Do you want to start a dollar store business and want to know the cost? If YES, here is a cost breakdown to open a dollar store and the profit margin / ROI. A dollar store is a type of general store that limits its prices. These stores can sell anything from discounted household goods to party supplies. Although the name suggests that nothing can be sold over a dollar, but some stores will make exceptions for certain products while keeping the vast majority of stock at a lower price.
Dollar stores charge a mark-up on the items they sell. These stores will more or less source inventory by buying large quantities of stock at wholesale prices. By buying products at a deep discount, they can afford to sell them for a dollar and still make a profit.
The target market is anyone who appreciates a good deal. In certain communities, this may mean catering to those at the lower end of the income spectrum. However, the market is open to people of all earning brackets.
Estimated Cost Breakdown to Open a Dollar Store
The cost of starting a dollar store will depend on location, inventory, and advertising budget. Although it would be difficult, it’s theoretically possible to get started with as little as a few thousand dollars if opening in a less desirable section of town.
Franchises can cost up to $267,000 or more for a 10,000 square foot store. These start-up costs cover everything from stock to marketing supplies, plus they give an owner a comprehensive plan on how to manage their business.
Note there are also DIY franchise packages that can be purchased for under $30,000 if the owner is willing to do the majority of the work on their own. If financing, make sure you get a loan that can stretch to include the cost of merchandise. Below is a breakdown of where you will spend most of your startup fund when starting a dollar store.
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Leasing and facility preparations
A good percentage of your startup cost will go to leasing an appropriate space, decorating the interior, and installing the point-of-sale system and any other technology you may require. You may also need to buy additional equipment based on any additional conveniences you wish to offer customers, from pay phones to fax machines and photocopiers.
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Licenses and Permits
Depending on your state, you will also have to pay for licenses and permits. For instance, an Employer Identification Number (EIN) for tax purposes, state, and local licenses as indicated by the SBA, a Resale Certificate (if you are not selling exclusively independent products), a seller’s permit, and a certificate of occupancy.
These costs can vary from $200 to $2,000 depending on your business and the state in which you are operating. Working with a lawyer to incorporate your business or an accountant to set up your books and file your taxes can cost anywhere from $1,000 to $10,000 or more.
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Necessary store furniture
Depending on the size of your business, you may need shelving, display racks, cases, and furniture. If you want a website, you need a website builder and a host. Free builders and hosts are available, but their capabilities are limited and may reflect poorly on your brand. Instead, expect to invest a minimum of $30 to $200 a month for a website.
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Store employees
If you choose to hire a cleaning service, you can expect to spend between $50 and $200 a week. Handling cleaning in-house will likely cost $500 to $1,000 for an initial investment in supplies and heavier equipment such as vacuums. Note that paying them more than your local minimum wage will result in better loyalty and performance.
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Business Insurance
You will also have to consider necessary things like property insurance, including the liability to workers’ compensation and any coverage required for employees or yourself.
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Advertising and Publicity
You may also choose zero-cost word-of-mouth advertising including working any social media platforms you are familiar with, or you may want to hire an ad agency, which will run you anywhere from $1,000 to $10,000 a month. However, the type of signage you choose will dictate the price but expect to spend $500 to $1,000 for interior and exterior branding.
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Inventory
The biggest chunk of your expenses comes from inventory (which some research estimates may be up to 70 percent of your monthly spending) and labour. However, the exact costs of all of these expenses vary due to location, store size, exact inventory, and how much you choose to pay.
Make deals to purchase in-demand merchandise from stores that have purchased too much inventory or are closing. You may even team up with another business owner to purchase items in bulk and the split the shipment. This will help you save money on your initial order. Surplus and salvage distributors can be good sources for cheap dollar store items as well.
How Much Profit Do Dollar Stores Make?
Dollar stores may make up to $.80 profit on items they sell, though the average is about $.35 for each item. It simply means a dollar store would have to sell 200,000 items a year to make around $70,000 in profit. Dollar stores are big businesses in many parts of the US.
Owners are expected to have some experience either managing or owning a related store (e.g., convenience store, general store, etc.). Note that having a general business degree may help, but it is by no means mandatory. Owners should be organized, good with people, and able to keep up with the needs of a diverse customer base.
The success of many dollar stores has to do with location. While you might find a lucrative deal on a building, it isn’t worth it if your customers cannot easily get to your location. It’s advisable you choose a location that is visible from the street in a high traffic area.
Conclusion
In modern America, most businesses find that they are rather hard hit and struggling to make ends meet. However, one business that typically isn’t is dollar stores, which prove to be an accessible resource for a variety of products regardless of how the economy is performing. As a result, more and more entrepreneurs perceive dollar stores to be a valuable investment, especially when you stock yours with merchandise that will move quickly.
So, if you’re an entrepreneur with the hopes of opening your own dollar store, take the information mentioned above into consideration to ensure that the development of your business goes smoothly. Note that with the right merchandise and proper location, you can be well on your way to making your store a quick success.