Your new cosmetic product is your baby – you dreamed it up, you saw it through to fruition, and now it’s time to proudly introduce it to the world.

But let’s be honest, you want this baby to make some money! And even if you’re not out for huge profits, you still don’t want to lose money on this new venture.

So the question is: How should you price your cosmetic product? The answer begins well before you’re ready to make your first sale – in the sourcing and production phases of product development.

It Starts with COGS

Cost of goods sold (COGS) is a term you’ll need to become familiar with. It’s a broad term for all of the material expenses included in the production of your product. For a cosmetics item, it typically includes:

• Ingredients + Formula
• Product testing + Certification (if applicable)
• Packaging, including container, label or screen-printing, pls external packaging
• Labor (if applicable)

Once you figure out how much each of these COGS factors costs, you can create a per-unit COGS. So if it costs you $1,000 to produce 100 bottles of body lotion, your COGS per unit is $10.

It’s a good idea for small or start-up brands to pad their COGS by 15-20% in order to allow for cost overruns elsewhere (more on that below). So if you’re determined that your new body lotion costs you $10 to produce, then consider the COGS to be $12, to give yourself a little buffer.

All the Other Things That Affect Pricing

Once your product is bottled and ready to go, the following costs come into play:

• Marketing, including self-marketing or working with an agency
• Shipping (either direct to consumer or to a wholesaler)
• E-commerce website maintenance
• Samples, if you opt to offer them

If you sell your products direct-to-consumer, through a website, at farmer’s markets or even door-to-door, your marketing and shipping costs will be lower, but so might be your exposure.

If you sell to a wholesaler, whether it’s an online retailer or a bricks and mortar store, expect that they will take a significant chunk of your profits – as much as 50-65% depending on the retailer. A big retailer may also require that you work through their distribution channels or sign on for in-store marketing or advertising, which will also eat into your bottom line.

If you hire a sales agent to get your product into stores and e-commerce streams, the agent is also going to take a cut.

So, with all of these possible expenses cutting into your profits, how on earth do you price your product to make a profit?

The Formula for Your Suggested Retail Price (SRP)

There’s a rule of thumb in the cosmetics industry for arriving at the suggested retail price (SRP):

• Take your COGS (to which you’ve added a small margin) and multiply it by 5 or 6.

That means if your COGS is $10 per unit, don’t price your product below $50 per unit, and maybe go as high as $60.

If that sounds high, remember that consumers expect that independent (“indie”) brands will be more expensive than drugstore brands. Usually, they’re willing to pay more for carefully sourced, high-quality products.

If that still sounds too high, or you’ve always envisioned creating an affordable product, then you have two options:

• Reduce distribution costs by doing more direct-to-consumer sales.

OR

• Reduce COGS by scaling back on ingredient and packaging costs.

The Bottom Line

Pricing your cosmetics product depends on many factors. And like it or not, the bottom line is something you have to keep in mind through every step of the process. Goldn has the tools to help you keep track of your COGS, and make smart decisions when it comes to formulating, packaging, and marketing your “baby.”