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Create a Budget for Cosmetic Production Part 3: How to Calculate Your SRP

Elizabeth Heath

Oct 4, 2021 · 3 min read

Create a Budget for Cosmetic Production Part 3 How to Calculate Your SRP_goldn

When crafting a budget for your new cosmetic product, the last step in the process is determining your SRP, or suggested retail price. While it’s probably something you’ve been thinking about or imagining since the outset of your endeavor, there’s a methodology to price-setting that ensures your product is priced right to sell.

We’ve already looked at how to calculate COS, and start-up and recurring expenses. Now let’s tackle how to set your SRP.

What is SRP?

SRP stands for suggested retail price. You’ll also see it referred to as list price, RRP (recommended retail price), and, less frequently, MSRP (manufacturer’s suggested retail price). As the name suggests, it’s the suggested price at which your product should be sold to consumers.

There are two ways to think about SRP:

  • In B2C sales, the SRP is the difference between your COS (cost of sale) and the price at which you’re selling directly to consumers. If you’ve calculated your COS correctly, the difference between COS and SRP is pure profit for you. As a B2C Beauty Brand, you may opt to sell your product below SRP. For example, you may offer periodic sales, BOGO offers (buy one get one), or discounts for purchasing multiple products.

  • In B2B sales, the SRP is just that – the price at which you suggest a retailer sells your product. But they’ve purchased from you at WSP (wholesale price) and after that point, are free to sell your products at whatever price they wish. So a retailer may well opt to sell your product below SRP, either periodically or all the time. But that profit margin is their worry, not yours. And it’s unlikely that they’ll mark down a product to the point that they’re no longer making a profit (unless they’re planning to discontinue selling it, but that’s another issue).

If you wish to prevent retailers from under-selling your product (for instance, you may have branding guidelines that pricing needs to reflect), then you can set a minimum sale price – the lowest price point your retailers can sell at.

In B2B sales, SRP and the flexibility to adhere or not adhere to it is why, when you shop for a cosmetic product – or any product, you may find it priced differently at Sephora, Target, Amazon, and an online cosmetics retailer.

One thing you’ll almost never see? Retailers selling an item for greater than SRP. Market competition just doesn’t allow for it – except maybe on the rare occasion that a product is in such great demand and short supply that retailers can raise the price higher than SRP and still be assured of selling.

How to Calculate your SRP

Calculating the right price for your beauty product is complicated, and brands use different methods to come up with their SRP. As we discussed in another post about product pricing, calculating the sale price of your beauty product is about finding a price that allows you to cover costs while also meeting customers’ perception of value – in other words, market tolerance.

Some beauty brands will multiply the COS (Cost of Sale) by about 5 or 6 to arrive at your SRP. This 500-600% mark-up sounds like a lot, but it provides a buffer for marketing, logistics, sales commissions, and other soft costs.

But that’s not all there is to it – your SRP is a number that starts getting crunched at the outset of your cosmetic creation journey. And it has everything to do with what the market is for your product.

How Does Market Determine SRP?

When you first conceived of your beauty brand, you probably imagined where it would sell and what your consumers would “look” like. Consider a few examples:

  • A sweat-proof BB cream with built-in sunscreen
  • A high-end serum with premium ingredients
  • A hemp-based soap that's certified organic and cruelty-free

Each one of these items is going to appeal to different segments of the consumer market, and those segments may or may not intersect – for example, maybe the person who purchases an organic hemp soap isn’t interested in a serum or BB cream with synthetic ingredients.

They’ll also sell at different price points and, potentially, in different retail outlets. That BB cream might fly off the shelves at CVS, but those same shoppers may not be willing to pay for an expensive serum, which might sell better at a luxury cosmetics retailer like Bluemercury. The hemp-based soap might appeal to shoppers at Whole Foods or a local co-op farmers market, who are willing to pay a little more for a product that aligns with their consumer ethos.

By understanding your customer, you’ll have a much better idea how to price your product.

Study What the Market Will Bear

To know who and what the market for your Beauty Brand is, you need to do some research.

Shop at the stores (retail and online) where you’d like to see your product sold.

  • Identify which products will compete with yours and how they’re priced.
  • In retail stores, ask salespeople what the best or most popular product is among your (future) competitors.
  • Look at what items are on sale or have permanent price cuts – the latter is a clue that they were priced too high.

Become a consumer – of information – in the cosmetic product development industry.

  • Read articles about industry news and trends in trade publications and on the Goldn blog, and follow Beauty Brands and cosmetic product developers on social media.

Keep Your Eye on the Price Tag

By the time you get to the cosmetic product formulation stage, you should have a clear idea of your market segment, and what the market will tolerate in terms of price. COS is your first line of defense: You can’t put an expensive ingredient in a BB cream for which you’re aiming for an SRP of $10.99, just as you can’t use cheap ingredients in a serum that will have an SRP of $75. (Well, you could, but we predict a short lifespan for your brand.)

You don’t have to have a rigid SRP in mind when you set out to create your new cosmetic product. But you should have a range in mind. By keeping track of COS as you formulate, and adjusting course as needed, you’ll arrive at an SRP that makes sense and makes a profit.

Elizabeth Heath

Written by

Elizabeth Heath

Liz is a writer and editor based in central Italy.

Connect with Elizabeth Heath on LinkedIn.

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