The economics of second hand bikes

Spindles has been around for 3 years now and in that time we have learned to be choosy with bikes that have been donated.  Not all bikes can be saved or are worth saving.  The cheaper end can just be recycled with only the occasional saddle or brake lever to rescue.  It's clear that people want and expect our bikes to work as well as new bike should.  This means replacing much of the gearing with new which is expensive.
I cannot believe how the price of bikes has risen over the past few years.  A Thorn Club Tour cost £800 7 years ago but now cost £1500.  My Mercian now costs £1000 for the fame only.  So what should we be charging for a basic bike, what ever that is, if the expectation is that it should work as well as a new bike?

The cheapest bikes we sell are currently £40 but this may be too little if the requirement is for it to work as well as a new bike.    Lets analyse a couple of typical donations:

1 racing bike, good frame, components a little worn, chain rusty, rims worn.. it has been a well used bike then neglected.  Strip down to the frame,  clean the frame and build up with new wheels and salvaged good parts.  New wheels cost at least £70, while the salvaged parts value may also be over £70.  With the work involved being 7 to 10 hours, including sourcing and trying the components out, we end up with a bike that cost £250+ which may be a marginal proposition for a customer.  The frame really has to justify the investment in time and money to make a desirable bike.

1 entry level mountain bike, not used much but has been left out in the rain. There is a lot of rust and the bearings grind.  Re-greasing all the bearings, fitting new cables, cleaning and tuning takes about 5 hours.  New components would be cables and chain and may be new tyres which all cost £30.  The best that a customer would expect to pay would be about £50.  The internet option for a new bike is about £70  and Halfords is about £80.

The economics of second hand bikes are marginal so any bike that we work on should be reasonably desirable.  It's very hard to turn away donations so we are beginning to favour striping donated basic bikes for specific parts and recycling the rest including the frame.