There is no store more convenient than a dollar store. Both people who have or don’t have much money can enter into a dollar store and find everything from toiletries to canned foods to children’s toys and school supplies, all for a dollar or less (with a few exceptions at the still-super-cheap Dollar General chain).

These stores are also accessible than a trip to the Grocery Store, offers you more options than a convenience store, and it is seemingly much cheaper than both.  A dollar store is a type of general store that limits its prices.

These stores can sell anything from discounted household goods to party supplies. Just as the name implies that nothing can be sold for over a dollar, some stores will make exceptions for certain products while keeping the vast majority of stock at a lower price.

How Much Does It Cost to Open a Dollar Store?

The cost of starting and running this business will surely depend on location, inventory, and advertising budget. Although it would be challenging, it is theoretically possible to get started with as little as a few thousand dollars if opening in a less desirable section of town.

Also note that industry franchises can cost up to $267,000 or more for a 10,000 square foot store. These expenses will cover everything from stock to marketing supplies, plus they give an owner a comprehensive plan on how to manage their business.

You can also leverage available DIY franchise packages that can be purchased for under $30,000 if you are very willing to do the majority of the work on your own. If financing, make sure you get a loan that can stretch to include the cost of merchandise.

Have it in mind that you will also have to account for the cost of your business location (rent, permits, etc.), as well as the cost of merchandise, advertising, and employee salaries. You will also need commercial insurance to protect against liability claims, natural disasters, and criminal activity. So, basically, no matter how much money people have, they still want something that bigger grocery stores can’t give them.

Dollar stores are not just convenient because their items are cheaper, but also because there seems to be one on every corner (especially in the lower-income parts of town) making them perfect for a quick fill-in trip between weekly groceries runs. The fact that most people are on to this and cashing out steadily means dollar stores are always making money.

The Profit Potential of a Dollar Store in the United States

To generate revenue and make profit, Dollar stores charge a mark-up on the items they sell. These stores will typically get inventory by purchasing large quantities of stock at wholesale prices. By purchasing these products at a deep discount, the storeowners can afford to sell them for a dollar and still make a profit.

Some Dollar Stores keep their prices at $1 or less while others will make exceptions for higher ticket items. As a Dollar Store owner, if you decide to make certain items more than $1, it is advisable you do so sparingly. Your base clientele will not appreciate having to hunt for prices when they’re in a dollar store.

Nonetheless, Dollar stores may make up to $.80 profit on items they sell, though the average is about $.35 for each item. This means a dollar store would have to sell 200,000 items a year to make around $70,000 in profit.

Note that dollar stores aren’t always the least expensive place to shop when compared to other types of discount stores. Many owners will sell off-brand items at odd sizes as a way to make it look as though customers are getting a better deal than they are.

According to reliable statistics, paying $1 for a 16-oz bottle of milk at a dollar store is the equivalent of paying $8 for a full gallon, which is more costly than the fancy organic stuff at a big chain retail store. Also, the $1 bag of raisins at the dollar store weighs only 4.5 ounces (128 grams), while a 72-ounce (2-kilogram) bag from a big-box store costs $10.50, or 52 percent less per ounce.

Howbeit, by shrinking package sizes, dollar stores can get away with charging way more per volume, which is one of the key strategies dollar stores use to wring the most profit out of every sale. Just because a customer only paid $1 for that roll of aluminium foil doesn’t mean that it is a good deal. That $1 roll is only 15 feet (4.5 meters) long, while Wal-Mart sells a 75-foot (23-meter) roll for $4.06, the equivalent of more than 18 feet per dollar.

According to 2012 reports, Dollar Tree captured 35 cents of profit for each dollar of revenue compared to 24.1 cents per dollar at Wal-Mart. Dollar-store shopping is a no-frills experience and that’s not an accident. By keeping stores small and employees at a minimum, dollar stores are able to convert a larger portion of sales into profit.

The normal Dollar General store is 7,400 square feet (687 square meters) compared to 178,000 square feet (16,537 square meters) for the average Wal-Mart Supercenter. And even though dollar stores are packed floor to ceiling with items, the typical dollar stores only carries 10,000 SKUs (individual item codes called “stock-keeping units”) while the average Wal-Mart carries closer to 90,000 SKUs.

Note that those 10,000 dollar-store items are chosen for maximum profit, emphasizing long shelf life, off brands and small packaging. These stores don’t need a lot of employees to run, again keeping overhead costs down considerably. The typical dollar store employs eight or nine people compared with 14 employees at a similarly sized independent grocery store.

Conclusion

Dollar stores are big businesses in many parts of the US. Many people need a store near them where they can buy necessities and luxury items that they wouldn’t have the opportunity to buy at a conventional store. To make your Dollar store more profitable, consider selling certain items at big losses to attract people into the store, so they have the opportunity to pick up other items at a much larger profit.

In addition, running promotions or contests can help to attract new clientele too. You can also consider branching out as a franchise or potentially opening more conventional convenience stores in addition to the original venture.