I Needed Money, So I Started A Chemical Trading Company
Take a behind-the-scenes look into the real-life operations that help fund the risks and research.
If you’ve been following me for awhile, you may have noticed that I often test relatively-risky opportunities on a frequent basis, but I never actually talk about where some of this money comes from. So, today, I’d like to take you for a behind-the-curtain look into one of my operations and hopefully teach you about a new industry.
The Business Model
I won’t use the exact chemical my business specializes in, but I will use a relatively similar one.
You’ve seen Vinegar on shelves before, but Vinegar is just the standard term for diluted acetic acid, which is the chemical responsible for the profits. Standard food-use Vinegar is a simple combination of water and acetic acid to make a diluted 5% acetic acid product.
After learning about how relatively simple the formula for Vinegar is, you decide to join the market and compete. Acetic acid, like most chemicals, serves multiple-purposes. Household Cleaning Vinegar is widely used for removing odors, whitening whites in laundry, and removing tough grime. The only change from standard Vinegar, is that Cleaning Vinegar contains 6% acetic acid, as opposed to the 5%. For more industrial cleaning purposes, the product goes as high as 20% acetic acid.
So naturally, the best course of action is to buy the pure acetic acid in bulk, dilute it with water, and then sell a significantly larger amount of both cooking and cleaning Vinegar. But you give yourself an additional challenge, you must do this all from behind a computer and you should never even have to even touch a single bottle.
So? Here’s exactly how that’s done:
Getting the Supply and Packaging It
For this to work, you need a cost-efficient source of the acid. US wholesalers and supply companies offer prices that sustain an American cost-of-living, but these prices are far too high for someone just getting started, so you search for a cheaper company.
Fortunately, through sites like Alibaba or GlobalSources you can quickly contact overseas chemical manufacturers to find out what they’re charging. After searching for a while, you find a supplier which offers 99.8% pure acetic acid for $0.55 per kilogram:
In the US, the average cost per gallon is $4.79, but if you’re paying $0.55 per kilogram, that translates to an average cost per gallon of $2.07 (3.78 kg per gallon, 3.75 * 0.55). But remember, you’re paying $0.55 per kilogram of the pure acid, when the final product will be diluted to only 5% of the acid. This means that for every 1 gallon of pure acetic acid we buy, we can make 20 gallons of cooking vinegar. This brings our true cost per gallon to $0.10 (2.07/20)!
If you’re interested in the math behind that calculation, please see more on the dilution formula.
Having that extremely low cost per gallon is great, but it’s just a requisite as we must now prepare for the costs of: packaging, shipping, storage, and fulfillment.
Because this is a relatively common business practice, the chemical supplier will fulfill any dilution requests as they already own the equipment necessary to do this. This usually comes at a premium of an extra $0.10 per kilogram, so when factored in, this results in a base supply cost of $0.12 per gallon. Now that you have the base product stored and ready for movement, it is time to package it into 1 gallon bottles and stick your own custom label on the bottles. This is the hardest part.
What makes this stage the most difficult, is that you need to coordinate the shipment from the factory to the packaging service located within the same country as the supplier. But trust me, it gets easier after this.