Create a Budget for Your Cosmetic Product - Introduction: Why It’s Important to Create Your Budget
Sep 6, 2021 · 3 min read
It might seem obvious that to create a new cosmetic product, you need a budget. But for many new Beauty Brands, creating a budget at the outset of product development is fraught with uncertainty, in part because so many costs are unknown and hard to predict. This leads many cosmetic creators to skip budgeting altogether, or to broadly estimate costs. Yet your budget must be about a lot more than lump sums – i.e. “How much money can I afford to lose if this doesn’t work?”
A comprehensive cosmetic product development budget – the one you make way before you ever slap a label on a bottle – is essential if you want to succeed as a beauty founder. Your budget should include calculations like COS (cost of sale), and everything in between (like marketing, logistics, and profit).
Moreover, Cosmetic Creators should ask themselves not just whether they can afford to create a product, but if they can afford for that product to succeed and for their brand to grow?
Success means people love your new product and the cash is rolling in, right? Yes, but…success also means that you need to produce and deliver more of that product, maybe even to a major retailer who’s ready to place a big order.
For example, let’s say you’ve launched a line of three products: a face cream, a cleanser, and a serum. You spent more than you wanted to for the launch of that first batch, but whatever – people are buying your product. In fact, the cleanser has sold out!
But wait – the cleanser has sold out. And now, a major online retailer wants to start selling it. They’ve expressed some interest in your other products too, but they want to start with a large order of the cleanser – a much larger lot than you had initially produced. In order to scale-up – that is, to produce a larger batch than your original – you need to know exactly how much that original batch cost.
Beauty Brands should have a good handle on the difference between recurring costs and start-up costs, know their COS, and use the right formula for arriving at the SRP (suggested retail price). (The formula, and how much margin to create will depend on different factors, including your sales channel, your marketing costs, logistics, returns, and sampling policy, and more.)
Understanding these numbers and margins will help Beauty Brands manage their expenses and cash flow, especially when they start to scale and begin to see their products succeed.
At Goldn, we’re ready to help you create a budget for your cosmetic product by walking you through the major pieces of your cosmetic product budget so that when opportunity knocks, you’ll be ready for it.
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