How much does a store owner make on a bar of chocolate? This is a good question to ask especially if you wish to venture into a chocolate business.
Knowing the profit margin on a particular good or product enables you to estimate correctly what you’d be making based on sales volumes.
Chocolate Business Profitability
Retailing is an interesting field of business that involves the sale or distribution of consumer goods to end-users.
For retailing to be possible there must be clear incentives in the form of profit margin for goods sold.
Here, we’re taking a look at one of such goods; chocolate.
To make things much clearer in terms of profit margin, we’ll need to make some comparisons between the manufacturer, the wholesaler as well as the retailer.
The store owner functions at the last level of distribution. For a better idea of what the store owner makes on a bar of chocolate, let’s begin with the manufacturer.
At the manufacturing level, some manufacturers make about 61% gross margins on a single bar of chocolate.
Critical distribution partners include wholesale and retail sellers. The wholesaler handles the first line of distribution. Here, the gross profit margin ranges from about 23% to 40%.
Goods are transferred from the wholesaler to the retailer (in this case the shop owner) who earns approximately 20% to 45% or even more. In terms of dollar value, this profit margin will translate to about $7 to $10 per pound.
On the surface, such figures may seem insignificant, but it really adds up when computed as cumulative yearly sales. At the rates mentioned above, the yearly turnover made from chocolate sales alone will be significant.
How Profitable is Chocolate Sales to the Store Owner?
One thing that’s common with all retailers is the profitability of products sold.
In other words, only consumer goods with good enough profit margins are considered. This is why manufacturers will need to factor in the needs of everyone involved or operating at different levels of distribution.
In a nutshell, chocolate sales at the retailing level are profitable. Based on the figures given above, you’re likely to make some good earning as a store owner when you sell chocolates.
While this is true, the level of profitability isn’t uniform across the board. In other words, multiple factors may influence profitability.
What are the Influencing Factors for Gross Profit?
When it comes to retailing, many factors are likely to influence gross profits. The same is true for retail sellers of chocolate bars.
Basically, these factors include the cost of goods sold, price points, product mix, as well as inventory management. Let’s discuss each of these factors as follows;
Cost of Goods Sold
For a store owner selling chocolate, the cost of goods sold is basically the summation of the costs of production for a bar of chocolate.
For a better idea of what these costs include, they basically consist of the costs of hiring labor, purchase of raw materials used, as well as storage among other things.
All of these factors play a part in determining the price of the end product. However, the manufacturer determines the value of the product based on these contributing costs of production.
For a store owner, gross profits climb when any components of the cost of goods sold are lowered.
What are the price points? This is basically one of the leading factors when it comes to influences on a customer’s buying decision.
For example, the price of a bar of chocolate is likely to influence a customer’s decision on whether to buy this product or not.
As a store owner, you’ll need to decide on an acceptable price point that also covers your costs.
Basically, you want to strike a balance with your chocolate bar prices in such a way that it serves all parties (customer and seller) involved.
The price point may seem less profitable for a bar of chocolate but if set properly will lead to maximizing overall profits for this product at the end.
The product mix has to do with whether or not you sell chocolates exclusively in your store or have other products you sell. In a situation where chocolates alone are sold, you’re likely to experience price volatility more than a store owner selling multiple products.
To shield yourself from price volatilities, you may want to adopt the product mix strategy where several other product types are sold in addition to chocolate bars.
This affords you the opportunity of learning about the gross profit margins of different product types and choosing product blends offering the most profits.
Inventory management is crucial in determining your gross profits. Here, the type of goods included in your inventory should be those that sell fast.
As a store owner, you’ll need to be strategic in choosing the goods you sell alongside your chocolate bars. Also, certain types of chocolate products tend to be preferred over others.
This is important because the cost of storing and displaying products is likely to impact either positively or negatively depending on what strategies you adopt.
Store owners having stock of mostly unpopular items and few popular items could lose out on potential revenue.
One effective strategy to use is by ordering more popular chocolate products and less unwanted ones to limit the time these products spend on your shelf before they’re sold.
Certain Chocolate Brands Tend to be More Popular than Others
One of the strategies you need to adopt as a store owner involves finding out or researching what chocolate products attract the most sales. You’re likely to find out when you start selling your products.
High-moving consumer goods tend to give the most profits.
Another good thing with such products is that they offer better profit margins to retailers. With such products, both the seller and the buyer benefit.
The profits earned on a bar of chocolate are determined by several factors as discussed above. You’ll need to use these as a guide to launching your own retailing business.
While meeting the demands of the market, you need to ensure your profitability levels are acceptable.