Create a Budget for Your Cosmetic Product Part 2: Recurring Costs vs. Start-up Costs
Sep 13, 2021 · 4 min read
As you prepare to launch your new cosmetic product or products, you’ve hopefully got a long-term vision and plan that goes well past the launch date – and that includes your budget.
In the last article in this series, we took a close look at how to calculate your COGs (cost of goods) and what part these play in your cosmetic product budget. In this article, we will look at recurring costs, and how to differentiate these from start-up costs.
What’s the Difference Between Recurring Costs and Start-Up Costs?
Start-up costs are typically one-time costs – those associated with creating your beauty product at the very beginning and getting it to launch.
Recurring costs are those that repeat – every time you order a restock, or a new batch from your manufacturer, you encounter these expenses.
What Are Typical Start-Up Costs?
Start-up costs include all activities that go to support your initial product production and your first sale. These typically include:
- Research and Development or product of your formulation (if you’re developing a proprietary formula)
- Product testing
- Regulatory compliance, if applicable
- Certification if applicable (for example, organic certification)
- Trademark (of formula, logo, brand name, etc.)
- Creation of logo, branding, and graphics
- Website setup
- Product photos and other Marketing material, if applicable
- Product samples
What Are Typical Recurring Costs?
Recurring costs include all your COGs, plus other tangible expenses that will be ongoing, or repeat every time you restock.
- The amount of formula in each unit (for example the 30 ml of serum in each jar)
- Primary and secondary packaging (bottles, jars, cartons, labels)
- Shipping costs
- Sales (if you work with agents, distributors, retailers)
Which Costs Are Both Start-Up and Recurring?
Not every expense falls neatly into the start-up or recurring column on your ledger. Here are a few that fall into both categories:
- Samples: You need these at start-up and periodically during the life of your product.
- Website: After initial setup, you’ll need to pay for monthly maintenance and periodic updates.
- Marketing photos and other material to support brand awareness and the sale of your product
How Can I Reduce Recurring Costs?
When you look to reduce your recurring costs, the question to ask yourself is, “Where am I willing to cut a recurring cost?” Consider some possibilities and pitfalls:
- If you reduce ingredient costs, will the product still perform as promised?
- If you reduce marketing costs, can you effectively sell your product?
- If you have a “no sample policy,” as some brands do, will consumers buy a new product they can’t test out first? (Read more on beauty samples here.)
Remember that you can’t cut costs to the point that you can’t afford to finish your product, maintain quality, and successfully sell it.
How Can I Reduce Start-Up Costs?
That’s the $1,000,000 question!
Many new cosmetic brands are reluctant to spend a lot of money before they’ve sold their first product. Sometimes their efforts to make their “go-to-market” – that is, the costs leading up to launch – leaner and less expensive work. And sometimes it backfires. Since marketing is such a crucial, and potentially expensive part of product launch, it helps to home in on your objectives. Here are some examples of where to spend and where to save:
- Avoid a “spray and pray” marketing approach. Omnichannel marketing – or spray and pray in industry lingo – works for big brands that can afford to launch their products in multiple markets. Start-ups and indie brands can seldom afford this approach.
- Determine your market, and your marketing focus. Do you want to be in supermarkets, or green cosmetics stores?
- If your principal sales channel is e-commerce, then you need really good photos of your products – you can’t afford to skimp on photography.
- Can you build your own website, or pay a buddy to do it for you? If you can get good results on your own, you can save money by not hiring a website designer.
Understanding your target market and target sales channels will help you understand what costs you can and can’t avoid during your go-to-market phase. But be aware that wherever you cut costs, there’s an associated quality trade-off – only you can decide where you’re willing to make sacrifices.
How Do I Create a Long-Term Budget After the Start-Up Phase?
Start-up – the launch of your first cosmetic product to market – is only half the battle. Once your product is available to consumers ideally, they’re going to want more of it. Defining start-up costs vs. recurring costs enables you to plan a long-range budget that will allow you to scale-up, or fulfill bigger orders and expand to larger and multiple markets.
Liz is a writer and editor based in central Italy.
Connect with Elizabeth Heath on LinkedIn.
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