DISCLAIMER: I’m not a lawyer and cannot provide legal advice. I’m also not a GMP compliance consultant. I recommend consulting with a business lawyer before starting a company, especially a food or dietary supplement company.
You want to start selling supplements, but it may seem overwhelming at first. There are many legal and financial risk factors to consider. Without selecting the most efficient path to your first sales, and ensuring your expenses are under control, you may find your expenses exceeding your revenue. Or worse, you stay afloat for your first year, but due to an unforeseen risk, are hit with an incidental that bankrupts your young supplement company.
The goal of this guide is to help you mitigate these risks and to maximize your chances of making a profit on your first inventory within 90 days.
With this guide, you can buy the equipment for your operation with your first product’s inventory for under $2000.
This content is essentially a primer, and many aspects need further explanation. I’ll cover sections in more detail in future articles.
- 1 Why Does My Advice have Value?
- 2 Where to Sell Supplements
- 3 What Supplements to Sell
- 4 A Quality Management System for Sustainability
- 5 Your Supplement Company’s Operations
- 6 Business Setup
- 7 Overall Startup Costs and Summary
- 8 Glossary
Why Does My Advice have Value?
Why should you at least skim this guide instead of other “how to” guides for starting a supplement company? Most “how to sell supplements” guides are from content marketers, online cart or marketplace solutions, or private labeling companies. After searching, I was unable find a guide written by someone who has experience in all areas of running a supplement company.
Here’s my brief bio: I’m Nathan Smeltzer and I’ve sold supplements online since 2010. I started Powder City in 2014. Despite its rapid growth, we had to close due to financial issues in 2017. The downward spiral started in late 2016 after we lost our primary payments processor. I will share what I learned from my mistakes and also what gave Powder City its rapid growth.
Bulk supplement prices have risen since Powder City’s departure from the market. There is room for smaller, hungrier businesses to take back the market share which was absorbed by the current bulk supplement vendors. This guide will show you how to take some of this market share.
So Why Not Start Another Company Like Powder City?
A large vertically integrated company like Powder City has many risks and the financial barrier to entry is substantial. A better way is to pool resources with many small supplement companies to sell on a common marketplace.
Powder City’s growth strategy was adding new products on weekly basis. This is difficult, if not impossible, for new supplement companies unless they have a hefty initial cash investment. This is where marketplaces come in.
What’s the Catch (the Payoff)?
My angle is twofold. First, I selfishly want you to sell your product on BeamZen. But I also encourage your to sell on other marketplaces. If you only sell on one marketplace, then you’re putting the longevity of your business at stake (more on that in the next section).
I also want to see lower prices again in the bulk supplement powders niche. Since Powder City exited the market, prices seem to have increased. Fostering more competition by helping new supplement vendors will drive down prices.
In case you’re wondering why the Powder City domain still exists, it was sold and seems to just be an affiliate site. I’m no longer affiliated with that domain.
Selling supplements on Amazon, eBay, and other Marketplaces
Amazon and eBay receive a massive amount of traffic because of their product breadth and depth. Supplement-specific marketplaces like bodybuilding.com and gnc.com rely on the same growth strategy, but target the supplement niche. Businesses that only sell their own products can’t compete with the selection of these larger companies.
If you’re just starting a supplement business, then selling on Amazon may seem like your best option. However, this marketplace is quite saturated and you may find that you’re not ranking on the first page for your keywords in Amazon’s search. Amazon’s search algorithm heavily weights reviews and sales velocity.
So it becomes a catch-22.
You find yourself paying to advertise your products for search visibility on Amazon. Then you find yourself selling at a loss after the price cuts and advertising. You can eventually break even on Amazon, but it can take 6-12 months. And this break-even time is becoming greater each year due to the over saturation of sellers, largely due to attractive seller services like FBA. There’s a smarter way…
Where to Sell Supplements
Start with These
Ebay.com – Ebay is less saturated for some supplements and you will likely gain more initial visibility than Amazon. However, it’s more labor intensive over the long run since eBay listings expire. Maintaining listings is more work on eBay, but this can be mitigated with listing software.
Why start with eBay.com instead of Amazon? Think of it this way. Would the average person start with the difficult backend and frequent relisting of eBay, or would they rather deal with Amazon’s sleek backend and FBA service which ships the product for them (and takes an even larger percentage of their margin)? Most people will start with the path of least resistance (Amazon).
Beamzen.com – This is obviously biased, but there’s an open niche for a bulk supplement marketplace. BeamZen is a seller-fulfilled marketplace that charges a 15% fee on sales, which is cheaper than Amazon once you account for Amazon’s additional $1 per sale Personal Seller fee or monthly Professional Seller fee.
Unlike Amazon or Ebay, I’ll write your product copy if you have none. This product copywriting benefit is available only for early adopters, as I’ll likely have to discontinue writing for sellers once signup frequency increases. You also have the advantage of an unsaturated marketplace without a search algorithm that caters only to established vendors (many of whom have fake reviews).
Slow Return on Investment
Amazon.com – Selling supplements on Amazon is a long-term investment due to the amount of time required to break even. If you have the capital for advertising on Amazon, then I encourage at least starting. However, you will need to start selling on other marketplaces to generate substantial revenue during your first year. Your Amazon sales channel may sell at a loss or very low margins for the first 6 months.
Walmart.com – If you can get past the archaic backend, selling on walmart.com may net a small number of sales. The only advantage this has over eBay is that the listings do not expire and it’s not oversaturated like Amazon. However, you may get only a few sales monthly if you list at least 10 products. This was my experience.
Your own website – Unless you have minimal web development skills, you will likely have to either pay a freelancer or purchase a site template. I recommend WooCommerce. However, unless you also have experience with online marketing and SEO, you will need a substantial ad budget to get traffic. Even then, you may have to sell at a loss after ad revenue until you generate enough return customers. Most new sites do not gain significant visibility in Google for the first 6 months.
Not worth your Time
Newegg.com – I’ve listed on this site years ago and never received a sale. It’s not surprising, since most people only think Newegg sells computers.
Shopify – This shopping cart software as a service is great if you aren’t selling supplements. Shopify’s processor, stripe does not approve merchants that sell dietary supplements. Alternative payment methods are sparse.
A few years back, Shopify increased monthly prices and vertically integrated their payment processing. Now, if you don’t use their processor, you’re hit with a 2% fee on your sales on top of the 3%-5% credit card processing fee. At these percentages, along with Shopify’s monthly fee, you may be better off selling on a marketplace and not spending the ad revenue promoting your new website.
Etsy.com – I haven’t sold on this site before. Skin, beauty supplements, and food additives (like sweeteners and flavoring) seem to get traffic on this site. Workout supplements may not yield as many sales.
Bodybuilding.com, GNC.com and similar sites – These large supplement marketplace sites have a backlog of vendor applications. If you don’t have an established company or brand, you will be waiting a long time and may never receive a reply.
It’s worth a shot if you have the time. But don’t feel bad if you never get a response. These sites are a lot less likely to accept bulk powders or single ingredient supplements. They’re only worth trying if you have a formulated powder or capsule. However, I’ll explain below why you want to start with single ingredient supplements instead of blends.
Diversify your Sales Channels
Diversifying your sales channels is vital for the longevity of your business. When Powder City lost its primary credit card processor in late 2016 due to a string of high value chargebacks (from one customer), our website and processor comprised almost 90% of our revenue. If I had diversified our sales channels earlier, this wouldn’t have depleted our cash reserves and started the downward financial spiral.
Whichever sales channels you select, I recommend having at least two channels to start. Then start a third channel within your first year. If one channel exceeds 50% of your revenue, then keep trying new channels or improving existing ones to diversify the volume.
Why take such drastic measures to diversity channel volume? Because you don’t control your method of transacting sales. Amazon or Ebay can cancel your account, or the bank underwriting your payment processor can close your merchant account.
What Supplements to Sell
Start with Powders
Why just powders initially? Single ingredient powders require the less production labor and steps in the supply chain than capsules or formulated powders. Single ingredient supplements only require one assay test, whereas formulas require one for each active ingredient.
And unless you have the equipment to encapsulate powders yourself, you often have to deal with a 100,000 capsule MOQ from a supplier. This equates to about 1100 bottles of inventory your product is 90 capsules. You don’t want to be sitting on this much inventory if you’re just starting.
Ensure Healthy Inventory Turn with Market Research
Use semrush.com or another keyword tool to gauge the demand of a product. I recommend targeting products that have a keyword with at least close to a 1,000 search volume.
For example, agmatine has a search volume of 4,400. This was FitPowders’ first product since it had substantial search volume, the raw ingredient with testing could be sold at a decent margin while undercutting competitors. I also use the product frequently and believe in its effectiveness. This leads to the next point.
Start with Products You Know
If supplement stores only sold product their owner used or believe in, then they wouldn’t have a wide selection. However, starting with products for which you have extensive product knowledge allows you to create your own product content (written or video) and provide better customer support. You will need this edge over the competition when starting out.
It also helps if your initial products have scientific evidence backing the benefits. You can find this information on a site like examine.com. Citing scholarly journals in your content will add authority to your copy or video.
Supplement Product Pricing
Ensure that you can undercut competitors and still sell at a profit. Do this before purchasing inventory. If you aren’t undercutting or at least matching the lowest priced competitor, then you have nothing new to offer the market if you’re selling a bulk powder. One exception is if you’ve found a new dietary supplement ingredient that no one else is selling yet it somehow has lots of search volume in google (I’ve never experienced this, but if you find an ingredient like this then let me know).
Keep Your first Order of Each Product Lean
You want to sell your initial inventory in your product’s first 3 months, possibly 6 months if your initial sales are slow.
Your initial lot of inventory will be smaller and will yield less margin per unit sold. However, this is better than larger theoretical margins on hundreds of kilograms of product that doesn’t sell.
Keeping a lean first order means either getting the minimum (usually a 25kg barrel) or just enough product to make at least a 20% starting margin. This often equates to having a starting inventory for a few hundred or even around 100 units.
Keep in mind, this initial inventory size is small to mitigate your investment risk. Think of it as a test market rather than worrying about the initially smaller profit margin.
In a past company, I had a business partner who invested almost $100,000 in large initial batches for products he was sure would sell. The margins were great at the theoretical prices which he thought they would sell.
Despite trying to sell these at cost and even below cost, the majority of this inventory sat in our warehouse until the partnership was dissolved almost a year later. He purchased the inventory for pennies on the dollar for his new business. Having lower margins for your initial product batch is better than having supposedly great margins on inventory that doesn’t turn. No matter how good your market research is, actual sales can upset expectations.
A Quality Management System for Sustainability
Don’t tell yourself that you’ll start testing ingredients once you have enough sales. Start testing with your first product so that you will have enough sales on the long run. Informed customers will know the difference between vendors who test their products in the US and those who don’t.
Build Your Reputation with Testing
With Powder City, most new customers came for the prices and stayed for the quality.
Your margins will be lower with a quality management system that includes third-party testing. You are going to have the temptation to skip on lab testing costs and just rely on the manufacturer’s certificate of analysis (COA). But trust me, it’s not worth it in the long run. Word travels fast if customers realize you are relying on the Chinese manufacturer’s COA, or worse, if you end up selling fake product. Once this happens, your company will be on the wall of shame at /r/nootropics and other online forums.
There are ways to counter testing costs. I can provide you with a US lab testing solution with affordable pricing if you decide to sell on BeamZen. There are also a few US bulk suppliers who already provide testing results. These US vendors end up absorbing the lab testing costs and, at smaller quantities, their prices are comparable to buying directly from the manufacturers.
Once your sales volume increases, you can purchase larger lots and spread your testing cost over hundreds of kilograms of powder instead of having to test one 25kg barrel.
Establish product specifications for each product. If your product specification is a >97% assay, then investigate an HPLC assay that comes back at 96.5%. And question the manufacturer if the organoleptic properties are outside of the norm. We’ll cover these testing methods below.
What Type of Tests are Needed?
At a minimum, I recommend an assay test and organoleptic testing if you’re selling non herbal dietary supplements. I’ll explain why further tests are recommended for herbal supplements.
Assay testing – this is usually performed via HPLC equipment and the costs range from around $120 to over $300 per test. This large range in price is due to some HPLC methods being more complex or time consuming than others, depending on the ingredient.
Organoleptic testing – This is testing the smell, taste, and visual properties of your supplement ingredient. If you already know the organoleptic properties of a product, then this testing method only costs your time.
If you aren’t familiar with a product’s organoleptic properties, then either send me an email, see if a trusted source already has confirmed properties, or order a small amount of the ingredient from a vendor who performs US lab testing such as purebulk.com. You can also email them for a COA since it usually lists the organoleptic properties.
However, don’t rely solely on anecdotal organoleptic reports from forums, MSDS documents, or manufacturer COAs. I’ve found these sources to sometimes conflict with reality or to not provide enough detail.
Perform organoleptic testing on samples first if you are willing to take the personal risk. By tasting a small amount of most dietary supplement ingredients, you shouldn’t have an adverse reaction unless the product was swapped by the manufacturer for an entirely different product.
By performing organolpetics first, you can save lab testing costs if the product doesn’t meet visual, taste, or smell specs. For example, if there’s a strong solvent smell for an ingredient which is supposed to have a neutral smell, then you can request and exchange or refund from the supplier without sending samples in for testing.
You will want to cleanse your pallet between each sample (bread, crackers, or even enough water will work). I recommend using microscoops for tasting.
Herbal ingredients have a higher propensity to breed bacteria over time due to plant matter. Since many ingredients are derived from plant roots, it’s best to also test for common heavy metals. Certain heavy metals are found in high concentrations depending on the geographic area and environmental factors.
Heavy Metals Testing – Metals testing services range from around $75 to over $110 for arsenic, cadmium, lead, and mercury.
Microbial testing – Micro testing can cost anywhere from $60 to over $140 depending on the vendor and turnaround time. Microbials to test for include yeast, mold salmonella, E. coli and staphylococcus aureus.
A faulty sampling process can render testing useless in determining ingredient quality and homogeneity. You can’t assume homogeneity across all barrels in a lot. If you have 10 barrels in a lot, then take a sample from each barrel and perform 10 organoleptic tests. About 1g is enough for an organoleptic sample.
Keep your ~1g organoleptic samples in one set of bags and then take a 5 to 10g sample from each barrel and put these in one large bag. This will be your bag for sending lab test samples.
The quantity requirements from each lab will determine your lab test sample quantity. 10 grams is usually more than adequate for an HPLC test. If you end up with 100g in your lab sample bag, mix the sample bag together and put what you don’t need back in one of the barrels. Getting an aggregate sample for lab testing ensures you end up with a lab test that is representative of your entire ingredient lot.
Gather samples and obtain tests for each lot. Do not combine or skip testing for any lots. Treat each manufacture’s shipment as a separate lot. If you receive the same manufacturer lot number as your previous order, don’t assume it will pass the same tests. Treat it as a separate lot and test it as you would a separate lot number. This is why it’s best to have your own internal lot numbers and not to use the manufacturer’s lot numbers.
When sampling, take samples from the bottom and middle sections of the barrel and combine the sample in one bag. Aside from ensuring a representative sample, any solvents (if used in the manufacturing process) or non-homogeneous parts of a lot will sink to the toward the bottom of a container when in a powder. Never rely on samples only taken from the top of a barrel.
Your Supplement Company’s Operations
Leasing a Facility or Starting from Home
Until you have more than a handful of products, I recommend starting from home. If you have a spare room to turn into a cleanroom, then you can package bulk powders. I started from home in 2010 before getting my first commercial space in 2011.
Starting operations from home will save a significant amount of cash that you can invest in your initial products. Leasing a warehouse often requires a minimum two year contract. Some leases require contracts for up to ten years.
That’s a lot of commitment for a new company. What’s more, if you live in a state like Pennsylvania with a commercial real estate confession of judgment law, your company could be hit with a judgment without due process (even if the warehouse becomes unfit for manufacturing dietary supplements).
If you do not have a spare room to dedicate to a cleanroom conversion, then you can still find local copackagers to package your bulk supplements. However, the MOQs may be substantial and you could be limited to accept the copackager’s preferred packaging materials.
For example, if you were thinking of going with pouches or bags for your powder supplements, you might have to settle on tubs. Tubs are more expensive to ship, but are easier for the copackager to automate via volumetric filling equipment.
Another possible workaround is subleasing part of someone’s private residence or renting an apartment for a cleanroom conversion. This way, you only have a one-year lease or less. However, check with a lawyer first since running a business this way could violate local zoning codes. Also, I’m not certain if a separate apartment still constitutes a private residence according to the FDA.
Aside from lower fixed costs, another major benefit of starting in your home is that you aren’t required to register with the FDA if your operations are in a private residence (source). However, this doesn’t mean you can disregard GMP guidelines.
CFR Title 21 Part 111 outlines GMP guidelines for dietary supplements. The closer you are to following these guidelines in your residence, the easier it will be to make the transition to a commercial facility. Once you’re in a commercial facility and have registered with the FDA, you will likely receive a visit from FDA agents within the first two years. This is highly variable as they could visit within a few weeks or may not visit at all.
I’ll explain cleanroom setup and packaging operations in more detail in a separate article, but will provide enough of an overview for you to get started. Contact me if you have questions or if I missed vital details in this section.
Your Cleanroom Setup
At-home cleanrooms are possible to set up if you have a spare bedroom you aren’t using. Ground-level rooms are ideal since you’ll be wheeling barrels in and out with a handcart.
If you have existing plumbing in the cleanroom, then install a stainless steel sink basin for a few hundred dollars. Or use a commercial steam cleaner that exceeds at least 200 degrees F (source). These cleaners can run from a few hundred dollars to over $1,000 depending on the model.
You do not want to use the kitchen or a bathroom to clean packaging equipment or utensils. You need a cleaning area and cleaning equipment dedicated only to cleanroom use to prevent external contamination. One exception is if you have a separate spare room with a sink. Clean it top to bottom, stop using it for anything other than for cleaning your production equipment, and keep the door shut until you graduate to a commercial space.
Prep your cleanroom by laying down a flat, cleanable surface over your carpet. If you have wood floors, put tile or a flat plastic layer over top. Whatever the surface, you want to ensure it’s non porous (flat) and easy to clean. Take down any curtains and decorations so that you are left with only flat, cleanable surfaces.
For personal protective equipment, you will need:
Nitrile or latex gloves
Beard nets (if applicable)
N95 NIOSH approved (at minimum) dust masks with valves
These should all be disposable (except for the goggles) and relatively inexpensive. Clean the goggles with the rest of your equipment.
Why should your wearable gear be disposable? For the same reason you don’t use your kitchen dishwasher for cleanroom utensils—external contamination. One exception would be if you have a separate washer, sterilized beforehand, and used only for cleanroom gear.
Establish a demarcation area inside your cleanroom entrance where you “suit up”. If you exit the cleanroom with your gear on, you must change it in order to prevent external contamination.
Purchase a stainless steel table for your packaging surface. The webstaurantstore has the best prices for these. You may also want to pick up some NSF rated shelving for your equipment. Before purchasing these new, check if there are any local auctions for restaurant equipment at a site like auctionzip.com. Be sure to sterilize your table before use.
You also need at least 0.0g precision scales with calibration weights and a calibration log (calibrated daily before packaging). Stainless steel scoops or disposable scoops for packaging are ideal.
Product Packaging and Labeling
I recommend starting with bags or pouches as these are cheaper to ship and faster to seal. There are many bag suppliers online. Start with blank pouches since a branded or pre printed pouch requires a much higher MOQ (usually tens of thousands). Purchase a hand sealer or a foot pedal sealer. These range from around $50 to $350. You can invest in a continuous band sealer later if needed.
Product labels can be in black and white initially if you don’t have a color printer. Or, you can pre print your labels at a print shop such as Staples. You can then use a laser or inkjet printer at home to print the lot number, batch number, and manufacture date on top of the pre printed labels by creating a template in a desktop publishing software like Adobe InDesign.
When starting out, I recommend printing labels yourself if you have a printer. You may find that your labels need changed during your first few weeks or months. Printing yourself will save on wasted pre printed labels.
I can help with product labeling technical aspects and GMP requirements if you sell on BeamZen. However, you can also find plenty of designers on freelance sites such as upwork.com and freelancer.com who have product labeling experience.
Be sure to follow the FDA’s labeling guidelines for dietary supplements. The FDA’s food labeling guide. It’s quite extensive, but there’s also a food labeling guide which is easier to follow. The primary difference between food labels and dietary supplement entails the Supplement Facts panel.
It may take several hours to wade through the above documentation. Start by using a trusted brand’s label as a reference, such as now Foods. Then consult the above documentation if you’re unsure which label elements are necessary or unnecessary. For example, most supplement companies list their phone number on the label, but this is not required by the FDA.
Also be aware that you cannot use expiration dates unless you perform stability testing on supplement ingredients. Stability testing is cost prohibitive except for very large ingredient lots.
Batch Production Record (Batch Log)
You will need to ensure ingredient traceability in case of a quality issue. Despite product testing, you may have a customer with adverse effects that you would have to trace back to the ingredient in case additional testing is needed.
This traceabiltiy isn’t just a good business practice, it’s required by GMP guidelines. The batch production record links the finished good batch number to the lot number by a unique identifier—usually the batch number.
The FDA prefers paper records unless you can meet their stringent requirements for electronic storage (offsite and offline backups and redundancy). You’re not going to meet these requirements with a spreadsheet on your computer. So print out daily or weekly records from the spreadsheet and store these in a filing cabinet.
If you plan having other people (contractors, friends/family, or employees) package your product then I recommend a shared spreadsheet such as Google Sheets or Zoho Sheet. Offline spreadsheets can easily create file conflicts, even if a filesharing solutions like Dropbox is used.
Here’s a breakdown of each piece of information (column in the spreadsheet):
Product name (or SKU) – You may want to start with SKUs (stock keeping units) for unique identifiers of each product variant. Unique ids for each product will allow you to more easily expand into other spreadsheets for easier cell references and lookups. SKUs also come in handy if you’re using a fulfillment software solution like ShipStation or if you eventually find you need a warehouse or inventory management solution.
Packaging (Manufacture) Date – These will match the date in which the product was packaged. You should package each batch on the same date. A single batch packaged on different dates presents traceability issues.
Batch # – A unique identifier on the product label used to trace back to the ingredient(s) lot numbers and other batch log information.
Number of labels printed, Number of labels packaged – having both the number of labels printed and number of labels packaged ensures you are accounting for unused labels. This is part of the GMP requirements for label control.
Employee/Packager Name or ID(optional) – This is needed if other people are packaging your products. This allows you to trace the batch to the person in case of packaging errors.
Batch Start and End Times (optional) – If you want to track packaging efficiency.
Using calibrated scales is ideal for starting. As you progress into a warehouse, you may find it worthwhile to invest in semi-automated packaging equipment.
Label your bags before putting powder in them. Keep one label (along with one finished product per batch) for retain samples. Again, there will be a temptation not to keep a retain sample since one unit of every batch will eat into margins. However, the retain sample bag can be under filled to save on raw material costs, but should contain at least 10 grams of product in case a future retest is needed.
Scoop the powder into the labeled bags and weigh them to spec. Be sure to account for the bag and label weight (taring the scale with an empty bag makes this easier).
Finished Goods Quality Control
Retain one unit from the batch and at least one label. If someone else packaged your product, then weigh the units to ensure they meet the target weight. These can be done in bulk and divided or randomly sampled for weight if you have a high confidence level in the packager.
However, I recommend checking each unit for the correct batch number until you have a control process for catching typos in lot numbers or automating product label printing to reduce errors.
Product Labels and Adobe Software
At Powder City, we had the batch, lot and manufacturing date on the product labels. The lot number is optional since the batch number already links to the lots used in the Batch Production Record spreadsheet.
Create a template for the vital pieces of information (manufacturing date and batch number). An InDesign template allows for several things. You can print on top of pre printed color labels with a cheaper, black and white printer. Or, if you have a production-ready printer, you can import your Illustrator (or other vector image) files into your template instead of having to recreate templates for every product image.
If you use Illustrator in conjunction with InDesign, you can also auto-generate product labels from a CSV file instead of manually creating labels. This comes in handy once you have over 20 product variants (or thousands) and need to make a change across all labels.
Adobe Creative Cloud is about $50 per month, but if you only need Illustrator and InDesign, then it’s $40. If you or someone you know is a student, you can get the Creative Cloud subscription for $25 monthly. You need a university email to verify for the discount.
Create an LLC
Before selling any product, you should limit your personal risk by creating an LLC, or limited liability company. This will allow you to create a bank account under your LLC and also get a credit or debit card under your business name.
To file, go to your state’s website and create an LLC, or limited liability company. The online forms for creating an LLC are usually in the corporations section of the state government site. It costs about $120 to form an LLC in Pennsylvania.
Keep Business Finances Separate
Be sure to keep your business and personal expenses separate and never commingle funds. If your business needs cash to start, then make an owner contribution and be sure to denote this in your bookkeeping software. I recommend waveapps.com to automate your bookkeeping for free. Connect your business’s bank and credit card accounts and transactions will auto populate.
Not only will keeping business finances separate be easier for your accountant come tax time, but separating funds also protects your personal liability. Using business funds to pay for personal expenses can pierce your LLC’s corporate veil and leave you liable for business expenses or lawsuits should your company go out of business due to unforeseeable circumstances.
Product Liability and General Liability Insurance
Once your business makes substantial revenue or has substantial assets, it’s worth considering general liability and product liability insurance. However, it will be some time before it’s time to consider insurance policies. Assets usually aren’t worth covering until you have at least $10,000 to $20,000 in inventory. By this point, you may be leasing commercial space and many leases require you to carry general liability insurance.
A product liability insurance policy is significantly more expensive and is usually priced as a percentage of revenue. This is wroth considering once your business’s cash reserves either reach $50,000 to $100,000, or if your yearly revenue exceeds $500,000.
Overall Startup Costs and Summary
Depending on if you can find deals on your equipment, your startup costs will total around $1000 to $2000, assuming you spend no more than $500 for your first product’s inventory.
Just like any investment, don’t invest money you can’t afford to lose. And I do not recommend borrowing money to finance your supplement business startup unless you have access to lending that isn’t personally guaranteed (unlikely for a small business).
Supplement businesses are prone to higher risk due to our country’s litigious and regulated climate. This is why many banks aren’t willing to underwrite the risk for dietary supplement merchant accounts.
Once you’ve set up your packaging operations and purchased your equipment, then you’re ready to start selling. Unless you have a strong marketing and/or web development background, I recommend starting with marketplace channels, such as BeamZen and eBay. Then start on the long-term channels like Amazon once you’ve established some sales.
There are many aspects of starting your supplement company that I’d like to delve into more, and these will be expanded upon in future articles. If you would like to see a particular section expanded upon first, email me at [email protected]
Batch – Sometimes used interchangeably with lot. But for our purposes, batch refers to your finished product batches. Each batch should be recorded in the Batch Production Record.
Batch Production Record – also referred to as a “batch log”. This is a record of all finished goods batches you produce. This record is used to ensure traceability in case of any quality issues. This FDA guidance article goes into more detail as to what’s required.
GMP – Good manufacturing practices established and enforced by the FDA.
Lot – A single ingredient order from a manufacturer. Treat each received shipment as a separate internal lot. Use your own internal lot numbers for easier reference. There’s a good chance you will receive the same manufacturer lot number in your next shipment.
MOQ – Minimum order quantity. This is the minimum order size that a supplier or manufacturer will take. When purchasing supplement ingredients, bulk resellers (middlemen) will have lower MOQs than buying direct from the manufacturer.
Product Specs – Product specifications. This includes, but is not limited to, organoleptic properties, minimum assay, maximum heavy metals and microbial levels.