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How Much Does It Cost to Start a Scrap Metal Business? (Sales Forecast and Breakeven Analysis Included)

Starting a scrap metal business will cost you about $750,000 or more depending on the structure, size, and other factors that we will discuss in this article.

Starting a scrap metal business provides environmental benefits by reducing the need for new metal extraction, conserving natural resources, and diverting metal waste from landfills. Recycling scrap metal also reduces energy consumption and greenhouse gas emissions associated with metal production.

A scrap metal business involves collecting, processing, and recycling various types of metal waste, such as steel, aluminum, and copper, for resale to manufacturers.

Estimated Cost Breakdown for Opening a Scrap Metal Business

  1. Land/Industrial Space Purchase or Lease: $300,000
  2. Heavy Machinery (cranes, forklifts, shredders, balers): $250,000
  3. Vehicles (trucks for transportation): $100,000
  4. Weighing Scales and Other Small Equipment: $20,000
  5. Building Renovations and Security Setup (fencing, security cameras): $30,000
  6. Environmental and Business Operating Permits: $20,000
  7. Initial Operating Costs (utilities, initial payroll, etc.): $20,000
  8. Website Development, Signage, Promotional Materials: $10,000
  9. Liability, Property, and Vehicle Insurance: $20,000
  10. Emergency Fund for Unexpected Expenses: $10,000

Total Estimated Cost – $750,000

3-Year Sales Forecast and Breakeven Analysis

Revenue Sources:

  • Metal Sales: Income from selling processed scrap metal by weight, differentiated by type (e.g., steel, aluminum, copper).

Pricing and Sales Volume:

  • Starting Sales Volume: Assume 500 tons of scrap metal sold per month.
  • Average Price per Ton: Assume an average of $300 per ton, which will vary by metal type and market conditions.

Growth Rate:

  • Annual Sales Growth: Project a 10% growth in volume due to market expansion and better sourcing channels.

Operational Costs:

  • Fixed Cost: Include rent, salaries, insurance, and maintenance, estimated at $300,000 annually.
  • Variable Cost: Primarily related to acquisition of scrap, transportation, and processing, estimated at 70% of revenue.

Year 1:

  • Monthly Sales Volume: 500 tons
  • Annual Sales Volume: 500 tons × 12 months = 6,000 tons
  • Annual Revenue: 6,000 tons × $300 per ton = $1,800,000
  • Variable Costs: 70% of $1,800,000 = $1,260,000
  • Total Costs: $1,260,000 (variable) + $300,000 (fixed) = $1,560,000
  • Profit: $1,800,000 – $1,560,000 = $240,000

Year 2:

  • Annual Sales Volume: 6,600 tons (10% increase)
  • Annual Revenue: 6,600 tons × $300 per ton = $1,980,000
  • Variable Costs: 70% of $1,980,000 = $1,386,000
  • Total Costs: $1,386,000 (variable) + $300,000 (fixed) = $1,686,000
  • Profit: $1,980,000 – $1,686,000 = $294,000

Year 3:

  • Annual Sales Volume: 7,260 tons (10% increase)
  • Annual Revenue: 7,260 tons × $300 per ton = $2,178,000
  • Variable Costs: 70% of $2,178,000 = $1,524,600
  • Total Costs: $1,524,600 (variable) + $300,000 (fixed) = $1,824,600
  • Profit: $2,178,000 – $1,824,600 = $353,400

Break-Even Point

  • Revenue per Ton: $300
  • Variable Cost Ratio: 70%

Contribution Margin per Ton: $300 – (0.70 × $300) = $90

  • Fixed Cost: $300,000 annually.

Break-Even Point in Tons = Fixed Cost ÷ Contribution Margin per Ton

: = 300,000 ÷ 90

Break-Even Tons = 3,333 tons per year

Break-Even Revenue = Break-Even Tons × Revenue per Ton

: = 3,333 tons × $300

Breakeven Revenue = $999,900

Based on the above computation, your scrap metal business needs to sell approximately 3,333 tons of scrap metal annually at $300 per ton to break even. Based on the sales forecast, your scrap metal business will surpass the break-even point in its first year.

This analysis suggests that with efficient operations and market conditions, the business will be profitable and grow steadily over the first three years.

Factors That Influence the Cost of Opening a Scrap Metal Business

  1. Facility

Acquiring or leasing a suitable facility for a scrap metal business in a strategic location will cost you money. This is why when leasing a facility for a scrap metal business, you should consider the space’s size, layout, and compliance with environmental regulations.

This is so because adequate infrastructure for waste processing and safety measures is an important aspect of this type of business.

You should also choose a location that is close to industrial estates for efficient scrap metal collection and transportation. You should also rent a facility in an eco-friendly site that aligns with the business’s sustainability goals.

  1. Equipment Costs

You cannot start and operate a scrap metal business without having the needed equipment installed in your facility. In essence, you will need to create a budget for purchasing:

Scrap metal processing equipment, metal shears, hydraulic balers, magnetic separators, scrap metal shredders, conveyor systems, forklifts, scales, trucks or trailers,

Welding equipment, safety gear (helmets, gloves, goggles), and also office equipment (computers, phones, software). These equipment are indispensable if indeed you want to operate a scrap metal plant.

  1. The Cost of Licensing and Permits

You cannot legally start and operate a scrap metal business without first applying and obtaining the specific licenses and permits needed to start and operate a scrap metal business within your jurisdiction.

You should make plans to obtain licenses and permits such as a business license, contractor’s license, environmental permit, land use permit, tree removal permit, burning permit,

Stormwater discharge permit, occupational safety, and health administration (OSHA) compliance, federal and state tax identification numbers, vehicle and equipment permits, and hazardous materials permit.

In case you are not sure of the required licensing permits to start a scrap metal business in your city, then you should check with your local government or regulatory agencies.

  1. Staff Recruiting and Training

If you want to start a scrap metal business, you should at least recruit some key employees such as a facility manager who will oversee operations, skilled technicians for scrap metal processing, safety and compliance officers, logistics and transportation staff for scrap metal collection, and administrative personnel for record-keeping and regulatory compliance.

So also, you will need a dedicated sales and marketing team that will help with your business outreach and client acquisition. Much more than recruiting these employees, you should also have a budget to train them to be able to efficiently carry out their job description, conform to the organization’s corporate culture, and help the business grow.

  1. Cost of Scrap Metals Collection Truck or Transportation

You will need to purchase either vans, box trucks, pickup trucks, or even specialized trucks for collecting and transporting your scrap metals. Some companies design trucks specifically for collecting and transporting scrap metals.

If you opt for specialized scrap metal collection trucks, you are going to spend more money than someone who settles for used pickup trucks or vans.

Note that your preferences and also your decision to settle for either an outright purchase or lease will significantly influence your startup cost.

  1. The Cost of Marketing and Advertising the Scrap Metal Business

Even though there are no specific costs attached to marketing and advertising a business, the bottom line is that if you want to launch a business that will win a fair share of the available market in your location, then you must be ready to invest a significant amount to promote your scrap metal business.

Of course, you know that scrap metal businesses generate revenue through several avenues. They earn income by charging fees for collecting and processing scrap metal from individuals and businesses, selling recovered materials, such as metals to manufacturers, and maintaining contracts with manufacturing companies that generate scrap metals.

  1. The Cost of Insurance Policy Cover

As a scrap metal business owner, you and your employees usually handle different scrap metals and equipment that can cause injury.

This can be risky hence it is required that a scrap metal business purchase the required insurance policy covers. Scrap metal businesses face risks such as environmental liabilities, and workplace safety concerns.

Hence you will need to make provisions for adequate insurance coverage such as Environmental Liability Insurance to mitigate environmental risks, and Workers’ Compensation Insurance to address employee safety.

Apart from that, you will also need General Liability Insurance to safeguard your business against third-party claims, and Commercial Property Insurance to cover all your physical assets.

Note that the cost of insurance policy coverage will depend on factors such as the size of your business and the coverage limits you choose.

  1. Operational and Miscellaneous Expenses

For a scrap metal business, you should make plans to spend on operational, and miscellaneous expenses such as utilities, fueling, maintenance, office supplies, marketing and outreach efforts, administrative costs for record-keeping, regulatory compliance, unforeseen contingencies, and recruiting and paying any additional employees you may hire when you have a project that requires additional workforce.