You’ve probably seen ads on TV and the Internet for Florida-based Cash4Gold, a service that buys gold from people (watches, rings, other jewelry, etc.) via the mail. You send in your stuff, the company sends you money. You have twelve days to say you don’t accept their offer and you get your gold back. The company pays shipping (both ways if necessary) plus insurance.
The service launched in early 2007 to a perfect storm of soaring gold prices and a down economy. But still, it’s more than surprising that the company raked in $90 million in revenue in 2008, the second year of operations, according to a source close to the company. Profit, even after paying out cash to sellers and a huge marketing spend, was in the $30 million range.
Revenues in 2009 are on track to hit $160 million, says our source, with a similar profit margin. That implies $50 million or so in 2009 profits.
The company decided to buy a Super Bowl commercial in 2009, featuring MC Hammer (pictured in image above, sans dignity) and Ed McMahon. You can watch it here (embedding is disabled for some reason). Television, not Internet advertising, continues to be their most profitable marketing, says our source.
The business velocity attracted the venture capitalists, of course. Sometime this year the company took a sizable investment from Mangrove Capital Partners and possibly other investors as well. Mangrove is notable because they’re a European firm (and also one of the first investors in Skype).
So what’s next for Cash4Gold? Competition. A number of clones have launched in the U.S., which is driving marketing costs up. The company recently launched operations in the UK and will continue international expansion. They’re going to have to do some serious brand building and lock up key strategic partnerships if they intend to create a long term business. But in the meantime they’ve made a ton of money off a very simple but very good idea.