How to Start a Shipping Business
ByJulija A.
March 11,2022
While it might not necessarily stand out as the most exciting business sector to get into, the shipping industry is easily one of the most important for domestic and international commerce. Quite frankly, there has never been a better time to start a shipping company either.
Studies show that around 90% of international trade relies on the freight industry. When you know how to start a shipping business in style, the opportunities to generate significant financial returns while simultaneously helping companies and consumers around the globe are fantastic.
This guide will help you learn the various steps for starting a shipping business in 2022 and beyond. Let’s get ready to deliver the goods.
Why Start a Shipping Company?
Before looking at how to start a shipping company, you need to be properly motivated to enter this arena. First off, you should know that the shipping industry was valued at $14 trillion in 2019 and continues to show a steady improvement year on year. For the companies that get it right, there is an opportunity to see very sizable ROIs.
While the proposed financial gains are rightly the first item on the agenda, it’s worth considering some of the industry’s other attractive features. They include but are not limited to:
- Flexibility - whether you start an international or domestic shipping business, there are many different niches and clients that you may work with. Likewise, you can run the venture from various settings and consider multiple staffing arrangements.
- Stability - it’s existed for generations, but the industry is now truly thriving. For example, stats from 2013-19 show that the volume of goods carried by ships rose by almost 35%. Unlike many business sectors, this industry runs 365 days per year without any dead periods.
- Importance - the shipping industry isn’t only one of the world’s longest-existing sectors; it’s also a vital cog in the engine of society. From cars to food and consumer goods to raw materials, global trade is dependent on freight companies like the one you plan to launch.
- Responsibility - the chance to make a difference in the world is something many entrepreneurs aspire to do. Carbon emissions from the shipping industry have been reduced, and industry leaders aim to reach a 50% reduction by 2050. You can play a significant role in this development.
- Engagement - every business owner enjoys a challenge, and starting a shipping company will present new ones daily. From building your business strategy to overcoming financial and logistical obstacles, this is an industry that offers a chance to dive deep.
Furthermore, studies have shown that the volume of shipments for B2B, B2C, and C2B parcel delivery across 13 major countries has grown from 43 billion units in 2014 to 131 billion in 2020. Given the way our consumer habits have changed during the pandemic, the figures are only climbing.
Starting a container shipping business isn’t for everyone. For the right candidates, though, it delivers an unparalleled opportunity to achieve great results and upscale over the years to come.
A Word of Warning About Shipping Freight Business Concepts
Telling yourself that you want to start a shipping business is a good starting point, but it’s equally important to familiarize yourself with the issues that could potentially hold you back. As with any business venture, you’ll need to be disciplined, capable of managing a workforce, and competent in handling financial matters. After all, one in five startups fail within the first year, with capital being the main source of problems.
There are several unique challenges you’ll face when starting a freight company. Some of the key issues that you must consider include:
- The need to calculate the CBM and freight tonnage to work out the costs (and, therefore, the profit margins) of all shipments.
- Learning how to determine whether a House Bill of Lading (HBL) or Master Bill of Lading (MBL) is required.
- The need to research when cargo can be shipped without insurance and which kind of insurance is needed when it can’t.
- A deep understanding of the HS Code or Tariff and how it’ll impact your domestic or international shipments.
- An ongoing demand to manage logistical factors that could impact shipping containers in multiple countries.
If you don’t have all the relevant experience and information at the start of your journey, you can educate yourself on the state of the shipping industry before officially launching your business. However, you must be honest with yourself regarding your ability to commit to the work even during stressful times.
How to Start a Shipping Business
It will require a lot of hard work to force your way into this crowded industry, but it is possible. However, the versatility and self-control inherent in the industry will offer you many options. As such, your research can even extend to ideas like how to start a shipping business from home - a concept that will help reduce some of your financial exposure.
In some ways, the shipping industry is no different to any other, not least in the sense that you must find your own path. Nonetheless, the following steps should point you in the right direction.
#1. Research the Market
Knowing that you want to start a freight company is one thing, but knowing the exact type of venture you wish to operate is another. There are several niches within the industry that you may wish to pursue, such as:
- Cargo shipping
- Container shipping
- Dropshipping
With 90% of goods being transported by sea, there are so many categories of shipping you can get into. You may also find that your future lies with a niche like hazardous goods, in which case you’ll also need to consider your clients. They could fall under the category of B2B, B2C, or C2B, ranging from small contractors to major organizations.
Getting into a niche that you feel passionately about is advisable, but you must also check out the relevant regulations, ranging from international laws and customs regulations to insurance coverage. The findings should influence your subsequent decisions.
#2. Build a Business Plan
A strong business plan is one of the most valuable documents that you can have during the early stages of planning and launching your shipping business. Aside from being a tool that can help you gain funding from banks or guide your team, it’s also something you can always look to for a better understanding of your company and where it’s headed.
It’s technically possible to write a one-page business plan, but when looking at a shipping business international venture, you’ll probably benefit from a more comprehensive business plan and proposal. It should set out:
- The objectives of the business, its challenges, and strategies
- The resources you require and whether or not you’ll still be able to profit
- The value of your proposition and potential exit strategies
All information should link back to the industry, which is another reason to know your competition and the state of the market, along with any anticipated developments and how they might influence your freight venture.
#3. Register Your Shipping Business
Conducting the necessary research and planning how to start a cargo business will build a solid foundation. However, you can’t truly begin following your dreams until the company has been registered. This means formally registering its name and checking trademarks.
In addition to registering the business, you’ll need your tax identification number and will also benefit from having a:
- Certificate in Shipping Business
- Certificate in Marine Transportation
- Certified International Trade Professional (CITP) status
The legal requirements for this industry are more stringent than for many small retail businesses. But whether you open a sole proprietorship or - more likely - an LLC, getting this paperwork under control is essential.
#4. Access Funding
Knowing how to start a shipping container home business counts for very little if you don’t have the capital, especially as you’ll be dealing with large sums of money. Buying a cargo ship can cost over $10 million, and even the alternative methods like setting up a UPS franchise will require significant funding.
Large operations will need an office, furniture, and office equipment. Even when looking at how to start a shipping business from home, there will be staffing costs, vehicle rentals, containers, and shipping equipment that can easily cost tens of thousands of dollars. Some options for funding the business include:
- Business bank loans and personal funding
- Private investors who can also offer mentorship and contacts
- Crowdfunding or loans from people you know
Your state may also offer business grants for startups, which is another route that’s always worth pursuing.
#5. Get Insured and Organized
There are many administrative tasks that must be completed before you start trading, such as getting a bank checking account and applying for your Employer Identification Number so that you can pay your employees. Having already completed your Certificate of Incorporation, you’ll also need Operating Agreements and Insurance Policies.
Joining the National Customs Brokers & Forwarders Association of America (NCBFAA) is another key responsibility, while you’ll also need to protect intellectual properties with copyrights and patents. You must also:
- Organize your freight, maritime, and shipping supply chain management
- Handle your employment agreements and non-disclosure agreements
- Seek the right insurances, such as general, risk, health, and workers’ compensation
You must also need to establish policies and contingency plans to overcome any problems that may occur while running the company. Maintaining compliance while also serving employees and clients in the right way is essential at all times.
#6. Decide on Your Location
The location of your business will be important for many reasons, not least your convenience. Even if running a home-based company, you’ll want to know that your cargo and shipments come in or out from a nearby port. You’ll also want to consider where your warehouses are stationed, while also looking into trucking logistics.
Knowing that your warehouses, your parking lot for fleet vehicles, and your containers are kept on one site can be beneficial, not least for managing costs. Be sure to consider:
- Accessibility to the site and getting to shipment locations
- The strength of competition from other freight companies in the area
- Any local regulations or laws that could affect your cargo business
Location is particularly vital when you want to start a domestic shipping business. That’s because 44% of customers will wait two days for fast delivery, but under 25% will wait for four days. Given the demand for fast solutions, this is one of your most important decisions.
#7. Assemble Your Team
You cannot expect to run a shipping container company alone, even if it’s a small one. While nearly two-thirds of companies state that retention is harder than hiring, finding candidates with the knowledge and experience to drive the business forward is key.
Many hands make light work, especially when their talents can fill the skills you might be lacking personally. Your workforce will inevitably include:
- Office, administration, and HR staff
- Truck drivers, shipment packers, and warehouse teams
- Engineers and cargo ship workers
If you don’t need to hire all of those people right away, delay it until you do. This will free up more capital while also allowing you to invest more time in the employees you have. Still, you must keep one eye on this to promote smooth long-term growth.
#8. Build Business Relations
While managing your in-house teams is important, you must also establish strong relations with partners. As a startup, it’s almost impossible to handle every aspect of the freight shipment journey without other companies. You’ll need to have strong connections with:
- Sellers, who will essentially be your clients
- Freight forwarder companies once shipments arrive at the destination country
- Buyers, who may sometimes come directly to you rather than a seller
You may also find that you need the help of various tech and software companies to maintain safe, trackable operations at all times.
The necessary business relations will depend on whether you ship by land or sea, as well as the nations you export to. Nonetheless, strong connections with the companies whose items you’ll ship should reduce delays and errors.
#9. Establish Your Brand
Branding might not feel like that important a step for a shipping business, but the right company image is as important as understanding the features of the NVOCC, like bills of landing or securing the right certifications. Having a solid brand inspires trust from clients and provides peace of mind for workers.
Many of your branding issues will be solved instantly if you take on a franchise. However, when starting from scratch, some of the key responsibilities to consider are:
- Ensuring that the brand personality aligns with your shipping niche
- Designing a website that engages your audience and inspires trust
- Getting placements in the right directories, publications, and online outlets
Above all else, you need to know that your branding is consistent. Meanwhile, customer care can be incorporated into your branding. Once you’ve been operating for a while, testimonials from your biggest clients can be a key step to winning more contracts.
#10. Start Operating
With all your preparations now complete, you’ll finally be able to start trading as a shipping business. Whether you’re using maritime or freight shipments, securing leads will be vital. You’ll need to embark on a full and thorough marketing campaign to properly establish yourself.
Winning clients is one thing, but keeping them is another. Finding the best CRM software will be pivotal, as you can use this program to manage all your communications and identify consumers’ behaviors. To provide a tailored service, you should focus on:
- Updates and tracking information on all shipments
- Quick invoicing and easy payment facilities
- Automated orders to streamline client operations
Of course, there’s nothing like experience to help improve your company over time, but the aforementioned steps should ensure that your venture gets off on the right foot. If all goes well, your shipping business will be set for years of success.
Further Reading
The Final Word
The freight industry is one of the longest-standing and most stable business sectors, and it can certainly accommodate new startups. As long as you know how to start a shipping business with compliance, convenience, and cost-efficiency in mind, there’s no reason why you shouldn’t discover a smooth road to success.
Frequently Asked Questions
How do I start my own international shipping business?
Firstly, you’ll need to research the market to determine whether you want to ship over sea or land, as well as choosing between starting a new business or buying a franchise. Following this, your next steps will involve recruiting a team, building partnerships, and gaining the licenses required to operate internationally.
How do I start a shipping container business?
Write a business plan and find a niche you can work in. Finance the venture and build a solid brand that will target B2B or B2C clients. Following this, work out which aspects of the supply chain require outside help. You’ll also need to find the right location, which will improve your chances of success dramatically.
How profitable is a container ship?
Very. There are many variables that will influence the profit margins of shipments, but the largest industry player - AP Moller-Maersk A/S - made operating profits of $4.5 billion in 2021. So, if you can manage your business in an effective manner, success can be exceptionally profitable.
What is the price of a container from China?
You can expect to pay $3,000 for a 40’ shipping container from China to neighboring countries. When looking to ship to the US, those prices will increase to around $5,000-$10,000 depending on your exact location.
About the author
Julia A. is a writer at SmallBizGenius.net. With experience in both finance and marketing industries, she enjoys staying up to date with the current economic affairs and writing opinion pieces on the state of small businesses in America. As an avid reader, she spends most of her time poring over history books, fantasy novels, and old classics. Tech, finance, and marketing are her passions, and she’s a frequent contributor at various small business blogs.
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If you’re wondering how to start a meal prep business, this post is for you. In it, we’ll discuss the step-by-step process that you need to follow to create quick, easy, and delicious meals for your customers.
Starting a meal prep business has become increasingly popular in recent years. Now more than ever, customers are demanding instant and healthy food that they can make quickly, without the hassle of coming up with their own recipes or shopping for ingredients. It’s become so popular that some food prep companies have sold for millions of dollars.
Starting a food business, though, isn’t always easy. Not only do you have to think about the logistics, but the marketing, food quality, and recipes too.
Read on to learn more about what’s involved in creating a successful venture in this thriving industry.
Why Starting a Meal Prep Business From Home Is a Great Idea
Before we get into the step-by-step process of actually setting up a meal assembly business, it’s worthwhile asking why you might want to do that. So, what are the benefits?
The obvious one is that starting a meal planning business allows you to be your own boss. If you can create a sustainable business model, you’ll be able to leave your regular 9 to 5 behind and pursue something that you really care about.
What’s more, meal prep businesses are a form of public service. Yes, profit is still important, but you’re also helping people eat healthier at the same time. By offering meal preparation services, you’re getting your customers out of the habit of ordering take-outs and helping them eat a balanced diet.
Lastly, the financial rewards of setting up meal prep companies and later selling them can be extraordinary. Many entrepreneurs scale their businesses and then sell them to large conglomerates for millions of dollars.
How To Start a Meal Prep Delivery Business
So what do you need to do to start a meal preparation business? Let’s take a look:
Step 1: Find Your Niche
There are already several big players in the meal prep market, each with loyal followings. Therefore, like any other industry, you'll need to find a niche – a specific area in which you can excel.
When it comes to niches, you have multiple options. One place you can start is with uncooked meals. Companies that follow setups like this include Green Chef, Mindful Chef, and Hello Fresh. The value for consumers is that meal kits supply all of the ingredients they need in the proportions they need them. While nothing is cooked beforehand and some chopping is required, they dramatically reduce the amount of mental energy (and often cost) involved in preparing daily meals.
The other option is to prepare ready-to-eat meals. From a logistics perspective, this is slightly more challenging since it is harder to keep pre-cooked food both fresh and healthy. However, there are businesses experimenting with this model, such as Allplants. Meal prep programs go beyond traditional microwaveable ready meals but keep preparation required by the customer minimal.
Then there are companies that host meal prep workshops. Here customers learn how to make tasty meals quickly from simple ingredients. They can then go home and practice what they’ve learned in the kitchen.
Here are some more meal prep niches that you might want to explore:
Vegan and plant-based: With the rising popularity of plant-based living, there’s increasing consumer demand for meals that eschew meat and other animal products entirely. They do exist right now, but the space is growing rapidly. In fact, this could be the perfect niche to get into: most consumers want to eat more vegan meals at home, but they’re not quite sure how to do it. Your business can show them the way.
Kids meal prep: Parents have to prepare breakfast, lunch, and dinner for their children, which is incredibly time-consuming. Therefore, a meal prep business that provides kids’ meals could be the solution they’re looking for. It would cut down on planning, save time, ensure that kids have a balanced diet, and meet their nutritional requirements.
Work meal prep: Busy professionals often don’t have the time or energy to make lunches for themselves in the morning or the night before. Therefore, your meal prep service could take care of the meals on weekdays, freeing up their time.
Step 2: Create a Business Plan
Once you have a rough idea of what your niche will be, the next step is to create a business plan.
Your plan should include the following elements:
Business name – what you will call your business and why its name will appeal to your customers.
Business entity – the legal structure of your business. This is usually a limited liability corporation (LLC) and potentially a limited liability partnership (LLP) if you want to create a joint venture with a partner.
Products and services – including information on the types of meal prep kits that you will offer, whether delivery will be part of your service, the cost of supplies, the cost of labor and production, and the amount of money you’ll need to invest upfront
How to charge for meal prepping – including information on prices, margins, and so on.
If you get stuck, use an online meal prep business plan template to guide you.
Step 3: Get the Necessary Licenses and Permits
For your meal prep services business to function legally, it requires various licenses and permits.
The type of licenses and permits you require depends on the business entity you choose and your location. Entrepreneurs starting up at home have different permit requirements from those setting up in commercial premises. Furthermore, federal, state, and local governments may also require different types of permits. Since this step often takes the most time, it’s worth beginning it as soon as possible.
Here we list some of the food prep licenses and permits that you might need. Check the following:
Business license: This license is necessary to open and operate a company in the US. You can apply for these on your state government’s website.
Employer Identification Number (EIN): The EIN is another requirement for setting up a business in the US. It’s a code assigned by the IRS and is equivalent to a tax identification number.
Certificate of Occupancy: Certificates of Occupancy may be necessary if you plan on occupying physical premises.
Foodservice licenses. These are obtainable for city or county health departments, either online or in person.
Sign permit: Depending on your area, you may have to ask for permission to put up a sign outside your business. Fees depend on the size of your sign and start from $20-$50, depending on the state and location.
Seller’s permit: If you collect sales tax, you’ll need this permit. In some states, it is called a “sales tax permit.”
Dumpster placement permit: If your business produces commercial waste, you’ll need a dumpster placement permit. These typically cost between $10 and £100.
Building health permit: This permit confirms that the building you operate in is suitable for food preparation and service.
Step 4: Get Insurance
Learning how to start a meal prep business also requires finding out more about insurance. You’ll need the following:
General liability insurance will protect you if you cause a bodily inquiry to someone else, property damage to another person’s belongings, or there is a libel/slander lawsuit against you.
Commercial property insurance, which covers any rented buildings or equipment you have.
Professional liability insurance, which protects you against lawsuits arguing that you made a mistake with the services you provide.
If you have employees, you will also need to take out workers’ compensation insurance. This cover protects you if employees get sick or hurt on the job. It pays for things like medical bills, lost wages, ongoing care, such as physical therapy, and funeral costs.
Step 5: Get Funding
You can fund your meal prep startup out of pocket, but most entrepreneurs seek external sources to get them off the ground.
Small business funding options include:
Venture capital or angel investments: Here, you’ll need to convince an individual or company with the required capital that your business idea will succeed and generate profit long-term.
Equipment financing: This allows you to rent equipment for a low monthly fee instead of buying it outright.
Business credit cards: Most banks offer business credit cards to business owners with strong credit ratings. Credit cards give you access to short-term cash to tide you over, but they are not appropriate for longer-term projects.
Business lines of credit: A business line of credit is a facility you can use to borrow money when you need extra cash to cover your expenses. It is more flexible than a conventional business loan.
Step 6: Find Your Suppliers
The average meal kit delivery service works with dozens of suppliers. Not only do they have to source all the food for their boxes, but also the packaging as well. Many have an outer bag or box that they transport meal kits in, and then smaller pots and containers for ingredients with special requirements, such as yogurt, sauces, spices, oils, etc. They also need ice packs to keep certain ingredients cool during transit to prevent spoiling.
Start researching who your suppliers will be as early as you can, and then ask them if they are able to distribute units of food to you in quantities your customers need for a single meal. In some cases, you may find that preparation is necessary on your end since many wholesale food suppliers lack flexibility.
You’ll also want to work with a packaging provider that complements your niche. For instance, if you market yourself as a sustainable alternative to conventional meal prep businesses, it doesn’t make sense to put food in polystyrene containers. Recycled paper is a better option.
Step 7: Market Your New Business
Getting your food prep marketing strategy right is perhaps the hardest part of the process. If you can inspire consumers to use your brand, you can often set up a highly profitable business.
Here are some marketing ideas to help you along:
Make Customer Service Your Top Priority
Customers who have a great experience with you are much more likely to come back for more in the future. To achieve this, you’ll need to:
Ensure that food is still fresh when it arrives at your customers’ homes.
Create an easy-to-use and fast website that allows customers to select meal options without fuss.
Deliver all your meals on time so that customers don’t wind up having to rush out to the store at the last minute.
Offer helplines so that people can call you if something with your service goes wrong.
Tell People In Your Community About Your Project
Word-of-mouth is a powerful vehicle for getting more people to try your brand. Offer your core customers an impeccable service, and they will market your business to their friends on your behalf.
Make Your Packaging Bold
Like other products on the market, you’ll also want to ensure that your packaging is bold and stands out. Today’s consumers want sustainable, attractive packaging that they can recycle. Many also want to feel like they are treating themselves, not just going with whatever represents the best value.
Talk About Your Company in Social Media
Many Instagrammers prepare meals to go and share them on the popular social network. You can do the same. By posting images of your meal prep service, you can show your audience your processes to build trust and prove to them just how easy it is to prepare a meal using your service.
Social media is free to use and allows you to connect with a lot of people. You can post whenever you add a new recipe to your collection or come up with a new idea. Just make sure that whatever content you create is relevant to your audience. Listen to community feedback, and respond appropriately.
Prioritize Photography
When it comes to selling food, photography is critical. Brands that take great images of their recipes whet their audiences’ appetite and get them in the mood for spending.
Taking and editing great food photos is very challenging, though. Therefore, don’t try to do it yourself. Instead, hire a professional food photographer to do it for you.
Prices for this can be quite high, but the investment is worth it. Just make sure that you finalize all your recipes and products before getting a photographer so you won’t have to hire them multiple times.
Sell at a Festival
Festivals are a great place for getting your brand message out to the public. The large audience combined with the spirit of the event creates positive associations with your brand with minimal effort.
If possible, look for suitable events in your niche. For instance, if you want to build a kids' food prep company, go to children’s events.
Print Out Leaflets
Physical leaflets or menus are another powerful way to spread the word about your business. You can hand these out to prospective customers directly, bypassing the need to raise awareness online, which can be challenging.
Conclusion
In summary, learning how to start a meal prep business is surprisingly easy. Mostly, you are following the same steps as you would for any other enterprise.
The biggest difference comes from how you market your business. The meal prep industry relies heavily on quality photography and marketing that explains the economic value of these services.
Customers can sometimes experience sticker shock when it comes to meal prep prices. Therefore, businesses in this sector need to educate their audiences on all of the benefits of the service. For instance, saving time on shopping and thinking about recipes or the cost of actually getting to the store.
Meal prep business profits can be high, but you’ll need to scale. The faster you can get to 10,000 subscribed customers, the better.
Further Reading
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Small Business Banking: Top Banks
Best Website Builder: Our Top Picks
By Nemanja Vasiljevic ·
December 13,2022
Sooner or later, all growing businesses face the problem of rising production costs. The more successful your business is, the more the demand for its products or services grows, and expenses follow. Unfortunately, the cost of producing more doesn’t have to scale proportionally to your profits.
The more sales you make, the more you have to invest back into the business. This includes marketing, raw materials, labor, and investing in new products and prospects. Knowing how to find the variable cost is essential for businesses that want to grow without being overwhelmed by the demands of upscaling production.
What Is a Variable Cost?
A variable cost is an expense that directly depends on how much of a specific product your enterprise manufactures or sells. These costs directly depend on the volume of goods. With increased demand, there are more expenses, and with a reduced trading volume, the expenses are lowered.
The number of raw materials needed for production can vary depending on the number of orders your business receives. Furthermore, the price of materials can also fluctuate with market changes. With more goods, you need more packaging, online sales incur more transaction fees, and you need additional labor to meet the demand.
Variable Cost Formula: Calculating Total Cost and Cost per Unit
Variable cost, by definition, is the total sum of materials and labor needed to manufacture a unit of product.
Variable Cost per Unit = Materials + Labor
Your supplier may change the price of the material, or the labor market may force you to adjust the wages. That’s why the cost of making your product isn’t a fixed value and will likely change over time.
Total Variable Cost vs. Average Variable Cost
The total variable cost is equal to the sum of all costs per unit, for all units.
Total Variable Cost = Variable Cost Unit 1 + Variable Cost Unit 2 + … + Variable Cost Unit N
The total value of creating a series of products is represented in the equation above, and it’s the sum of each individual product manufactured, where N equals the total number of units.
You can multiply the cost of a single product you manufacture by the total number of units you plan to produce to get an approximate value for the total variable cost. If the expenditure per product doesn’t vary as much, you can calculate the total variable cost as a multiplication of the value per unit and the number of units.
Total Variable Costs = Variable Cost per Unit x Number of Units
The total variable cost formula isn’t as precise as the total sum of all costs. However, it can be less time-consuming and easier to calculate since it doesn’t involve keeping expense records of each product your business produces.
If there are bigger cost variables between products you manufacture, then you should calculate average variable costs. This value will help make ballpark calculations of how much funds you need to put aside to fulfill an order that requires a certain number of units to produce.
Average Variable Cost = (Variable Cost Unit 1 + Variable Cost Unit 2 + … + Variable Cost Unit N) / Total Number of Units
Examples of Variable Costs
These are the most common types of expenses you can expect for your small business:
Production materials - If your business manufactures anything for monetary gain, you will have to account for the cost of materials needed for the end product. Whether you are making clothes or you are running a food business, the same expenses will apply. They directly depend on the number of orders and customers.
Equipment - If your current production can’t keep up with the demand, you will need to invest in increasing the manufacturing output.
Wages - With more work, you’ll need more employees, which leads to a higher payroll.
Transaction fees - Payments made with credit cards incur processing fees that usually take anywhere from 1.5% to 3.5% of your profits. This also applies to other online payment processors such as PayPal.
Shipping and packaging - These figures are directly related to the number of sales you make, as each product needs to be safely packaged and shipped, incurring additional expenses. Trying to save money on these categories may result in shipping damaged goods and having to refund your customers.
These are just some of the examples of variable costs you can expect. Some unforeseen expenses can always pop up and disrupt your monthly bottom line. That’s why having business insurance helps, even though it adds to fixed monthly expenses.
What Is a Fixed Expense?
Unlike variable costs, fixed expenses don’t depend on the growth of your trading volume. These are recurring charges like interest payments, rent, insurance, utilities, website hosting, etc. Depending on the type of business, an expense may be seen as a fixed cost of doing business.
These expenses are considered fixed because they don’t depend on the success of your business. However, while your utility costs may stay the same, you may decide to change the facility you are renting, which will lead to increasing fixed costs.
There are ways to reduce your fixed overhead, as many companies want to help emerging firms and create long-term partners. One such factor is affordable hosting for your online business. Good server infrastructure can make the difference between a successful and a failed startup.
Further Reading
Invoice Factoring Companies: Our Top Picks
The Best Online Bookkeeping Services for Small Businesses
How To Start a Bookkeeping Business
How Can Variable Costs Affect Growth and Profitability?
Knowing the variable manufacturing costs will help you understand your end price. Both fixed and variable costs need to be taken into account, but remember that payments that stay the same, like rent, have less of an effect than payments that change.
You need to be able to accurately calculate variable costs and make decisions that won't hurt your profit margins for the production process to work. Maybe some products or services you’re offering are less profitable than others, so it pays off more to remove them from your offer and allocate resources to more profitable ones.
Alternatively, you can examine what variables prevent the product from being more profitable. Maybe you can source the materials from a different company for a lower price or make a one-time investment in better equipment to make the manufacturing process more efficient.
Whatever the case, knowing how to find the variable cost per unit can help you plan your production and grow your small business while successfully scaling it to meet demand.
The market’s prices constantly change. Therefore, adjusting your budget will help you improve your bottom line and help your business stay afloat.
By Dusan Vasic ·
December 15,2022
Real estate agents play an influential role in helping clients buy and sell properties. There is a vast range of homes for sale in the US and realtors come into the profession from all walks of life. As such, average incomes for real estate agents can vary hugely. In this guide, we’ll talk about how much real estate agents make, discuss how realtors make their money, and explore the factors that impact earnings per house.
How Much Do Real Estate Agents Make?
In 2020, the median salary for real estate agents in the US was approximately $49,000. Bear in mind that real estate agents’ yearly earnings can vary enormously according to the value of the properties listed, the location, and the agent’s level of experience. A junior real estate agent salary could be as little as $25,000 per year, while the top dogs could earn more than $1 million annually.
How Do Real Estate Agents Earn Money?
Real estate agents may have a fixed salary depending on the brokerage they work for, but most earn the majority of their income from commission. Realtor commission is paid when an agent makes a sale. It usually represents a percentage of the value of the purchase price.
When a house gets put on the market, an agent will show clients around and organize open house events to market the property and drum up interest. If the agent makes a sale, they will earn commission. The amount of commission will depend on the terms of the realtor’s contract with their brokerage and whether agents have access to shared commissions.
In most cases, the commission on a property sale is set at around 5% or 6%. However, it is possible for percentages to go as low as 1% and as high as 10%.
What Is the Difference Between Real Estate Agent Pay and Real Estate Broker Pay?
Statistics suggest that real estate broker earnings are higher than the real estate agent average salary. In 2020, the median pay for real estate brokers was $60,000 per year. Real estate agents work for brokerages. When a sale goes through, commission is paid directly to the brokerage and then divided according to the terms set out by the individual company.
What Factors Affect Realtor Salary?
Salaries for real estate agents can range from less than $30,000 per year to over $1 million per year. This is a vast range reflecting multiple factors that affect earning potential. Here are the key factors that drive realtor salaries.
1. Number of home sales completed per year
The more homes realtors sell, the higher their earnings through commission. Realtor commission is only paid on completed home sales. If an agent doesn’t sell any properties, they won’t earn any commission in that year. If they sell multiple homes during the year, they will earn commission on every completed sale. Often, working in real estate can be something of a roller coaster ride, and sales that look promising don’t always go through. When agents are heavily dependent on commission, it’s essential to get deals over the line to boost their earnings. Most real estate agents sell between two and eight properties per year.
2. Professional experience
The level of experience of a real estate agent can greatly affect their earnings. More experienced agents are likely to have a higher average salary than those with less experience working in the same area. Gaining experience enables you to hone your skills and build a contact list, which is vital for securing sales. Real estate agents who have worked in the industry for many years have in-depth knowledge of the market; they know buyers and sellers, they have excellent relationships with developers, and they know what helps to sell properties and close deals. They may also boast a higher earning percentage of sales than agents who are new to the field. Statistics from the National Association of Realtors show that in 2020, the average US real estate agent had nine years of experience.
3. Property values
As well as considering the number of completed home sales, real estate agents must also think about the value of the homes they sell when calculating median annual salaries. The higher the price of the house, the higher their earnings through commission. A real estate agent who specializes in luxury homes that cost millions of dollars may make more in commission from a single sale than an agent who sells several properties that are at the lower end of the scale. In property hot spots, such as New York City and Los Angeles, salaries are likely to be higher due to more substantial earnings per house.
4. Brokerage fees
Real estate agents work for brokerages. When a sale goes through, commission is paid to the brokerage and then split between the relevant agents. The level of agent commission may vary according to the individual brokerage, but typically, agents will receive around 60% of the commission, with the broker taking the remaining 40%. Some brokerages may have an even split or a 70/30 split. Agents will also be liable for business costs.
5. Contacts
Building an extensive network of contacts is hugely beneficial in real estate. The bigger the network, the higher the chances of finding a buyer and attracting new clients.
6. Location
The area in which they work can influence how much realtors get for selling a house. House prices vary hugely, and location is one of the driving factors. In some areas, the average selling price will be over $500,000, while in others it may be around $200,000. Agents working for brokerages located in exclusive areas where properties are expensive and sought-after have the potential to earn thousands of dollars in commission per sale. Statistics suggest that average house prices are highest in Hawaii, Connecticut, Wyoming, California, and Alaska, and lowest in Iowa, Indiana, Ohio, Nebraska, and Kansas.
How Much Do Top Real Estate Agents Make?
Real estate agents who earn on commission have the potential to earn a huge amount of money if they work in areas where property prices are high and they have expensive houses on their books. The top 10% of realtors earned more than $112,000 in 2020. Some agents based in prime locations can earn over a million dollars per year.
How Much Do Luxury Real Estate Agents Make?
Real estate brokerages that deal in exclusive properties in the most in-demand, expensive areas can make vast sums of money through commission on completed sales on properties listed for millions of dollars. In Los Angeles and New York, for example, agents may have properties listed for sale at over $5, $10, or 20 million.
How Do Real Estate Agent Salaries Vary in Different States?
Location plays an integral role in agent earnings per house. The average salary for a real estate agent varies according to the state in which they work. The highest average annual earnings in 2020 were in the following states:
New York - $111,000
Massachusetts - $84,000
Connecticut - $79,800
Alaska - $79,360
Colorado - $76,900
The lowest average annual salaries were in:
Illinois - $42,000
Minnesota - $46,000
Idaho - $47,350
Ohio - $47,400
Indiana - $47,700
Bear in mind that these averages can be skewed significantly upwards by top-end agents earning millions per year. This explains why the average salary looks significantly higher than the median salary.
Further Reading
Real Estate Lead Generation Companies: Our Top Picks
What Is Due Diligence in Real Estate?
How to Get Clients in Real Estate: Top 10 Tips & Tricks
By Julija A. ·
March 03,2022
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