How to Start a Pallet Manufacturing Business
Pallets have become an indispensable utility for moving and storing products, supplies and raw materials. Virtually any company that uses a forklift also has a need for pallets, which are the wooden platforms that provide a solid, stackable base for loads of materials.
The best days for making pallets were 20 to 30 years ago, when recycling was still in its infancy. At that time, practically anyone could start a company and fall backward into money. The industry has changed a lot since then, and while demand for pallets is still growing and there is money to be made, you will need to have a good head for business to survive.
The first thing you will need to do as part of your pallet business plan is to research the market. Industry reports are available from PalletEnterprise.com, PalletProfile.com and RecycleRecord.com. These will give you an idea of the demand for different types of pallets and whether or not recycling pallets or making pallets from scratch is the best option for you.
Find out who is already in business in your area and where your potential customers are getting their pallets. You will need a competitive edge to convince customers to leave their current suppliers, and this will usually be because you have a cheaper price. If your prices aren't competitive, it's unlikely you will do well in this business.
The pallet industry in the U.S. is extremely price competitive. Profits are normally not higher than 10%, and in some regions, it may be as low as 5%. Customers will easily change suppliers to save just a few cents per pallet without much regard for product quality or customer service.
Unless your prices are low, it may take months to start getting customers and years before you get a foothold in your market. Still, your local market may have an opportunity. If there are no local suppliers, for example, you may be able to beat out distant competitors based on lower transportation costs.
If you can't identify customers who are likely to sign up with you immediately, it may be more practical to buy an existing company. Buying a company is usually a matter of timing, such as when the current owners are thinking of retirement. Factors to examine include:
- Its reputation in the market
- How many customers it has
- Annual sales and profit
- Employees' willingness to stay
- Property and equipment owned or leased
- Current supply chain
- Citations from the Occupational Safety and Health Administration
Every company has its own strengths and weaknesses, so the ideal business to purchase would be one that has a weakness on which you can build — for example, if sales have been sluggish and you have contacts or a background in marketing, or perhaps it has bottlenecks in production that you know how to solve.
Most pallets today are made of wood, and this will likely be the case for the foreseeable future. However, there are vast differences in quality, and you need to know these differences before you start your business. Other materials like plastic and metal are also options, although they are more expensive. Wood accounts for up to 75% of a pallet's cost, with labor, overhead and nails accounting for the remaining 25%.
Pallet making by hand is labor intensive, and most companies only do this for small specialty orders. At a minimum, you would need lumber and nails, nail guns, work tables and a forklift. Fully automated production lines are expensive, running up to $1 million in cost. Between these two extremes are semiautomated nailing lines with conveyors and heat-treatment equipment.