The widespread usage of dietary supplements among adults of all ages is on the rise. Driven by the heightened interest in preventative healthcare and the aging population, sales of herbal supplements, minerals, and vitamins have surged. But what is the true supplement manufacturing cost?
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In this post, we’ll be talking about everything that has to do with supplements, why it’s on the rise and also the actual cost of manufacturing supplements, and so on.
Today, a large number of the adult population across the globe use health or dietary supplements to enhance their health. Health supplements are products that are packed with healthy ingredients like enzymes, amino acids, botanicals, minerals, and vitamins. These products come in the form of capsules, tablets, liquids, gel caps, powder, or soft gels(1).
The global dietary supplement industry is expected to reach USD 196.63 billion by , with a CAGR of 7.8 percent during the forecasted period (2). Rising health concerns, coupled with changing diets and lifestyle, have contributed to the growing demand for these products. The market growth is further backed by a favorable outlook towards sports nutrition along with a significant rise in the number of sports centers and gymnasium.
Growing consumer awareness concerning health issues, a surge in disposable income, along with rapid urbanization, is expected to drive the growth of the market over the next seven years.
Consumer attitude is exceptionally positive towards dietary supplements with added wellness and health benefits. Medical discoveries, food innovations, changing lifestyles, increasing healthcare costs, rising geriatric population, and expectations about their high prices have accelerated the overall market growth and the product demand.
When it comes to ingredients, the market is segmented into amino acids and proteins, botanicals, minerals, vitamins, specialty carbohydrates and fibers, and omega fatty acids. Vitamins emerged as the largest segment in , registering revenue of $37.64 billion. The segment is projected to grow at a CAGR of 5.6 percent in the years to come(2).
The rise in the demand for herbs for possible health benefits is projected to accelerate the botanicals segment in the forthcoming years. Furthermore, growing concerns regarding the adverse effects of traditional medicines, which include allopathic drugs, are anticipated to promote the application of botanical extracts in manufacturing dietary supplements in the next few years.
Weight and energy management and other closely related types of supplements are the major contributors to the growth of the dietary supplements market. Weight & health management held the largest market share in owing to the rising trend of online weight loss programs and government initiatives for healthy lifestyles.
In the sports sector, many athletes make use of supplements to boost their performance, including about 85 percent of elite field and track athletes(3).
Also, the growing geriatric population creates ample opportunities for the manufacturers of dietary supplements as most people belonging to this age group aren’t able to meet their RDA (Recommended Dietary Allowance) because of dietary intake deficiency, which leads to the rise in product demand.
Based on product encapsulation, tablets held the largest market share in and registered a revenue of USD 40.5 billion, driven by the increasing demand for tablets because of their easy dosage patterns
The Asia Pacific is anticipated to witness the fastest growth over the forecast period. Expansion of the retail chain in countries such as China, Japan, and India has accelerated the regional consumption of dietary supplements. Major participants in this market include Glanbia, Bayer, Archer Daniels Midland, Abbott Laboratories, Arkopharma Laboratories Pharmaceutiques, and Amway, among others.
If you’re thinking of starting your own supplements or vitamins line, the following information will help you better understand the hidden cost of manufacturing these products. It’ll also help in explaining to your customers why the supplements you offer are priced higher. Let’s start with the capital required to open a supplement business.
You can start a supplement business with about $; however, you’ll have it much easier if you have $10,000 to invest. Generally, with $, you can get:
Consumerlabs.com, a third-party testing company, estimates that about a quarter of health supplements are adulterated or diluted with ingredients that are not given on the label.
So, how do you make sure that your shelves are stocked with quality products? When you select a supplement manufacturer, as a business owner, you should go for a manufacturer that’s FDA-registered, GMP-certified, and NSF-certified. Also, the manufacturer you pick should also be able to provide an analysis certificate for each batch, which proves what ingredients are in each batch. While such manufacturers aren’t that affordable to work with, they offer guaranteed products.
Among the producers who meet these criteria, there are very few who accept just 150 units of the initial order. With $10,000, however, business owners will have the required funds to make larger initial orders and meet the producer’s higher initial orders.
Also, business owners shouldn’t try to be economical with the label design costs. This is because most consumers base their choice of the supplement on packaging alone. Therefore, having a professionally crafted label is vital. Some graphic designers charge around $300-$500 to create professional logos.
While you can save input costs by bypassing this step, you risk using components that don’t meet quality standards. Some ingredients verification process cost really high. However, it’s certainly worth investing a bit more for this level of quality and transparency rather than selling questionable, low-quality products.
Products that contain patented, branded ingredients usually cost more. This is because the organizations behind those products invest to guarantee that specific compound or strain they produced in their particular way actually works.
The quality and the safety of the raw materials used in manufacturing the supplements is an essential factor that influences its price. Often, companies purchase their raw materials from countries where the legislation on safety and quality control isn’t that restrictive, unlike Europe.
This lack of traceability, safety, and integrity of raw materials is the reason why most companies worldwide can produce cheap raw materials. Even though it would mean a high cost of the ingredients, controlling the entire quality and safety certifications and supply chain will ensure the safety of the consumers.
The source of an ingredient can also have an impact on the price. These include ingredients that are developed after years of research as well as economic investments so as to procure substances with efficacy, quality, and that has higher absorption than the ones that are available on the market already.
This higher quality, however, comes at a cost that necessary to recover the investments and work that have been required to develop them. Nevertheless, it has the benefit of procuring a technologically advanced and superior product.
For example, glucosamine extracted from shark costs far more as compared to those derived from bovine sources. Calcium carbonates are affordable and widely available; however, some research reveals that expensive calcium citrate is better absorbed.
Another aspect that influences the supplement price is the origin(Synthetic or natural) of the ingredients. Producers using synthetic ingredients can save money because their production costs are low, and there is no need to manage the natural sources from which the functional principles are to be extracted. On the flip side, these substances don’t have the same quality as the natural ones. The bioavailability of the raw materials in the product is another factor that affects the supplement price.
Furthermore, the packaging type also affects the supplement price. Some ingredients perish easily due to air, light, different temperature, and needs specific packaging and formats. However, “non-standard” formats tend to be expensive, and manufacturers who plan on cutting down their cost will not be taking this into account, thereby obtaining a supplement that contains ingredients that have been altered, making the product less safe and effective.
Perhaps the most obvious and also the most underestimated aspect that affects the price of the supplement is the concentration of the raw materials and its daily dosage. There are several cheap products with a low concentration of ingredients and whose effectiveness is quite unlikely.
Manufacturers will have to carefully examine regulatory shifts and also adjust accordingly to avoid supply disruption or consumer backslash caused by product quality concerns. However, taking on these issues is definitely worth it.
The information mentioned above will thus help you in understanding the real cost of manufacturing supplements or vitamins.
The supplement market is strong, large, and growing. This opens up a lot of opportunities. Health stores have been witnessing a respectable annual growth of 4.5 percent(4). Also, the online supplement and vitamin sales have been experiencing an annual growth of 12%(5). Together, these sectors account for over $30 billion annually, with more than 100,000 businesses. The rise in the supplement market growth offers an excellent opportunity for manufacturers and retailers to cash in on a robust growth sector.
Here at SMP Nutra, we are capable of manufacturing any type of nutraceutical formula. We are experts in private labeling and offer everything from manufacturing to fulfillment. We boast some of the lowest prices available and produce high-quality supplements that will make your supplement stand out from the rest of the competition.
Is knowing and understanding your total manufacturing cost at the top of your to-do list?
It’s not the most glamorous subject. But taking the time to manage it will pay dividends in the long run. You can use it to find out if you are hitting your targets or if your production process is conducive to your desired level of productivity.
The long and short of it is this — if you don’t know your exact costs, how do you know your profit margin?
You could be selling stacks of products, but if your costs are out of control, a lot of hard work is going to waste. It may be a cliché, but it is so for a reason:
Knowing the value of your current inventory and the cost of goods sold, you can calculate your sales margins.
Maybe there’s room to lean up your manufacturing by cutting down on hidden costs to your business. But how do you know where to start? What are manufacturing expenses beyond basic raw materials? What do you need to do to reduce these costs?
In this guide, we’ll cover everything you need for your total manufacturing cost formula.
The total manufacturing cost is the sum of expenses associated with all the resources spent while manufacturing your finished goods inventory.
However, calculating and understanding it is not so obvious.
Knowing what each element of your production process costs you is important. You need to understand how to split your total manufacturing cost into its constituent parts.
The first distinction is between the three major costs components of manufacturing a product — these can be direct or indirect. Some things never touch your product but still need to be in your total cost calculation.
That’s right — pretty much everything in your business impacts your costs, even if it seems separate at first glance.
Let’s break this concept down even further.
As already explained, your costs will fall into one of two categories.
Direct costs refer to everything spent on the bulk of the manufacturing process. This could be material costs (for example, raw materials) and time costs (staff wages). They must play a physical role in assembly or production for it to be a direct cost.
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Be wary.
Some materials and labor are regarded as indirect manufacturing costs (more on that below).
Whatever you do, watch out for counting costs twice by not understanding this.
These costs in your manufacturing process do not come from raw materials or labor primarily used in manufacturing. This includes:
As mentioned above, not all the materials consumed by your manufacturing process are regarded as direct costs. For example, nails and glue holding a wooden cabinet are indirect materials called consumables. Don’t forget to add the cost of your consumables to your total manufacturing cost.
One thing to watch out for is the costs that come from depreciation in the value of your raw materials.
If you produce comestibles, your raw materials and finished products in-waiting could spoil. Knowing how much you lose in situations like this is critical to keeping your business afloat. If you know there is wastage in your manufacturing process — you can do something about it.
Hundreds of businesses go into the red every year, and management issues like this are a major cause.
You might be debating whether calculating your total manufacturing cost is even worth the hassle. If you put some time aside and calculate your manufacturing costs, here are five benefits you can expect to reap.
When you know the total cost of manufacturing a product, you can find ways to reduce that cost more easily. This can lead to lower prices for consumers and increased profits for businesses.
There are many reasons why lower costs in manufacturing are important. First, lower costs can lead to higher profits for companies. This is because companies can sell their products at a lower price, making them more affordable to consumers. Additionally, lower costs can help companies expand their operations and hire more workers — boosting the economy by creating new jobs and increasing consumer spending.
A company’s financial health depends on many factors, including its manufacturing costs. By understanding the total manufacturing cost formula, companies can get a clearer picture of their overall financial situation.
There are many reasons why more clarity around financial health is important. It helps businesses make better decisions about spending and investing.
When businesses have a better understanding of the financial situation of their customers, they can make more informed decisions about spending and investing — leading to increased profits and growth for businesses.
Knowing the total cost of manufacturing a product can help ensure that products are priced appropriately and that businesses are making a profit.
Detailed product costing is important for informed decision-making around pricing in manufacturing. Product costs are used to calculate the selling price, impacting profitability. Understanding all the factors that contribute to the cost of a product helps managers make better decisions about pricing and other strategic initiatives.
A company that doesn’t understand its product costs clearly may end up selling its products below cost, resulting in losses. On the other hand, a company that prices its products too high may miss out on potential sales and market share. In either case, understanding product costs is essential for making informed pricing decisions.
In addition to profitability, pricing decisions can also impact other strategic objectives, such as market share and customer satisfaction. For example, a company may price its products lower than the competition to gain market share. Or, a company may price its products higher to maximize profits. Whatever the decision, it’s important that it be based on a thorough understanding of product costs and other factors.
By understanding the total manufacturing cost formula, businesses can identify ways to reduce waste. This can lead to lower costs and a more efficient manufacturing process.
There are many reasons why less waste in manufacturing is important. One reason is that it can help to save costs. When less material is wasted, there is less need to purchase new raw materials, which can save money.
Less waste can also lead to improved production efficiency and quality. This is because when there is less waste, there are fewer opportunities for defects to occur. As a result, products are more likely to pass your production quality control checklist and meet customer expectations. Reducing waste also promotes green manufacturing and environmental sustainability.
Knowing the total manufacturing cost formula can give you insights into where inefficiencies exist. This can help businesses make changes that lead to a more efficient manufacturing process and lower costs.
If you’re looking to drive efficiency in your manufacturing process, insights are key. You can make changes that streamline the process and improve efficiency by understanding how your manufacturing process works, what areas need improvement, and where bottlenecks exist.
Better insights mean you can save on materials, labor, and other resources by identifying areas where improvements can be made. Sometimes, simply making a few small changes to your routing manufacturing can result in significant savings.
Ultimately, improving efficiency in your manufacturing process is important for ensuring that your products are of the highest quality and meet customer demands promptly.
Even though the total manufacturing cost formula is a relatively easy calculation to make, it does require a lot of input from different areas of your business.
And what better way to learn something than jumping into the deep end and learning while on the go? For this to work, we’ll fabricate a scenario, but feel free to use your own business as a replacement for this example. Let’s imagine we’ve been tasked with the responsibility of uncovering the total manufacturing cost of a plucky Portland skateboard manufacturer.
Using what is likely to be consumed during the production of a skateboard, we can identify different manufacturing costs:
Now we have some areas of the business which has costs associated with it, we can move onto the formula.
The cost of manufacturing formula is as follows:
So, how does this formula work in practice?
Let’s continue with our skateboard manufacturer example. We have identified our direct and indirect manufacturing costs so can apply them to the formula introduced above to understand how to calculate total manufacturing cost.
The direct materials cost for one skateboard is the sum of:
Direct labor could average out to $10 per unit, as they produce several per hour.
Overhead costs include bearings, lubricant, paint, staff, and electricity ($10 per unit).
This brings your total to $56 for one unit.
Once you have this, you can predict your total costs for a whole day, weeks, and even months production.
Keep track of everything and run the actual total costs against the predicted costs. See if they align at the end of a set time period. This is one way to monitor manufacturing costs.
One thing to remember: as you scale up your manufacturing cost calculation, you need to consider things that don’t scale at the same rate.
This could be:
Like every part of your production process, anticipating these changes helps you stay on top of everything.
And there you have it! Everything you need to know to start crunching those numbers and improve your profit margin.
Admittedly, doing these calculations as a startup or as a small manufacturing business. But what happens once you start to grow? Performing this task manually is going to cost you time and money.
So, how exactly do the large-scale manufacturers pull this off?
Know every figure in your manufacturing process by using cloud software like Katana.
Katana is a platform giving thousands of manufacturers a live look at their business with an easy-to-use visual platform.
Best of all, by using the information you provide in your bill of materials, Katana automatically calculates the costs of each operation using the moving average cost formula. This means that the value of your inventory is divided by the quantity in stock every time a new purchase is made — your inventory value and actual production costs are continuously and accurately calculated.
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