The point at which even the best ideas can be slayed by the Sharks is when conversation turns to production costs and profit margins. Many entrepreneurs have faced searing rounds of questioning after the Sharks learned that the product’s profit margins and/or production costs were less than ideal. While there are many resources with widely varying guides for good profit margins, the Sharks tend to get the most excited when wholesale profit margins are 30% or more for non-food products. Food product margins (especially when shipping is involved) tend to be lower across the board.
But here’s a secret from Shark Tank: just because you don’t have stellar production costs or profit margins now, doesn’t mean you’re out of the running. If you have a plan for reducing costs or improving margins, even if that plan isn’t in effect yet, you may still have a chance of securing a deal with your investors.
Cool Wazoo, for example, entered the Shark Tank with production costs around $30/unit, which seemed outrageous to the Sharks. But before they made any decisions, owner, Ginelle Mills, told the Sharks about her research into overseas production facilities, which would drop the production costs to around $11/unit. While we’ve seen in the Shark Tank that not all businesses are willing to take their production overseas, in Ginelle’s case, it was a gamble that got her a deal with Lori.
Season Four had some pretty impressive examples of businesses that operated with profit margins that were through the roof. Want to learn more about how they did it? Check out our recaps on the following businesses:
- Rock Bands – rock bracelets and accessories
- Stella Valle – jewelry and accessories
- Hot Tot Child Haircare – shampoo and haircare products for children
How do you keep production costs down for your business?