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Quick question about something I've noticed about mainly product businesses on Dragons Den, low profit.<br />
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A woman was selling a simple, but custom, silicone product on Amazon. She was in the top 4 for her product category, and in year 1 and 2 she turned over £246k and £368k with a net profit of £11k and £14k (with no wage). Even in year 4, with 37% of sales coming from their own website, the net profit was only £85k (turnover £550k).<br />
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Maybe my view of how much profit a business should make is swayed by FLF but £35k profit, without a wage, seems incredibly low for over £600k turnover. I'm just using one example from the episode I'm currently watching but I hear these sorts of numbers a lot. I know Amazon take a cut, and you have packaging, returns, etc. but 6% profit seems awful? In 2014 I started a drop shipping store with 3 t-shirt designs and with 24k turnover the net profit was £11k. They still get investment so I guess it's not as bad as it seems. Is it normal for net profit to be this low or is it that the businesses with good net profits just don't need the investment from the show?
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I hear a lot of high volume low margin numbers from people in online retail (especially products that can be duplicated and aren't well protected by IP). It seems to be common in that industry, kindof like how restaurants are often not mega-money generators compared to their operating costs.<br />
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Seems like the people doing well in those kinds of businesses are the ones who find ways to scale into astronomical volumes. Basically they become so good at operations and finance that it makes up for the low margins of the products. So, you'll find them with 100s of products online (maybe by acquisition, maybe by continuously developing and marketing products), or 100s of restaurants, etc.<br />
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At a small scale, yes it sounds terrible to me too. Surely there are easier ways to make a modest middle class income. If you can scale big, then it's probably like anything else at scale... you're still rich lol. The low margins are a sign of high competition, either directly or with other products that soak up the same part of the customers' budgets. If you experience higher margins than others selling 'similar' products, it may be a sign that you've broken away from the commoditization that the rest of the market is settled into. Maybe the business even makes CENTS <img src="/community/imgs/emoticons/em-nahnah.png" class="smilie" loading="lazy" alt=":playful:" title="Playful :playful:" data-shortname=":playful:" /></div>
