the web? Do you wish to establish a junkyard but can’t seem to find enough information? Want to know how junkyards make money? This resource is the perfect answer to your questions.

We get it, establishing a business requires a lot of research. For a junkyard business, you’ll need to understand how junkyards work, how they make their money, the capital required to establish a successful business, and much more.

Researching all of these points and more can be draining and overwhelming. In fact, you may not find all of the information you need online. This is why cashforcars.io has taken the time to walk you through the junkyard business and everything you need to know to run a successful junkyard.

This guide will skip all the BS and go directly to all of the important information you really need to know.

Cash, junk car, car

How Junkyards Make Money

Junkyards buy used, old, or damaged cars, trucks, or vans for recycling purposes. Usually, junk car owners are more than happy to sell them off. Junkyards capitalize on this to offer sellers a “fair price” for their junk cars. The junk cars can then be stripped of parts that will be sold as used auto parts. It is a win-win situation in the business world as junk car sellers get to rid their properties of abandoned cars.

Junkyards or scrapyards make money in different ways throughout the recycling lifecycle. Here is your answer if you’re wondering how junkyards or scrap yards make their money.

Profit from acquisition

Junkyards often profit simply by acquiring or buying a junk car, truck, or van from sellers. Sellers are often too happy to give up their totaled, damaged, or beaten-up cars for cash.

Junkyards know this, so they make an offer on such cars. The junk car price will depend on car make and model, location, car condition, etc. If happy with the price, the seller agrees to sell.

There’s money to be made here as junkyards often buy cars at prices lower than their actual worth. Scrapyards often expand their profit margin by buying from police auctions.

Profit from sorting

Junkyards are homes to different cars in varying states of damage. Most junkyards make money from sorting these cars into different categories based on the damage. Inoperable cars may be sorted separately from operable ones. Junk cars with stripped parts are also separated from others.

This sorting stage also includes removing different car parts to be re-sold as used car parts. Junkyards often remove valuable parts like transmission, electrical systems, catalytic converters, headlamps, car upholstery, etc., for sale.

This sorting stage allows the junkyards to keep track of their inventory and what can be sold.

Profit from sale

The biggest profit made by any junkyard is from the sale of scrap metals, engines, and other vehicle components. Some of the valuable auto parts sold by junkyards include;

  • Transmission system
  • GPS and other electrical systems
  • Catalytic converters
  • Bumpers and fenders
  • Airbags
  • Wheels, tires, and rims
  • Car batteries
  • Radiators, etc.

What, why, who, where, when

Factors That Determine How Much Money Junkyards Make

Before diving into the junkyard or cash for cars business, you should know the factors that can significantly impact your earnings. This section walks you through the important aspects of a junkyard business that affect earnings.

Size of your junkyard

Small junkyards make far less money than huge junkyards with large acreages of land. Some junkyards have 30 acres of land for their business, while others have larger or smaller land areas. The larger your scrapyard, the more junk vehicles and parts it can accommodate, and the more money you can generate.

Junkyard location

Like any other business, where your junkyard is located matters a lot. You may likely make less money if your junkyard is located in an already saturated area. You may also make less in areas with low demand for scrap cars. Before establishing a junkyard business, you should carry out a detailed feasibility report on your catchment area.

Types of junks your junkyard deals in

A car has many parts. Many junkyards may streamline their focus to selling used auto parts, scrap metals, or even re-selling junk cars to bigger buyers. Your earnings will depend on the extent of junks your business deals in. You can also expand into motorcycles, boats, bicycles, small airplanes, and train junks.

Junkyard management

The type of management system existing in your junkyard can affect your profit. Under proper and progressive management, you can make a fortune buying and selling scrap cars. You should consider setting up a proper management and business model. Your business model should put customers first and leverage that as a marketing strategy.

how to guide

How To Start a Junkyard Business

Starting a junkyard, scrap, or salvage yard business requires all of the important background research you’d do with other businesses. You need to carefully research your state or community and the existing junkyard businesses. Determining the level of competition can help you decide what to do and how to approach the business. For instance, your new junkyard business may be able to gain more customers by capitalizing on the slow response times or low cash for car offers presented by existing businesses.

Focusing on the common complaints lodged by customers of existing junkyards can help you identify the gap to plug into. You may even throw in a free towing service with your junkyard business.

After researching the industry and determining your unique selling potential (USP), you can then move up the line. Follow these steps to start your junkyard business.

Step 1: Plan your junkyard business

A clear business plan can help you avoid the common trial and error that could potentially ruin your dreams. Following your research into the business, proceed to ask yourself and answer the following important questions;

  • What will I name my business?
  • How much will it cost to establish a junkyard business?
  • How much running cost will I need to keep my junkyard afloat?
  • How much will I pay junk car sellers?

If you can’t find answers to any of those questions online, you’re in luck. We have broken everything into simple bits for you.

Naming your junkyard business

You can name your junkyard business anything, provided it is unique. Coming up with a unique name for your scrapyards can be a hassle, especially as it may seem like all the brilliant names have been selected. You can start by brainstorming four to five name options that include your business purpose. Take these names and confirm them against important business records like;

  • Your state’s business records
  • Federal and state trademark records
  • Web domain
  • Social media platforms

These four records will help you determine whether you can use the name. Choosing a name available online and offline puts your business in a good starting position.

How much will it cost to establish a junkyard business?

A junkyard or scrapyard can be capital intensive, depending on the size of the operation. Here is an overview of possible costs.

  • Cost of fencing your junkyard
  • Security costs
  • Equipment costs
  • Administrative costs
  • Facility maintenance and running

How much running cost will I need to keep my junkyard afloat?

The largest ongoing expense incurred by any junkyard is attributed to the salvaging process. Some of the important costs to consider include;

  • Cost of buying junk cars
  • Transportation and towing costs
  • Maintenance costs
  • Marketing expenses
  • Insurance
  • Labor costs
  • Material costs
  • Administrative costs

How much will I pay junk car sellers?

Junk car prices vary from one location to another. You need to understand what the current market average is and how to make customers choose you over other businesses. As a new business, your junk car price offer and service quality are two important areas you can impress customers.

It is important to base your pricing on the current demand for scrap cars, the average offer price in your location, junk car condition, and profit margin. With these factors considered, you can easily arrive at a figure that won’t hurt your business while getting you positive reviews from junk car sellers.

Step 2: Register your business

Registering your business makes it a credible legal entity. There are different business structures and business types to choose from. The common options are;

  • Sole proprietorship
  • Partnership
  • Limited liability company
  • Corporation

It is best to consult with a business lawyer or other professionals in the field for advice. Consider the pros and cons of each of the business types before deciding.

Once decided, you should also register your business for taxes. There are different types of small business taxes depending on the business type. Common tax types include LLC taxes, sole proprietorship taxes, S Corp taxes, LLC taxes, and C Corp taxes.

Step 3: Open a business account for your junkyard

Opening a business account will often require submitting your tax information. A business account allows you to separate personal money from business money. It also gives you a complete overview of how your business is doing in terms of inflows and outflows.

There are different business accounts to choose from, depending on your specific needs. Ask questions from your bankers and make the right selection based on the account features and offers.

Step 4: Set up business accounting

Business accounting is an important aspect that should never be ignored. For this, you have two options, hire an in-house accountant or bookkeeper or outsource your accounting needs. Each of the options comes with its perks. For example, an in-house accountant may be costly, but guarantees focus on the day-to-day financial running of your business. On the other hand, outsourcing to accounting firms is often cheaper, and you can request additional accounting services as your business grows.

Step 5: Obtain all necessary permits and licenses

States and local authorities often issue permits for businesses to operate. Find out about the process of establishing a new business in your state or local community. Your business lawyer may be able to guide you through the process.

Failing to obtain the necessary permits and licenses can put you in trouble. This offense is often punishable with hefty fines that may run your business down.

Some of the common documents to pay attention to include;

  • State and local business licensing
  • Certificate of occupancy
  • Local permits

Step 6: Get business insurance

Insurance can save you a ton of money and risks. As a business owner, you need the appropriate insurance coverage to cover your risks. Speaking to an insurance provider can help you to better understand your risks and available options. Ensure that you choose the appropriate insurance coverage and seek out a fair rate for your protection.

Common business insurance to get for your junkyard business include;

  • General liability insurance
  • commercial property insurance
  • worker's compensation insurance

Setting up a junkyard business can be demanding, however, it is worth it in the end. If you already have a junkyard business that’s earning less than you estimated, cashforcars.io can help. We partner with local junkyards, scrap car buyers, and auction houses to make their businesses profitable. Contact us to get started.

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