How much do supplement companies really make?

[Ryce]

The reason I ask this question is because I recently read a thread where VPX is suing a distributor for $579,000 in unpaid bills. Now I understand the supplement industry is a 60 billion a year business. So I know they are making money but what kind of money? I would assume the top companies like Mext-rx, EAS, BSN, twin lab, etc are making millions but what about smaller companies that come on the scene. How much can they expect to really make?

Take ALR industries. Author L Rea's new company. They make some decent products from what i have read. (i dont know from personal experience because I havent used them. i am just going by what is said on the boards). Anyway what do you think middle and lower level supplement companies are bringing in?

Another reason is I read over at anabolic review sometimes and I heard that brian clapp the owner of that site is quite well off. basically from selling those steroid named supplements from the roid store. Are people that gullible enough to buy that shit.

All I ever use really is protein. Thats all I buy. Maybe I am nieve but obviously there is money to be made in the supplement industry even if you're a lower level company because I see them all the time. What do you guys think a middle- start up company is making these days?

 

[garcia]

Typical profit of a manufacturer to distributor is usually 100-200%, depending on the type of product. Protein is MUCH lower (15-40%) and capsuled formula products are closer to 200%.

 

[AWN2004]

You mention ALR which is a great company to bring up in regards to this topic. As of late, I would strongly consider him as one of the big ones. Many don't realize this but he created one of the best selling supplements of all time (Venom). Now he has his RTD as well and that is selling like hotcakes. Something else to consider is that many of these smaller "no-name" companies are backed by the huge ones in the industry. Many times these huge corporations dont want to risk their asses to make a quick couple of million dollars. So they give someone money to start a LLC and maybe oh...I don't know...make a superdrol clone or some crazy pro-hormone that costs pennies to make. They can sell their product very fast because they know everyone is going to buy up their products, make a couple million or whatever, then disolve the company. It's legal and just one of the ways these guys can cash in with limited risk. I can also tell you something else....you have to have something amazing these days if you want to survive in the supplement world. ALR had a protein powder and a damn good one at that and they had to stop making it because of lost profits. Every company has a powder, every company has some fancy NO product, so to come into the industry without something cutting edge that is actually going to work and draw people back to buy it again, is very very difficult.

 

[Superior1]

Ultra small supplement companies like myself selling less than a million a year in revenues is probably at a gross profit per product of 25-30%. But after operating costs and other various costs are factored in, it's more like a year end net profit of 10% of gross revenues. This is with virtually no marketing costs in our example.

That's why you see a small company running one day and no where to be found the next. Profit margins are not wide on supplements. We've been at it 5 years, considered closing doors a few times just based on the competition causing very narrow margins. Plus many raw materials have increased recently in the last couple years which tighten margins even more. We've decided to hang in there, get through this recession that our administration is failing to admit we are in and see how the market changes then. This last year we have seen our domestic sales growth slow drastically but our international sales are growing 10 times faster than it did even 2 years ago.
Which is evidence of the dwindling value of the dollar. There is no other tangible explanation for it.

But back to the topic.
The mass public is buying product mostly based on marketing hype and label design (and that market is endless and accounts for 95% of the 60 Billion dollar market), so therefore the supplement companies that have a good handle on those two aspects are able to fetch a premium so therefore margins will be higher. Since the actual active ingredients going into the product are only a fraction of what the end user pays. An end user is mostly paying for marketing and middlemen distributors.

But it's those guys that probably have 200% gross profit on a product but after factoring marketing etc. it's probably more in the 10% range on each quarters financials.

A good example would be Vitacost which is mostly a distributor but also has a 37% of their sales through their own product line. The sold 22 Million in Revenues on all their sales in Qt1 of 2007. With a Gross profit of 6.75 million (30% Gross profit margin) At the end of the quarter their net profit was 5.92% or 1.3 million on 22 million in sales for Q1. So there is 5.45 million each quarter in operating costs.

There is some companies out there losing quarter after quarter and I am sure others out there with higher net profit margins.

GNC for instance is about the same range regarding gross profit @ 33% of gross revenues but there net profit is only at 1.5%.

So to answer your question. on average I feel from these two companies and smaller companies to be competitive you need to be at a 30% gross profit margin. It's how effecient you are with all other operating costs outside of product purchases to determine the bottom line at the end of the year. I feel believe that's why you see so many companies come and go they think only of the 30% profit margin at the start (maybe they factor in 5-10% for other costs) but under estimate what it really costs to make things run.

Sup1

 

[Physick]

Most people don't realize it but once you factor in ALL the costs of doing business the average net profit is only around 1-5% in any given industry. Granted there is always exceptions to the rule, but I remember learning this in a business seminar. I know I was shocked when I was developing my business plan as to how much money I wasn't going to be making, lol.