Starting a supplement company and scaling an existing one have a lot in common. In both situations you have multiple plates spinning at the same time. The need for funding is just as great in either case and there are the same pitfalls along the way
The Truth About Scaling a Supplement Business
When it comes to scaling, there’s a way to do it that’s best for the business. The best way is different for everyone because every business has different infrastructure.
The infrastructure of a business includes all of the constraints of the business. For the purposes of scaling constraints can be summed up into, capacity, capabilities and cash.
Capacity, includes your team that will get the work done. Do you have the right people? And are those people focusing on the right things for your future stage of growth?
The team’s capabilities are the narrow specialties like copywriting, design, data analysis, revenue optimization, marketing.
And on the cash side it’s all about the investment in ad budget.
You need all three as part of your business infrastructure to successfully scale and grow your supplement business.
But, success can sometimes be just as dangerous as failure.
Because if you scale really fast, other things will fall apart and break.
Your inventory may run out from too many sales and then you have to stop all of your advertising which breaks all of the learnings of the algorithms of the ad platforms. That’s something that’s really difficult to recover from.
If your sales suddenly spike your fulfillment or manufacturing may not be able to keep up. Forcing you to put the breaks on and potentially not being able to fill orders for those customers who are on monthly recurring subscriptions. Or gain new customers at the growth rate that you need.
Forecasting the amount of investment you’ll need month over month, can be damn near impossible, unless your growth is very gradual.
Inventory requirements, particularly as you scale can derail you compleatly. Higher sales means projecting further into the future to estimate how many units you’ll need.
As you scale, things will start to break, things that can potentially kill the business.
Which is why it’s vital to have funding.
Funding Your Supplement Company
When you’re first starting a supplement business, one of the big questions is where to invest money.
In the early days it may feel like every dollar is important but they are not all equal.
There are some dollars that when you’re first trying to get traction should be spent somewhere else.
Working with a few supplement start ups, I can tell you most people waste money on the wrong things when they first start.
In the very early days you should not spend any money on Instagram posts or search engine optimization (SEO). Not a single dime.
That also includes spending time building these channels as well. I would not recommend it. Not for a supplement business because the competition is very high and time is already again you.
The majority of your investment should be spent on traffic to get immediate sales.
The problem with SEO is that it’s not a transactional channel.
People are learning on that channel.
They are at the top of the funnel and are not ready to buy.
Top of funnel advertising is very expensive.
SEO is great for established brands that already have traction and but when you’re just starting out it’s all about spending every dime to get sales.
Which means a middle of the funnel strategy is going to be better for you because no matter how much funding you have, it’s always limited.
More transactional, traffic sources like Google are going to be better at first, or other traffic sources where you can come into the market in the middle of the funnel.
You can do this by going after the problem aware stage of the prospects out there.
The difference is that if you’re spending money or time on trying to get a sale and it’s not a direct transactional channel or you’re taking them to a page that does not warm them up.
For example, a presell page or a more transactional product detail page or product landing page then it’s going to require a lot more money that you probably have at the beginning.
Because no matter how much money you have, it’s never enough.
How Much Money Do You Really Need To Start and Grow a Supplement Business?
Dietary supplements businesses are in a very competitive industry.
The more competitive the space means the more cash it will take to out market the competition.
Yes, there are ways to narrow your niche to carve out a less competitive space, or enter a zero competition space. One way is to use a new up and coming ingredient. CBD was a good example of this, until it became ubiquitous.
Another way is to use a unique formulation to differentiate your product.
If this is the case, the minimum I would recommend is to have a quarter million dollars ($250,000) available to get off the ground.
You could do it with $100,000 upfront, and then maybe another $100,000 or $150,000 at month 6 or so.
If you’re really lean and mean, you might be able to breakeven with that and get going.
But there’s no way around the need for cash to get off the ground.
Even if you’re drop shipping your products, in which almost all of your investment can go into getting people to see your offer to pressure test how it does in terms of sales.
Cash does solve many problems, but it will never solve them all.
There will always be unforeseen problems.
And it’s wise to have more cash available from one or two sources for when those problems happen.
But do you get the funding in the first place?
Types of Funding For Your Business
Funding your supplement business typically comes from one or a combination of these three sources.
First is savings, which is very straightforward. Second is debt funding and third is equity funding.
Debt, is borrowed money you’ll have to give back at some point.
In which case, the key questions are, what are the payment terms?
And if you don’t pay it back on time, do they just take control of the company after?
Of corse you can also get debt funding from yourself with a loan or from family and friends, and from a bank against an existing form of collateral.
But you can also get debt funding from angel investors. Although the likelihood of getting this type of funding without any existing traction is not very likely.
The third form of funding is equity.
Getting equity, means you’re selling a percentage of the business for cash.
In which case, the key question is, how much equity are you giving up?
Giving up equity is not a bad thing. Sometimes it’s the only way.
At this point the business is like a plane on a runway and you need the runway to be long enough to get the business off the ground.
Funding is vital not just to get the business off the ground but to grow the business over time.
How to Grow From $0 to $100 Million
The business that you start with is not going to be the business you’ll have 10 years from now.
Along the way you become a different person, you become a different company. It’s almost like you’re starting over at some point.
When you first start more than anything else, you need the numbers of the business to work.
You need the cost of acquisition for a new customer to be where it needs to be in order to be profitable or slightly in the hole.
The best way to do that is to sell in a different way in the early days.
Selling in a way that you may not be totally comfortable with.
And in a way that becomes more risky when you’re doing $100 million in revenue a year. But not as risky when you’re less than $1 – $10 million.
Everyone has to draw the line for themselves.
On one side there’s the direct response style of selling.
And on the other side, there’s the brand side of selling, and they’re often conflicting.
How to Sell When Starting a Supplement Company (Growth Mode)
As you may recall, the most important thing, which is even more important in start up mode is sales.
In fact, the majority of your cash on hand should be spent on traffic to your website or landing page to get sales.
The best way to do that is with paid advertising.
There are many options available and I cover all of them in an article on marketing supplements, that you can read here.
Now, when it comes to getting sales, direct response style copywriting is critical.
In fact, it’s necessary in the early stages, particularly if you’re relying on paid advertising, because you’re competing in a very competitive space.
Direct response simply means you’re looking to get a sale immediately on the first visit or touch point. As opposed to taking several touch points with the prospect to get the first sale.
To do that many supplement businesses in their early days are more aggressive with their sales tactics.
However, you still need to be ethical when using more aggressive strategies.
But the direct approach is more efficient with ad spend than a branded approach. Because the branded approach requires 10x the amount of money to get sales. In the early days that’s just not affordable.
You can shorten your runway with direct response. And sales brings in money and momentum you can build off of.
But as your supplement business grows your advertising and approach to selling will change.
How to Sell After You Scale (Brand Mode)
As some future revenue point you’ll be able to tone back the aggressive approach a little bit, and focus a bit more on brand experience, but you can’t do that in the beginning.
How long you keep the peddle to the metal is different for every one.
For some it’s at $50 million a year in revenue. For others it’s at $10 million.
It’s really a combination of the economics of the business and the owners personal feelings and goals.
When the business switches to brand mode your messaging changes.
Sales will be reduced, because of that. And that’s a decision that the business owner needs to be okay with.
The business is entering a new phase and it’s almost like it’s starting over again but from a new place.
A place with established products and hopefully a good number of returning customers and monthly recurring customers.
Typically the switch from direct response to a branding approach comes from the desire to “clean up” the business for a sale down the road.
However, there are selling tactics that are direct response that you won’t be able to fully get away from. Because they just work. You can tone them back but the core strategy of direct response will always be a part even with brand advertising.
One such area of a supplement business is in the average order value.
Average order value (AOV) is the average dollar amount that someone spends with you on day one.
A higher AOV allows the business to spend more to acquire a customer.
And the business that can afford to spend the most to acquire a new customer and that can keep them long term, can out spend the competition and dominate the market.
This is why upsells, which are a proven direct response strategy, work so well.
Upsells are one of the best examples of the difference between a brand approach where you’re very concerned about the customer experience versus scaling and early growth.
Many brand centric businesses feel that upsells are not great for customer experience. But you can only get so far with your AOV without them.
Remember, the business will have a difficult time scaling with a low AOV. Because the economics just won’t work. You won’t be able to afford the cost of acquisition of a new customer and will be squeezed out of the market.
When it comes to supplement marketing, the sweet spot for AOV is $150 to $200 because of the high acquisition cost to acquire a customer from a cold traffic source.
The hardest part is getting the customer to buy the first time.
Sacrificing on the brand in the early days of zero to $10M is the way that it’s done.
In my opinion you don’t really have a brand until you’re doing at least $10M in revenue anyway.
Owning The Customer
If you can’t own the customer, you don’t have a business.
That’s how important owning the customer is.
Owning the customer means that you have a direct relationship with that customer and can also contact them directly.
If you’re selling on Amazon or Walmart or some other 3rd party sellers platform you don’t own the customer.
That direct contact to the customer is critical to growing.
Direct contact can come in the form of knowing and having permission to call them on the phone, text them on their mobile number, and email them.
Email is not just another marketing channel.
Email is the key to the entire dietary supplement business.
Email is where supplement marketing really makes money for the business.
It’s a very profitable and high converting channel, because of that one-to-one relationship.
Email is the backend of the business that off-sets the losses from the front end and it’s where you can make up the difference in the gap between the cost of acquisition and the average order volume to extend the lifetime value of every customer.
Owning the customer also means you have a direct line to customer service.
Sure you can outsource customer service. And as you grow this will be one of the first things you outsource.
But when you’re first starting out and up to the $1M – $5M mark you might want to do the customer service yourself.
Because in those early days, it’s really beneficial to understand the voice of the customer.
Fielding customer service calls allows you to understand that voice in addition to understanding their complaints.
Customer service calls are where your customers are pouring out their emotions, all of their struggles and problems.
And that is literally supplement marketing gold that you can put back into the business through customer acquisition and email in order to sell more supplements.
It’s all about the customer, knowing the customer, servicing the customer, and really helping the customer at the end of the day.
But no matter how much you have everything covered…
There are Always Unforeseen Obstacles
Even if your supplement business is a well-oiled machine, if one piece of the business stops, your fulfillment.
If your manufacturing facility has an FDA audit that could mean a two week shutdown, and your product could be delayed, so you can’t sell, and now your revenue is in jeopardy.
As you grow, there are bigger problems.
There’s also more money to be made or lost.
But it also gets more fun as you scale, because you can afford to hire more people.
Right now, it’s easier than ever to start a supplement business, because there’s so many tools that can get you up and running quickly.
And at the same time, it’s also harder than ever because there’s more competition, more regulation, more issues with tracking and cookies and privacy.
The best time to start really was was yesterday.
But the second best time to start is right now.
Discover the 3 funnels that can help your health supplement business succeed.
Listen to the Health Supplement Business Mastery Podcast for for dietary supplement entrepreneurs and marketers.
