How to Get Rich selling CBD, by the Numbers.
If you read the previous chapter of “Who Wants To Be a CBD Millionaire?”, then you understand why there’s no better business to get into at this stage of the game than selling CBD. In this chapter, we’ll talk about what it will take to start a CBD company and build it a valuation of one million dollars. You’ll be surprised by how doable it is to get rich selling CBD!
In the introduction to Who Wants To Be a CBD Millionaire, we touched briefly on this topic of what exactly it will take to achieve this dream. Now we get into some more detail and do a complete breakdown.
Let’s get started.
How to become a millionaire by starting a CBD company
If we’re talking about starting a CBD store or brand — which we are — then there are two ways to become a Millionaire.
- Earn one million dollars profit selling CBD and put that in your pocket.
- Or build up a CBD company until is worth 1 million dollars and sell it.
So which one of these options is the easiest to achieve?
If you said Number 1, then you are way wrong.
Here’s the thing. If your company is making a million dollars a year in profit, it is already way, way past being worth 1 million dollars. In fact, it’s probably worth five times that much.
How is that even possible? Let’s do some math.
When an entrepreneur invests money into buying an existing business, their intention is to make a good return on their investment.
Can you imagine buying a business for 1 million dollars, then making a million dollars in profit the first year… and still owning that million-dollar business?
Invest 1 million, make 1 million in 1 year, and then sell for 1 million. That’s one-hundred percent return on investment in only one year. That would be insane! In a good way, of course.
Most investors are happy if they make one-tenth of that, or just 10 percent return in one year.
Before we get deeper into the math, let define a few of the terms we’ll be using here.
Revenue = the total amount of money a business makes in one year.
Profit = the money left over from sales after all expenses are covered.
Valuation = the assumed value of a company, or its selling price.
Multiple = the number of times more a company is worth than it brings in in revenue or profit.
So now the question becomes, how much profit do businesses make typically. Once you know that number, you can determine what the company would be worth to an investor.
Actually, a 10 percent profit margin is considered average. The average annual return for stocks over the past 100 years has also been about 10 percent.
So let’s use that as our figure and assume that an investor would like to make at least 10 percent profit on the purchase of a business.
At 10 percent profit, how much revenue does a company have to earn in one year to make a $1 million investment bring in $100,000? The answer is easy: $1 million dollars a year.
One million dollars is a lot of revenue. But is that kind of cash flow really necessary?
Consider this: Entrepreneurs and corporations don’t buy businesses expecting them to just putter along bringing in the same revenue year after year. They buy businesses to grow them and sell them again at a profit.
They don’t stick the annual profits in their pocket. They reinvest them into growing the company.
According to BareMertrics.com:
As a general benchmark, companies should have on average between 15% and 45% of year-over-year growth. According to a SaaS survey, companies with less than $2 million annually tend to have higher growth rates.
The average growth rate is between 15 and 45 percent. Let’s be really conservative and calculate the growth rate at 20 percent per year.
- Year 0 – let’s say the day you buy a company it is generating one million in sales
- Year 1 – After one year at a growth rate of 20 percent the company is now bringing in $1,200,000.
- Year 2 – Compound another 20 percent for Year 2 and the company will be bringing in $1,440,000.
- Year 3 – Revenue grows to $1,728,000.
- Year 4 – Revenues will come in at over $2 million
- Year 5 – Revenue will surpass $2.4 million annually.
Now, let’s add up all the profits given those sales figures and a 10 percent profit margin:
- Year 1 – $120,000
- Year 2 – $140,000
- Year 3 – $170,000
- Year 4 – $200,000
- Year 5 – $240,000
Total profit over five years = $870,000.
That’s $174,000 per year on average over the five years — well above 10 percent return per year. But we’re not done yet.
The business itself is now worth a lot more money.
What used to be a million-dollar business five years prior is now worth at the very least $2.4 million. (It’s actually far more than that as we’ll see below.)
That’s an additional $1.4 million in valuation over the initial $1 million investment.
Add the $870,000 in profit to the $1,400,000 in added value and you get $2,270,00 in total return on investment over five years. That’s a five-year return on investment of 220 percent, or an average of more than 40 percent per year! And that’s being uber-conservative.
As you can see, that’s over 4 times the ten percent return on investment that is expected. So a company that does $1 million a year in sales is actually still a total steal at a valuation of one million dollars.
That means we can lower our sights — quite a bit, in fact.
So how much revenue does a company need to bring in each year in order to be worth $1 million?
When bean counters crunch all the numbers down, what they come up with is that the average business is worth somewhere in the neighborhood of five times its annual revenue — give or take.
That math is a whole lot simpler!
And that means that a business that is bringing in a mere $200,000 a year in revenue will be worth $1,000,000. Now that sounds a lot more doable!
So the question now becomes, what’s it going to take for you to sell $200,000 of CBD products in a year?
Let’s do some more number crunching.
How to sell $200,000 worth of CBD in one year
Here’s a hint: If you can sell 1 bottle of CBD every other day in the first month and grow the number of new customers each month by just 15, then you can easily sell far more than $200,000 worth of CBD after the first year.
Right now, the average sale on a CBD order is roughly in the neighborhood of $100, which is a little less than what it costs on average for 1,000 milligrams of CBD. But some products also cost more. We’ll use the $100 figure to make things easy.
That means that you’re going to need to make 2,000 sales (or sell 2,000 bottles) over the course of the year. Divide that by 12 months and you get 167 sales per month, or about 39 sales per week, which breaks down to a mere 5.5 sales per day.
Does this mean that you need to get 5 to 6 new customers every single day? Nope!
And here’s why: Some of your customers will come back for more (saving you time and money on advertising and marketing).
There is a concept known as the repeat purchase rate. And for stores, the figure comes in at between 27 percent and 32 percent.
Keep in mind that a lot of people use CBD on a daily basis all year. So let’s be generous and assume that you’re selling good products at good prices and offering excellent customer service and call it a 30 percent return purchase rate.
And let’s assume the number of new customers you get each month goes up by just 15 per month. So, that’s 15 bottles of CBD sold in Month 1, then 30 in Month 2, then 45, 60, 75, 90, and so on. Sounds doable, right?
Now let’s add in the return purchase figures:
- Month 1 – Let’s estimate 15 sales in month one – that’s just one every other day.
- Month 2 – At 30 percent return customers plus 30 new customers, that would turn into 35 sales in Month 2.
- Month 3 – Landing 45 new customers the next month plus repeat business would put you at about 54 sales in Month 3.
- Month 4 – Continuing the formula, adding 60 new customers, that would be 74 sales in Month 4. And so on.
You get the idea.
Below is a spreadsheet table showing what would happen if you started with just 15 customers the first month and increased new customers by only 15 each month taking into account a 30 percent return customer rate.
Number of Orders
* This last column represents the current month’s sales time 12 months. It doesn’t take into account continued growth.
You probably noticed that by Month 9 you’ll be selling 171 bottles of CBD per month and have surpassed the 167 bottles of CBD needed to bring in $200,000 in annual revenue needed to have a company with a valuation of $1 million.
By Month 12 you’ll be filling 229.5 orders per month — far, far above the 167 that could make your company worth a million dollars. In fact, you would be bringing in $22,950 per month or $275,400 per year if you did that every month.
That would make your CBD company worth over $1.3 million.
If you continued to grow at the same rate — again we’re just talking about only increasing the number of new customers each month by a meager 15 — you would be bringing in $46,350 per month or more than a half-million dollars per year (again, if you stopped growing).
Using the 5X valuation method, that would skyrocket your valuation to well over $2.5 million!
So let’s drop our expectations even further.
Let’s say you only increased the number of sales by a paltry five each month (instead of 15) — so you get 15 customers in Month 1, then 20 new customers in Month 2, then 25 in Month 3, and so forth. That might take a lot less work, right?
Well, that would still put you at a $1 million valuation after just 2 years of work!
This only applies to selling CBD oil to the public at retail prices. If you’d rather build your own brand and sell wholesale to distributors and retailers, you’ll be selling a lot more than one bottle per sale. The price tag per individual sale would be higher, but the unit price per bottle will be a lot lower.
Either way, you still have a $200,000 a year nut to crack.
The Bottom Line
In summary, here’s what we’ve learned in this chapter:
- We explained why companies often have a valuation in the range of about 5 times their annual revenue.
- Doing the math, and given $100 average sale, if you want to build a million-dollar company, you need to get to the point where you’re selling about 167 1,000 milligram bottles of CBD each month or $16,700.
- Given that about one-third of customers come back for more, if you get 15 new customers in the first month, and grow the number of new customers by just 5 each month thereafter, your company will be worth $1 million after two years.
Obviously all this math is an oversimplification. A lot depends on what type of business you run, what your profit margin is, how hard you work, and how much you invest in marketing.
But these are real-life numbers. Although your results will certainly vary — give or take — this is not a pile of horse pucks. This really is a very sensible scenario.
No, reaching these kinds of numbers won’t be simple. It will require a lot of hard work. But if you pull it off, in just two years’ time you could pocket $1 million.
Next time on “Who Wants To Be a CBD Millionaire?”
Okay, we’ve explained why the CBD business is a golden opportunity. And we’ve explained roughly what it will take to build a million-dollar CBD business. Included in the E-book for this chapter will be charts, graphs as well as more information to help explain what you’ve just read.
In the next “Who Wants To Be a CBD Millionaire?” installment, we’re going to get the ball rolling, go over several CBD business models and talk about the different avenues you could take to get there.
This will give you some idea of which business model fits best with your lifestyle and goals.
After that, we’ll start going into detail on how to implement each of the various business models.
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CBD Millionaire resources:
- Entrepreneur.com – How to Start a Retail Business- Entrepreneur.com
- Business News Daily – 8 Tips to Open a Retail Store
- Shopify.com – How to Start a Boutique Business: 5 Rules About Retail – Shopify
- Entrepreneur.com – The Complete, 12-Step Guide to Starting a Business
- Businessnewsdaily.com – A Step by Step Guide to Starting a Business
- Forbes.com – The Complete 35-Step Guide For Entrepreneurs Starting a Business
- Inc.com – How to Start a Small Business in a Few Hours | Inc.com