Cosmetics are a part of life for most people. The paradigm of the beauty industry continues to grow as people spend more and more time trying to look their best. There is a vast collection of cosmetic products in the beauty industry, including aromatherapy, beauty spas, hair salons, cosmetic stores, anti-aging clinics, and even makeup artists. The various social media platforms and beauty products have also increased the demand for new cosmetic products. Therefore, venturing into the cosmetic business promises to be quite profitable for anyone.
All questions about how much it costs and what profits are made in this industry will be answered below. Now that you understand what this article entails, let’s begin.
The Cosmetic Industry
Most people believe that the cosmetic industry is limited to foundations, lipstick, eye shadow, nail polish, and more. However, the cosmetic industry is so much more than that. These types of cosmetics fall into the colour cosmetic category. There are different products like body washes, skin lotions, toothpaste, and several others. Various personal care products are also cosmetics. This information then clarifies that the cosmetic market is vast, and you can start a cosmetic business with any of these products today. It is noteworthy that there’s much competition in the industry. However, everyone stands a chance as consumers continually look to try something new. Your cosmetic business can thrive with the proper dedication, and you stand to gain a large consumer base.
Cosmetic Business Start-Up Cost
Starting your own cosmetic business can be very profitable. However, how quickly this can happen isn’t always straightforward. There are several cosmetic business ideas that you can explore when starting your business. It is also vital to do your research and gather vital information about creating a cosmetics company. This section will explore the start-up cost for a cosmetics business. Some of the expenses you’ll need are:
- Product Development
- Business Expenses
- Marketing and Sales
Let’s look at each individually.
Cosmetic Business Product Development Costs
When people start their cosmetics lines, they first think about the product development cost. These costs usually cover every part of creating your product. This includes the packaging, raw materials, and labeling. It also consists of the costs of production activities, like mixing the materials and getting them into their packaging.
Most people believe that they can dig up a recipe from the internet and make the products themselves. However, developing a cosmetic product is not that simple. Most internet formulas do not work, and there’s usually a need to find the right supplier for your ingredients. You also need a company that’ll be willing to manufacture it for you and conduct testing. To achieve this, you need to set up a manufacturing space and ensure it aligns with FDA guidelines. To get the ideal cosmetic product, you might need to also work with a cosmetics formulator. Their services cost from $500 – $25000 depending on the chemist. The average expense of working with a chemist depending on the formulation is usually $2500.
Manufacturing Costs for a Cosmetic Business
The formulation of a cosmetic product might cost you $3 per pound on average. Packaging cost about $1 per unit, and when you add in production and filling cost, a bottle would cost you about $4-$5 per unit. However, you can’t just produce a couple of bottles at a time. There’s a need to purchase the minimum quantity of raw materials and bottles in order to keep your manufacturing cost to a minimum. The higher your manufacturing materials and packaging purchase, the lesser your costs will be.
Working with a contract manufacturer might be essential to get the best results in your manufacturing proves. It will also save you cost as they have ample experience manufacturing products based on your formula characteristics. However, if you choose to produce your cosmetic products in your own home, you should expect higher costs in your manufacturing process.
Labelling Costs to Expect
Labeling is also an essential part of starting a cosmetics business. You will need to hire someone to carry out professional labeling for your products. The cost usually ranges from $500 – $2000. Working with someone with experience creating cosmetic labels can minimize expenses. They also possess the proper information about what you need to include in your products’ front and back tags.
Product Testing
You cannot sell unsafe products; there are various laws against it. You, therefore, have to carry out several tests on your products to confirm they’re safe for consumers to use. Below are some of the tests you have to pass before launching your cosmetics line.
- Microbial Testing: This type of testing is a must before releasing a product to the public. It is a preservative efficacy test, and it can be pretty pricey at the beginning. However, the one-time cost of this testing helps prevent dealing with lawsuits in the future.
- Stability Testing: Cosmetic stability testing is another type of test you have to carry out. This test focuses on how your product reacts when placed in different conditions over time. This stability testing will inform you if your product changes colour, separates, gets contaminated, or works perfectly in different situations. It also tells you how long your products can last so you can make this clear to your customers.
Cosmetic Business Expenses
If you’re selling cosmetics, there’s a need to protect your assets. Your business could be a sole proprietorship, and what this means is that you solely bear liability for every shortcoming that occurs within your business. To avoid unnecessary risks, you need to ensure your business. Below are some of the key points to note when insuring your business.
Business Insurance
If you want to protect your cosmetic business, you will have to protect yourself. You need to consider the two types of insurance: general liability insurance and property insurance. Property insurance focuses on protecting your property. You could take out rental insurance to ensure your property remains safe in case of any disaster. This type of insurance is an excellent idea for cosmetic businesses to protect them from fire, vandalism, and so much more. If the property suffers damage, the insurance company will cover the cost of repair.
General liability insurance is also vital for anyone who wants to start a cosmetic business. It is insurance that provides coverage if anyone has a reaction or suffers hurt from your product. The cost of this insurance usually depends on the profit and sales of your business for the year. There are limits to the payout, and the insurance company only pays for specific occurrences. The higher your sales and the payout limit, the higher the premium. It is standard insurance amongst formulators to cover any adverse reaction from their formulations.
Marketing and Sales Cost for Cosmetic Businesses
The final section for the start-up costs of a cosmetic business is the marketing and sales cost. To ensure sales for your cosmetics products, you have to invest in marketing. If your cosmetics business is online, initial start-up costs are usually lower. You will need a website that costs less than $500 a year to maintain. Also, you will need to carry out promotions on social media platforms. You can also indulge in email marketing which costs you relatively low and requires mostly time investment.
The time investment into your online marketing will also determine how many products you sell. Communication is vital on social media platforms and leads to higher sales. The activities you indulge in will depend on your target audience. You can try writing blog posts, posting videos and pictures, commenting on various sites, running sales, or even conducting auctions. All these actions can boost sales for your products and grow your cosmetic business.
Filling Orders for Your Cosmetic Business
The next step in setting up your business is filling orders. It is also the other significant cost you have to consider. If you are shipping orders, you need shipping boxes, people to fill the orders, and the shipping costs. Ensure you include shipping costs as part of your expenses when determining your product price. One mistake most business owners make is not charging enough for their products. Remember that there are always hidden costs like shipping costs. If you are making no profit, it’s easy for you to go out of business.
Once your brand is established, you might also want to get local shops to sell your products. The type of products you will be selling determine the kinds of shops you will be approaching. For skin products, spas and gift shops are great options. However, hair salons are a better option for the hair care cosmetic business. Typically, you will have to sell your product at a lower price to these stores for them to profit from sales. You might have to sacrifice the direct sell profit, but a higher number of sales will make up for it.
Overall Start Up Costs for a Cosmetic Business
Cosmetic businesses can be profitable. However, it is pretty complicated and goes beyond personal use. You will be selling your products to a demanding public, so you need the products to be safe and excellent. When you consider business expenses, product development, and marketing cost, you’ll find that you need to invest between $10000-$20000 upfront. If you plan to sell different products in your cosmetic business, you should budget an additional $5000 for each cosmetic product. Making money back depends on your sales, but this is the minimum amount you require to start a cosmetic business.
Final Thoughts
Starting a cosmetic business is one of the most significant journeys you can take up. The industry is saturated and competitive. However, there’s always an opportunity for new brands, which means you can explore these opportunities. This article should have helped you discover the different costs you have to note when starting a cosmetic business. Once the expenses mentioned above are covered, you can focus on sales and ensuring you mark an important place in the industry for your products.
If you’re interested in reading further on the topic, here’s a book we recommend looking into: Starting a Business QuickStart Guide: The Simplified Beginner’s Guide to Launching a Successful Small Business, Turning Your Vision into Reality, and Achieving Your Entrepreneurial Dream.
