Manufacturing is a huge industry that employs millions of people all over the world. Every product that is not handmade is usually manufactured in some way.
Manufacturing is the process of taking raw materials and turning them into products that are ready to be sold. The manufacturing industry ranges from small enterprises where products are manufactured with manual labor to massive factories where everything is automated.
But how do manufacturers make money?
In this article, we will discuss the top five ways that manufacturers generate revenue and discuss some of the benefits of each method.
How Do Manufacturers Make Money?
Here are the top five ways in which manufacturers make money:
- By manufacturing their own products for sale
- By manufacturing products of other companies
- By selling services
- By licensing technology
- By diversifying into related businesses (logistics, warehousing, distribution, etc)
Let’s look closely at each of these income sources.
#1. By manufacturing their own products for sale
Yes, manufacturers make a profit from several sources but producing and selling their own products is often the primary reason manufacturers are into business. They are typically set up with the objective to produce specific products, which is how they make the majority of their profit from.
That said, most people think that manufacturers simply make products and sell them for a profit. While this is true, there’s a lot more to it than that.
To make money, manufacturers must first design and develop their products, which can be a costly and time-consuming process. Once the products are made, manufacturers must then market and sell them to customers.
#2. By manufacturing products of other companies
Did you know that many manufacturers don’t just produce their own products? They also produce products for other companies! This is called contract manufacturing, and it’s a great way for manufacturers to make money. Manufacturers are always on the look for this type of contract because it not only increases their profit, but it also increases their reach.
(Related Reading: ODM Vs OEM – Which one is best for you?)
The great thing about contract manufacturing is that the company doesn’t have to invest in expensive machinery or hire expensive workers: they can outsource these costs and focus on what they do best! One thing to keep in mind with contract manufacturing is quality control. Quality control ensures that your product will be as good as promised.
#3. By selling services
It’s no secret that manufacturers make money by selling products. But it’s not always about selling products, they also generate revenue by selling services. That’s right – many manufacturers offer a wide range of services to their customers, from maintenance and repairs to customizations and installations. And these services can be quite profitable! They often account for a significant portion of a manufacturer’s total revenue.
For example, in the case of manufacturing equipment, service sales could represent as much as 50% of total revenues. So if you’re looking for a way to boost your profits without spending more on production, consider adding ancillary services to your offerings!
#4. By licensing technology
One of the ways manufacturers make money is by licensing technology. When a manufacturer licenses technology, they are essentially selling the rights to use their technology to another company.
This can be a great way for manufacturers to make money on their capital investments, as it allows them to earn money without having to actually manufacture anything themselves.
Also, in many countries revenue from the exploitation of Intellectual Property is taxed at rates lower than the normal corporate tax rate making this a very lucrative way to generate income.
#5. By diversifying into related businesses
Another major way manufacturers make a profit is by diversifying into related businesses, such as logistics, warehousing, and distribution. This allows them to tap into new markets and revenue streams.
Additionally, it gives them a competitive advantage by providing a one-stop-shop for their customers. The manufacturer can then manufacture, market, distribute, and sell all under the same roof.
In some cases, this strategy makes more sense than competing with other manufacturers head-on.
Conclusion
So how do manufacturers make money? In this article, we reviewed 5 different ways in which manufacturers generate revenue.
First of all, manufacturers design and produce their own products for sale. Most companies set up manufacturing facilities for this reason. But many companies set up manufacturing units with the sole purpose of offering these to other companies to manufacture products for others.
Manufacturers also make money by selling ancillary services, licensing technology to other companies, and diversifying their businesses into related businesses like logistics, warehousing and distribution.
