With gun shows (where you have dozens of competitors packed in to the same room/building) and gunbroker (where you have thousands of competitors packed on the same auction site), *new* and *used* gun margins are nowhere near where they used to be, and nowhere near what MachIVshooter indicates - at least in this region.
I had a real hard time making money as an FFL (I actually lost money for 2 1/2 years, then "closed the doors").
One disadvantage of a local gun shop on new and used firearms is first, local and state sales tax. 8% was the rate I was under with my FFL. On a $500 firearm, that's $40, or roughly equivalent to the cost of shipping and transfer (which is the primary disadvantage of online sales).
Ammo was worse. We had to sell at about a 10% markup to stay competitive with online and other FFL's (nowhere NEAR MSRP...), but remember this was back in 2006/2007 when no one was paying MSRP. Now, gun shops are probably doing OK on ammo (when they can get it) since short supply has everyone pays MSRP without haggling.
Transfers are also highly competitive - there are some local FFL's who do inbound transfers for $15. Most are in the $20 to 25 range. With a $2 fee going to the state, that leaves $13 for the bank.
Cost of doing business was high too. FFL licensing wasn't expensive, but insurance sure was high; ours was over $3,000 a year. I also wanted a legal barrier between me and lawsuits, so incorporated as an LLC, which was an additional $500 a year in this state.
Stocking inventory was shockingly expensive. To get a decent selection of ammunition you'd have to spend about 10-15k, at least. Guns were worse. To have a selection of new guns, the sky is the limit, but I put in about 40-50k at the beginning. By the end of two years I had $140,000 invested in inventory. (Tried to keep "new things coming in" so the inventory wasn't stale; otherwise people would stop coming in...)
You have to buy a LOT of hardware to get quantity breaks. (Usually 5 or 10+ guns). If you can't afford to do that, and the other guys can, it means they can either sell cheaper and cut your margin out, or they can sell the same and make more money per transaction than you do. Either way, the small FFL loses.
We had a disadvantage in that several area shops had HUGE inventory (easily 1 million +).
Now the places that did make a dent on expenses?
*Used guns - trade-ins. Margins on used guns and trade-ins are good, IF you can haggle. Some guys will treat it like car shopping, and go around to all the shops getting a value. Then trade or sell based on that.
*Reloading components; we could make trips to Missouri and stock up on military pulldowns. Those cases / powder / pulled bullets, had a pretty good margins. Also did a stiff business on 50 cal reconditioned military ammo cans. We were paying $2.50 a piece for them (in pallet quantity) and selling them for $7 to $10 back then.
But mostly.. it just sucked, and I invested a lot of money in to a losing proposition. After 2 1/2 years I decided to stop the loss, started winding things down, and turned in my FFL at the end of 3 years.
If I were to do it all over again when I retire, I would change the business plan:
A) Build an indoor shooting range.
B) Provide training services (I'm certified now to teach rifle, pistol, shotgun, and concealed carry classes)
C) More ideas yet to be determined...
Given sufficient startup funds, I'd also :
Get my SOT and rent machine-guns. (I've seen others do this and it creates quite a buzz and client draw)
And;
Buy enough land to have a good set of ranges (trap, sporting clays, 100, 300, 500, 600, 800, 900, and 1000 yard rifle range berms). (this could provide yearly membership dues and a base income to operate with.)
Anyway, I plan on doing the range/training thing when I retire, I often check rural real estate listings. Will probably get an FFL again when it comes time. But the FFL won't be the ONLY way I try to make money this time; when I did it before, I lost money. A lot.
