November 13, 2023
Starting a cosmetic brand is an exciting path. The possibility of bringing innovative products to life and contributing to the well-being and self-esteem of consumers attracts many to the sector. However, making it a reality implies a sacrifice in costs and expenses that we must pass on in some way in the selling price. It is therefore essential to identify the costs we generate.
Costs can be varied and complex depending on each cosmetic business. From product formulation to marketing and distribution, there are a number of factors that influence the costs of a cosmetic company.
Some of the main costs to consider are:
- Research and development (R&D)
Creating a product takes time and resources. Time must be spent researching and sourcing ingredients that we can use to develop new products that keep up with market trends and expectations.
These costs associated with formulation, testing and legalization are essential to ensure that the products we formulate are safe and effective.
- Raw materials and packaging materials
The purchase of raw materials and packaging for formulation and manufacturing has a fairly significant cost and varies widely depending on the quality and image of the product being designed and the supplier chosen.
- Production and packaging
Includes all costs associated with the production of products such as machinery, labor and energy, whether manufactured in-house or ordered from a third party manufacturer.
In addition, we must ensure that our manufacturing facilities comply with Good Manufacturing Practice (GMP) standards.
- Marketing and advertising
Marketing and advertising play a crucial role in promoting cosmetic products to create brand awareness and generate interest in our products.
Therefore, we must invest in advertising strategies, public relations campaigns, social media presence and attractive packaging design.
- Distribution and logistics
Another essential cost is product distribution. We must consider how we will get the products to our customers, whether through physical stores or e-commerce, and keep track of the cost.
Pricing is a delicate balance between recovering costs and maximizing profit margins. Consumers are looking for quality and efficiency, but they are also price sensitive. Therefore, we must take into account both internal costs and external factors when setting selling prices.
To determine the price of a cosmetic product, it is essential to calculate total costs and consider additional factors such as competition, market demand, brand positioning and value perception.
Likewise, there are costs that are linked to manufacturing that vary or even disappear if we stop manufacturing, and others that are independent of the volume of activity. How to allocate the latter is crucial when it comes to setting the price and making it competitive.
Some key strategies for approaching pricing that we can apply:
o Value strategy
Instead of competing on price alone, we can focus on delivering superior value to consumers through high-quality ingredients, innovative formulations and real skin benefits.
If we find a value that can differentiate us from our competitors, we can generate, in addition to a higher profit margin, a more differential and outstanding brand image.
o Market segmentation
We can differentiate products and prices to meet the needs of different consumer segments.
For example, selling a line of luxury cosmetic products with premium prices for a more exclusive market or a line with affordable prices for a broader market.
o Cost and margin analysis
It is important that we analyze in detail the costs we generate, in order to properly determine the margins of each individual product that we can apply.
o Promotion strategies
Another strategy we can use to attract potential customers or keep loyal customers is to offer discounts, promotional packages or rewards with some detail.
Ultimately, the costs of a cosmetics company are diverse and significant and play a crucial role in sales pricing. Therefore, we must balance these costs in order to generate profits while offering attractive and competitive products.
In future posts we will develop each of these costs and we will see how to obtain the best results when applying them to our products.
Find out more about Yan Ye, back office at MuttuLab, author of this article.
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