Starting any business takes a great idea. However, growing a successful company requires profitability. Although an initial business concept is important, if an entrepreneur does not have a concrete and long-term plan to obtain a profit, the business will eventually fail. In the supplements business, the competitive nature of the industry creates an even more difficult scenario.
It gets even more difficult because of the nature of the product — the United States Food and Drug Administration (FDA) regulates such items and has requirements for companies that manufacture and distribute dietary supplements. Therefore, when starting up a nutritional supplement company, you should consider some important factors including how to determine a price, what legal and entry barriers exist for these businesses, and how to sell the supplements to a customer base.
Profit margin and basic business guidelines
Regardless of whether the business sells supplements or anything else, understanding a company’s underlying cost structure, product costs, and profitability is essential for success. Small business owners, however, frequently price their products too low to make money or underestimate the real cost of business operations. Understanding the difference between gross margin and net margin is the difference between being profitable with a positive cash flow and being unprofitable and quickly running out of cash.
For example, many business owners will purchase a widget for four dollars and sell the item at eight dollars, having a gross profit of four dollars. However, the net margin is what will determine if the business is profitable. To calculate net profit, businesses need to understand how the cost of electricity, shipping, rent, payroll, and other elements play a role in the item’s pricing.
Laws and regulations
Understand that the supplements business is a regulated industry. What this means to a small business is that there’s a high entry barrier for those wishing to manufacture the supplements themselves. Although many people may be tempted to develop or import such products from China, this can be detrimental to the long-term success of the organisation, because the business will not have direct control over the quality of the product.
Furthermore, the product being manufactured or imported may not be compliant with the National Sanitation Foundation (NSF) or comply with FDA standards. Therefore, even though the cost of such product may be lower, subpar standards and non-compliance will negatively affect the company. Instead, look toward a reputable NSF certified supplement manufacturer that can lower the entry barrier for you. This way, you can focus on the business aspect while having a guarantee that the product is high quality and compliant.
Understand the market and available sales channels
Why should a person purchase your nutritional supplements? What makes the business and the product different? Who is your target customer and what are their characteristics? How can your message reach the target audience and how does it resonate with said audience? These are indispensable questions that business owners need to ask themselves, because the answers form the basis for a marketing strategy and the development of sales channels. Companies have a multitude of channels available to them to generate sales. What makes a channel adequate is how the sales method aligns with the organisational or product message.
If a company specialises in producing and providing nutritional guides, knowledge, and tips and it generates recommendations based on the depth of the information that they create, then a marketing strategy that indirectly promotes a product through this data can create a positive result. For this type of business, Facebook and blogs are a great resource. However, understand who your customer is and how to reach said customer as that will lead to creating a strategy that works for you.