CBD products are having a moment right now. The industry is proving to be highly lucrative, and many people are eager to get in on the action.
If you’re considering entering the market yourself, you’re probably wondering how much you can profit from selling CBD products on a small-scale. The fact is, CBD retail operations of any size can succeed in this booming market. However, success here requires understanding a few things about minding CBD profit margins.
What Is Profit Margin?
Profit margin refers to the difference between a business’s overhead costs and its revenue from sales. In a still relatively young industry like CBD, the profit margins are the primary determinant of whether or not you’ll succeed.
Let’s say you’re spending $1,000 buying CBD products from a wholesale supplier, and you make $2,000 reselling them at retail prices in your local shop. Your profit margin would be $1,000 ($2,000 in sales-$1,000 in costs=$1,000 in profits). Of course, this example assumes that you have no other business costs.
The growth of a business directly relates to growth in profit margin. But how do you increase your profit margin in the CBD market? Read on to find out.
Pick the Right Wholesale Supplier
You’ll want to do some research on which wholesale supply company is the best option, and in the CBD industry, finding the right supplier is harder than it sounds.
Some companies require you to sell a considerable amount, even millions of products, before seeing a significant profit margin increase. Starting a CBD business can be expensive regardless of your approach. Remember, suppliers are businesses, too, and these companies are minding their profit margins to generate higher returns.
However, other companies that offer huge discounts off of retail price even for comparatively small orders. With suppliers like these, you don’t need a vast amount of capital to get started, and you’ll be able to obtain a sizeable CBD profit margin whether you sell ten products or 1,000.
You’ll also want to make sure that your supplier produces quality goods. Make sure that you are buying from a reputable, well-regarded source. If your product isn’t excellent, you’ll have a hard time getting repeat customers, and your profits will suffer.
Some wholesale suppliers offer a 100% money-back satisfaction guarantees. Buying from suppliers that provide this guarantee is a low-stakes investment because if the product ends up not being right for your client base, you’ve lost nothing.
Do your research and look for a company that allows order sizes that make sense for your sales potential while still being cost-effective. A supplier that meets these criteria is the first step to a healthy profit margin.
Know Your Client Base
You’ll want to have an understanding of who your client base is and what kind of products they prefer.
For example, if you’re looking to add CBD products to the other items you sell in a beauty goods store, maybe you’ll want to focus on CBD lotions and oils.
On the other hand, maybe your client base loves healthy foods with trendy ingredients. In that case, you might focus on edible CBD products and CBD infused teas. You want to select products that you’ll be able to sell quickly, and knowing your customers is essential for that. A loyal customer base will help increase your profit margin.
When you’re first starting with buying products wholesale and reselling them at retail price, you’ll want to begin with small orders.
You don’t want to order a massive amount of products and find that you’re unable to sell it all. You’re better off selling out quickly and then being able to tell your customers that more will be in stock soon.
Starting small not only ensures you’ll be able to sell all of your products, but it can also increase demand by showing customers that they’d better buy while they can!
Increase Supply as Demand Increases
If, after starting small, you discover that there is a high demand for your CBD products, then, by all means, stock up! You can only sell as many products as you have.
Often with buying in bulk, the more you buy, the more of a discount you get. Therefore, if you have the demand for a lot of products, it’s a safe bet that if you increase your supply, an increase in your profit margin will follow.
Decrease Overhead Costs
In the CBD profit margin equation (sales revenue-costs=profit), costs include things besides just the actual price of the product.
If you pay an assistant to help promote your CBD products, that’s a cost. If you travel to expos for CBD vendors, your gas and your lunch for the day are a cost.
To have a successful business, you always need to be on the lookout for ways to cut costs, as this will directly impact your profit margin.
Here are some ways you can decrease overhead costs:
- Only hire employees that you need. Don’t hire two people for a task that one person could effectively handle.
- Make sure any marketing or advertising you’re paying for is a good ROI (return on investment). A banner outside your shop advertising that you now carry CBD products might be great if you’re in an area with a lot of traffic. If you aren’t, an advertisement in the local paper might make more sense.
- If you plan to travel to sell your products, make sure it’s cost-effective. For example, a local expo with a small vendor’s fee might be worth it, but traveling across the state and staying overnight for an expo might not be.
As is the case with any other industry, success with CBD retail is all about profit margin. If you focus on buying an excellent product, selling everything you buy, and keeping overhead costs low, then you’re sure to thrive in this exciting industry.