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- Last updatedMay 11, 2023
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John Lau.
Marginal Profit is the profit generated from the sale on one product in a business. Maximizing the Marginal Profit is essential in the sustainability of water bottling plants. If you intend to maximize Marginal Profit for your plant, I have addressed the steps in this article.
01.
The Importance of the Bottled Water Industry
The quantity and quality of water continue to pose significant concerns globally. I’ve discovered that about 10,000 people die due to unsafe water consumption occurs daily (WHO). The rate of waterborne illnesses continues to rise worldwide among children. Hence, I’m convinced that the water business is one that will be going strong for many years to come.
02.
Current and Projected Demand for Bottled Water
Americans drank over 14 billion gallons of bottled water in 2019, According to IBWA, 2020. I’ve come to realize that the demand for bottled water has affected its supply in recent times. An increase in its demand increases the supply of bottled water.
Since the outbreak of the COVID-19 virus, bottled water has seen a surge in its demand. I am convinced that the increase in demand creates an opportunity for you to exploit. Globally, the bottled water industry has continued to enjoy a steady growth rate of over 10% each year.
The bottled water industry’s market size generates a revenue of about $7 billion. This signals a high sustainability rate for water bottling plants. The giant players include; PepsiCo Inc, Nestle, Coca-Cola and Primo Water Corporation.
Bottled water sales will see a steady increase in the absence of a suitable replacement. I predict that the replacement will most likely be a tap water device. A suitable replacement must be clean, germ-free and taste as great as bottled water.
03.
What exactly is Marginal Profit?
Different plans are in use in the bottled water industry, depending on the target market. I recommend that the production plan you execute maximizes your Marginal Profit.
The question about Marginal Profit in a bottled water plant continues to rise. Over the past ten years, the global bottled water industry has taken off. This growth in the industry has brought up questions about Marginal Profit.
Marginal gain is the profit earned by a water plant when the sale of one unit of bottled water occurs. The mathematical calculation of Marginal Profit is Marginal Revenue minus Marginal Cost.
04.
Here Are the Steps to Maximize Marginal Profit
STEP 1: Plan your Business.
Owners can achieve Marginal Profit by producing a large amount of a product. This method reduces the marginal cost, thereby increasing Marginal Profit. In bottled water production, production quantity has a direct relationship with Marginal Profit. Here is how;
The profitability of your plant depends on;
a. Its production volume
b. Choice of bottling machine.
I recommend that you get bottling machines with a high production capacity of up to 40,000 bottles per hour. Plant owners using similar bottling machines confirm that they reduce production costs.
Real-time Analysis of Step 1
Here is a Real-time Analysis of two plants, Plant A and Plant B.
Plant A uses a high capacity machine, and Plant B uses an average bottling machine.
One piece of 500ml bottle water gives an estimated profit of $0.0419 ($0.09 – $0.0481).
Plant A has a bottle filler machine of high production capacity (40,000 bottles per hour)
Using a 40,000 bottles per hour filling machine, 640,000 bottles for a 16-hour production per day is the target. Considering the unit profit of $0.0419, the total profit per day will be $26,816. This will amount to $804,480 in 30days and a total of $9,653,760 after one year.
An annual profit return of about 20,000% excluding other production costs.
Plant B has a bottle filler machine of regular production capacity (1,000 bottles per hour)
Using a 1,000 bottles per hour filling machine, 640,000 bottles for a 16-hour production per day is the target. Considering the unit profit of $0.0419, the total profit per day will be $670. This will amount to $20,112 in 30days, and a total of $241, 344 after one year.
An annual profit return of about 3,000% excluding other production costs. This is lower than that of the plant using 40,000 bottles per hour filling machine.
STEP 2: An Increase in Bottle Size
The Marginal Profit in a bottled water production firm is also a function of the bottle size. In other words, the larger the bottle, the higher the marginal utility. Marginal Profit calculation can be tasked. I have discovered that many companies close down after a year as a result of wrong calculations. Thus, the growth and sustainability of a water bottling plant demand the consideration of Marginal Profit.
STEP 3: A Switch to Renewable Water and Energy Sources.
Water and power costs play a significant role in the running cost of a water bottling plant. Although switching to renewable energy sources involves huge initial costs to start. I opine that the long-term gain is enormous compared to its initial cost.
It costs a total amount of $0.0481 to produce 50 cl of purified water and distributed at an average price of $0.09. This profit is enough for these distributors. They ensure that they reach the final consumer or target market. Utilizing renewable water and energy sources reduces the production cost by $0.015. It is a significant amount of money if expressed as a product of the total number of produced bottled water
06.
Importance of Maximizing Marginal Profit
A bottled water plant is profitable provided; there is a strategic business plan in place. The average profit margin ranges between 25-30% for small and medium-scale water plants. It can be as high as 60% for large bottle production and as low as 15% for small bottles.
As a plant owner, you must make conscious efforts to maximize profit margin in this industry. The product’ target market is of utmost importance regardless of the target location. At the same time, owners must take careful consideration of the number of competitors. Calculation of the long and short term costs, Fixed and variable costs is essential.
07.
References
Please click below to watch the production process of bottled water production.
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JL
Hello, I'm John Lau, the founder of iBottling.com. With 16 years of experience working with Chinese factories producing beverage equipment, I am excited to share my insider's perspective on acquiring high-quality machines for beverage production from China in this article.
