Soap production is the business in Nigeria is a very tedious but profitable business to do in Nigeria. In this sample business plan on soap making factory in Nigeria, we are going to look at the opportunities and challenges of running a small sized soap production factory. This plan briefly summarizes the startup costs and a miniature first year financial projection.
Bar soaps production
is a viable business venture which is capable of returning over 35% on your
investment within 12 months and break even by 10th month with N150,000 daily
sales. For instance an investment of 10 million naira can yield over 3.6
million in profit after tax within 12 months and payback period is 3 years
Introduction on Soap Production Business in Nigeria
There have been many companies involved in producing soaps
for the Nigerian market as far back as independence. The likes of Unilever and
PZ cussons have produced various types of soaps for use in the Nigerian market.
There have been companies that produce millions of bar soaps targeting various
market segments in the urban areas just as there have been unknown companies
that produce bar soaps targeting rural dwellers.
The fact is soap is an essential commodity used for cleaning that
all strata of society uses for different reasons. They serve domestic use such
as; laundry, dishes, general home cleaning (floors, toilets, kitchen etc), car
wash etc. They serve commercial purposes as well such as; rug cleaning, industrial
cleaning, Janitorial use to name a few.
Everybody needs soaps for and the extremely poor such as; beggars,
destitute and mentally unstable persons either cannot afford it or do not buy
and that is less than 1% of the total population. This therefore means that
there is a huge demand for it in Nigeria. But there is one small problem. Most Nigerians
are poor and do not earn enough money to buy premium soaps. That means there is
an unmet gap within the market of people who need less expensive and less
premium soap options for people’s cleaning needs.
Types of
Soaps in Nigeria
There are more than 10 types of soaps depending on what they
are used for as explained in the list below;
·
Bathing Soap – for washing the skin and bathing
·
Toilet Soap – for use in toilet only
·
Table Soap – for cleaning hands before and after meals
·
Bar Washing Soap – for laundry (in tablet bars)
·
Detergent – powdery soaps used for mainly laundry
·
Medicated/Antiseptic – bathing soaps designed to
prevent and treat skin infections
·
Liquid washing Soaps – used for both laundry and table
use
·
Disinfectant cleaners – used as germicides for killing
off germs and odour removals
But in this sample business plan, we are focusing on bar
soaps for washing because they are the most popular and easiest ones to
produce.
Opportunities
The yearly demand for use of bar soaps in Nigeria according
to the National Bureau of Statistics reported monitored in the Guardian
newspaper of June 2020, there was an estimated 800,000 tonnes worth about 18
billion naira per week was sold in Nigeria for the year 2019. In my humble opinion
this is an understatement as the informal market which is much larger than the
formal market has not been adequately represented in this estimate. The real
market size as soaps must take into that nearly 180 million people spend at
least 100 naira weekly excluding commercial bulk users of soaps. The lower income
class therefore provides the largest market share of the entire markets
contributing over 60% of quantity consumed.
Major buyer segments of soaps in Nigeria include; housewives,
students, dry cleaners, office
cleaning businesses, laundry service providers and boarding schools to name
a few. Each of these segments consist of individuals and groups running into
1,000s of potential buyers willing to spend between 200 and 500 naira per
individual per week.
The good thing about this business is the low entry barrier. The
startup capital is minimal with as little as 300,000 naira you can start a soap
making factory and the technical knowhow is also minimal as you do not need too
much skills except the soap making production process.
The bulk of bar soaps consumed in Nigeria are by rural
dwellers whose incomes are much smaller compared to city dwellers. Most rural
soap consumers spend 100 naira or less per bar soap
Challenges
Being that every manufacturing business must struggle with
production costs, logistical costs and cost effective marketing strategies, the
bar soap factory will likely struggle to make a profit if the location of the
factory is too distant from the key target market regions. Location itself is
not an easy challenge to overcome for new entrants into this business. Secondly,
power supply is limited all over Nigeria which contributes to both startup and running
costs. There is the problem of over-competition. Too many people will venture
into soap making because of the low entry barrier and potential for quick
sales. This will not augur well for profit.
Startup Costs
for 3,000 daily bar Soap Factory
|
Item |
Cost
( |
|
Factory Building |
2,600,000 |
|
Production Machinery |
1,500,000 |
|
Warehouse or large store room |
600,000 |
|
Delivery van |
2,000,000 |
|
Raw material stock |
600,000 |
|
Working Capital |
900,000 |
|
6 months Running expenses |
1,800,000 |
|
Total |
10,000,000 |
First Year
Financial Projection
This financial projection is based on an assumed daily
production of 3,000 bars or 25 cartons daily
|
First year financial
projections |
|
|
Gross sales |
45,000,000 |
|
Cost of sales |
36,000,000 |
|
Gross profit |
9,000,000 |
|
Running expenses |
3,840,000 |
|
Profit before tax |
5,160,000 |
|
Taxation |
1,548,000 |
|
Profit after tax |
3,612,000 |
|
Breakeven month |
10th month |
|
Payback |
Middle
of 2nd year |
|
ROI |
67%
(approximate) |
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