Profit Margins, Profit Margins, Profit Margins

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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:

 How do you keep production costs down for your business?

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About Author

Carolyn is a 20-something marketing professional from Chicago, and she's been working with InTheSharkTank since August 2011. Some of her favorite past Shark Tank contestants are Litter SF, REMYXX, and Villy Customs. When she's not busy live-tweeting the show, Carolyn likes reading on her Kindle, exploring the city, and getting in touch with her inner Betty Crocker. Google+

1 Comment

  1. Carolyn,

    Thanks for pointing out that margins should not be treated the same across the board. The grocery industry is one build on volume, not margins. The Sharks should have more concerns with perishable and refrigerated items for these reasons: 1. the retailers usually require higher margins themselves for those areas because they are most costly to keep, 2. the shipping/freight costs are astronomically higher for refrigerated/frozen and 3. there will be more spoilage reclamations of those items that are perishable. If an affordable shelf-stable product with 40-50% gross margins comes up to the plate, that’s a lock for future success. Net margins will only increase due to lower production costs due to volume and efficiencies with more bulk freight. Barbara will likely be the first to jump at it as I feel she understands the grocery industry the most. Think some of the other sharks may not have seen their returns in previous food investments.

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