Pricing Your Natural and Organic Skin Care Products

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Use Cost to Set Retail & Wholesale Prices

Have you ever been puzzled trying to figure out how to price your products for retail sale? Pricing questions come up a lot for all businesses and we certainly get asked about it, especially from those new to the beauty industry. The first step in setting your pricing is to understand the different terms associated with pricing.

“Retail (or SRP)”, “Wholesale” or “Cost”?

John Landforce, president of Essential, and I were having a confusing pricing conversation the other day and I realized the reason I was confused was because he and I were using different terms. I was talking from the customer point of view and John was talking from a manufacturer’s point of view. I was using the term “cost” for the customer’s cost and John was using terms “cost” for the manufacturer’s cost; two dissimilar things.

We are all in business to make money and in order to do that you must turn a profit. The beauty business is a beast of its own and you really can’t look at pricing structures from other industries to figure out how to lay yours out. However, all industries use the same terms and if you want to sell to brokers, distributors, or even direct, you need to be using the same terms to avoid confusion like I had with John. Hopefully, this will help you figure out pricing, too.

Cost Components

The total expense for you to produce a single product is ‘cost’.  Your cost includes raw materials, packaging, and overhead (labor, shipping, etc). Let me state here that the cost of your raw materials must also include landed cost, which is the incoming shipped fees associated with getting that raw material to you. If you are producing your own products, please remember that your time is valuable and you are worth something for every hour of work. Just like you’d pay an employee a certain hourly wage, make sure you calculate that you have an hourly wage too; even if you don’t yet pay yourself, this is an expense you need to capture. Product costs are highly proprietary; you should never share your cost information.

To Summarize: Cost = raw materials plus packaging plus overhead

Establishing your Retail Price (Suggested Retail Price [SRP])

Your retail price is the price paid by the end user. A healthy retail price in the US natural and organic skin care and body care market is five to six times your cost, leaving you with an 80% or more profit margin. We understand all pricing is dependent on the market, but If this five to six times cost basis doesn’t work out for the market niche you’re selling into, consider ways to reduce your costs to keep your margins up. Lowering your retail price may not be the right thing to do. Oft times we feel that if we are the lowest, we will sell better than our competitor, but I can tell you that you should never price your products below three times your cost. One thing I learned when I had my own spa is that a business owner must never be tempted to offer lower prices than what one can truly afford. So finding ways to reduce cost becomes paramount.

For example, if you can’t afford the minimums required to get a better price on a raw ingredient purchase, consider splitting purchases with someone else. When EWL was in its infancy, it used to share purchasing of a pallet of ingredients with another small raw ingredient distributor. One thing I didn’t talk about inside the Cost section is that you will find yourself giving away more product than you planned and also that you will find one day that you want or need to spend more on marketing to improve your website ranking in the search engines, or that you realize you need to pay an artist to create marketing materials for you like Point of Purchase displays and you will need that buffer in your margin to do just that. Another consideration is that every time raw materials increase in price, you really don’t want to be changing your Retail price. Costs will fluctuate, and sometimes they can fluctuate weekly. So give yourself enough buffer to not have that happen to your retail price, otherwise soon your customers won’t want to purchase from you.

To Summarize: Retail Price = Cost times five to six.

Wholesale Price

When selling through a distribution channel, such as a local store who will then sell to the end user, you need to have wholesale pricing. The standard is 50 percent of the retail pricing. So if you sell an item for $20 retail, then you would sell your item to the store for $10 wholesale. This way you would still yield a healthy return of about 60% margin if you had had sent your retail price at five times cost.

To Summarize: Wholesale = Retail price divided by two

Profit Margin

I mentioned that I would tell you about the different pricing terms and that hopefully would help you figure out pricing, too. I have subsequently mentioned “margin” and perhaps you weren’t sure what I was talking about. Well, if you want to make a profit and stay in business, you need to know. Ask yourself this: “What is the dollar return I make on each sale?” Let’s take my earlier example in Wholesale Price. You sold an item for $20, this means that it cost you $4 (read Retail Price section and notice this is a “times five” pricing choice). Your dollar return was $16. Your profit dollar and profit margin are the measurements of financial success in your business. To look at it in profit margin terms and not profit dollar terms, take your profit made in dollars and divide by the sales price. Then multiply by 100 to get a %. So your profit margin formula would be ($16/$20)*100 which would equate to 80% Profit Margin.

Profit Margin = (sales price – cost) / sales price

Final Thoughts and Pricing Tips

When you set your prices, understanding your product costs and your market are the key factors to consider. Priced too low, consumers will not value the product and may not believe your what your label claims. It just ‘feels’ wrong. Too high and you won’t move enough product. As you set your pricing it’s important to thoroughly understand how your competitors are pricing similar– or apparently similar, products. It’s also important to know how the distribution channels are positioned. High-end boutique or family-friendly salons. Both of those outlets have a price-point profile and your products’ pricing should be consistent with your distribution channels’ pricing profile.

Do you have any pricing advice to share? What challenges have you dealt when setting pricing?

We appreciate you,

 

Laura

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Deanna LaFevre
4 years ago

I just recently became very interested in essential oils & natural beauty products. I made some gifts for Christmas & everyone fell in love with what I made. Some FB posts were shared & I am receiving requests for people wanting my products. So now, the big dilemma is how much to charge for these products. I started out a unknowledgeable person & have since found the ingredients that I need for a much reduced price, not sacrificing the quality. I have no idea what the shipping costs will be. So I am very much in the learning stages of all this. I want to be fair & I will
Want them to be returning customers. Your article was very helpful. Thank you.

Adrian Romero
4 years ago

Beautiful article. I see most wildcrafted Organic ingredients are going up, Is this true? Thank You

4 years ago

This post was extremely helpful, I’m starting my own natural hair care line and I was going crazy trying to figure out where to set my prices. I went to every single major retail store and looked 10 products that were just about the same as what I’m selling and created at chart. I took the average price of each product and placed my products in that margin. The funny thing is when I followed your calculations it put me at the 75% to 80% mark. Now your method was less time consumer but it forced me to learn about my competition. But now that I have the information you have provided I’m pretty sure I wont be going on that adventure again lol. Than You so much for this blog post I truly appreciate how clear you have made it for us beginners.
I will place my website information it’s not yet complete but maybe you will take a look at it and do a post about how best to set up a Natural Hair Care website.

Cheryl Braxton
4 years ago

For several years I have gotten really great reviews for my product. I have finally done a breakdown of manufacturing cost and to my surprise, it was over $15.00. Taking your advice, my product would have to be $60.00 which is far above the $20 I have been charging…. Well maybe that’s what it should be…. Need to rethink some things. Thanks for your article it was indeed eye opening!

4 years ago

There’s definately a lot to learn about this topic.

I really like all the points you have made.

Trish
4 years ago

This is the best article I’ve ever read on pricing. Clear, concise and so simple. Thank you so very much! Perfect timing…

Amber Evans
4 years ago

Great information! I am a beginner Entropuneress and you made the pricong concept easy to understand. I pronanly would have under priced my products without your information.

Amber

4 years ago

Completely agree with this pricing methodology for this market. There are many costs to be considered when starting any brand so a good profit margin is the key.
Actually we have been in the natural skincare sector for about 3 years now but not doing very good with profits because of the pricing.
Our retail price has been about 2.8 times our cost of product (not including overhead costs).
Prices were decided according to market prices so probably what we have to achieve is a better deal with our suppliers.

JCB
4 years ago

do you know what a typical margin for a distributor of spa wholesale products would be ? Or where I might find out?

Lakshmi
3 years ago

Very helpful article!! How about other hidden costs like insurance, permits, licences, etc. How do we include these in to the cost? I am planning on stating my natural and organic skin care products line and still trying to learn the various aspects of the cosmetics industry before venturing out. It is a very competitive market and I learnt that I need to be really really creative. I do have some products in mind. I think the first step is the hardest step, that is getting the product out the door even for people to try. Once people understand the benefits of the product then slowly we can see sales. Hope I am right? Any suggestions on having an organic growth for the business? How many products should we introduce during the first launch?. Thank you!!

Sandy
3 years ago

I am a crafter and i imake organic skin care products. I recently had some requests from a few local stores to feature my products and now I am struggling with how much to charge wholesale. I am not the brightest or best in math so if someone could please help me with this example follow ok i think.
If a batch 24 oz of product A takes me roughly 3 hrs to make, material used cost roughly $ 10, labor/hr $14: this is what I came up with [supplies ($10) + labor (3x$14=42) + 10% overhead ] = $57.20(cost) so wholesale for that batch is $115 roughtly ??? yikes !!! so if i had to break it down by the oz it would cost roughly $4.80/oz wholesale… Oh my goodness I was thinking $3.50/oz was fair but after reading this article I am way underpricing my item…. oh please help me…I am chewing on my nails. The article very helpful but depressing for me at the same time… oh dear !!

Carolyn
3 years ago

Hi There
Great article thankyou. I have recently started a business selling natural skincare and have underpriced my products so cant sell wholesale as would be making a loss. I was worried about selling my products at a higher price as didn’t think people would want to pay that. I am confused at what cost to include to pay myself for labor. I also am worried about increasing my prices seeing as though customers have already been buying at the current price. However, if I don’t increase it by at least $5 per product then it’s not worth doing. Please help!!!!

Sylvie
3 years ago

I am wondering if there is a certain labor cost % it is wise to stay under. For example, the cost for me to rent a commercial kitchen and pay an assistant is about 17% (at the very lowest) of the wholesale price I am selling the product. Does this sound about right?

Thanks and any suggestions or links to where i can get more information on this would be useful. There’s tons of info about kitchen/labor costs for restaurants but not much for herbal products.

Andrew
3 years ago

I am a student working on a research project about personal care products in the United States. I am researching to discover the different margins based on the type of retailer (online outlets vs drug stores vs mass merchandisers…etc). Can anybody point me in the right direction of where and how to find this information? Ultimately, my goal is to make a decision of which retail outlets to sell personal care products and the margins of each outlet are important to the project. Any info/help would be appreciated and really beneficial in helping me complete my project. Thanks!

3 years ago

would it be a smart decision to offer one spa a very low cost, and let them sell the products to see what consumers will buy our products for if we do not know ?

2 years ago

Oh, the ongoing price point research/questions… I have begun an herbal company and pricing has been tricky. My product is quality, effective, organic (though not certified organic)and beautiful and I value it significantly! Because I use glass jars so they are recyclable and high quality certified organic herbs my costs are high so pricing has been difficult, especially figuring out how to wholesale things! My herbal tea’s cost $4 to make and I have been retailing them for $15 but feel like I need to wholesale for at least 10 and yet idk if the wholesaler can sell for that… help! oh and also I sell consignment not far away so how do I do both and make everyone happy while still making $?

2 years ago
Reply to  Cara

Hi Cara —. You’ve hit the nail on the head re: how complicated pricing is. You want to figure in your labor cost to the price of you herbal tea – not sure if that makes it more than $4 for you to make or not.

I always recommend trying to come up with a blended margin. You’ll sell some direct to consumer through a website or festival booth. You’ll sell some through retails where you’ll sell for a wholesale amount (typically 40-60% of your retail cost) and then blend your margins to get a better return on your investment.

If you sell on consignment, you should take a higher % of the sale.

Set your retail price and then base your discounts off that. YOur resellers wil sell for whatever they can and that’s out of your control. All you can do is suggest a retail price.

Try to promote the value of the product — glass jars to help the environment, glass that can be recycled or reused, and the true value of organic tea. If you can even get one more dollar, that is a huge margin increase.

I recommend talking to your reseller partners about what they can sell for and what price point them need and then setting prices accordingly. Not an easy problem to solve.

Ally
2 years ago

Thank you for this fantastic article! I’m having a hard time figuring cost when I have an ingredient that was purchased by volume, but we formulate everything by weight. Do you have any tips or suggestions? Thank you!

2 years ago
Reply to  Ally

Hi Ally,

It’s a conundrum, isn’t it?

I think the easiest way to get the price per NET ounce (or pound) is to pour off what you received by volume and weigh it on your scale. For instance, you’ve bought a 5-gallon pail of Organic Jojoba Oil. If you poured out a gallon of it and weighed that, you might, (this is an example) get 7 pounds per gallon. So a 5-gallon pail of oil holds 35 pounds. Then you can divide the cost and get a price per pound (or price per net ounce). Then you can figure out the cost in your formula by multiplying the price per pound by what your formula calls for. I hope that helps.

2 years ago

Sabor da farma na qual você se posiciona. Parabéns pela forma fácil e também clara que você
usa a termo certa.

2 years ago

Great article. Pricing has always been challenging for me as I feel I under-price my products. People have actually paid me more than what I price my items for. Here’s a scenario and I would like your help with the Retail Price. I have a great product (everyone says that:) that I would like to list, but I would like to make sure that I have covered everything.
I made 828 grams or 28 fl.oz of a liquid product. I was able to get 7 – 4oz bottles. When I did my cost, it worked out to $15.26. Already high. If I take into consideration to times that by 5, we are looking at 76.30, way too high. My question is, how much would be the retail price for an item like this?
Thank you so very much. Hope I get a response. Karen

Admin
Reply to  Karen

Hi Karen, you raise some great and fundamental issues with pricing products. The first step (in my mind) is to seriously analyze what you/your business need in terms of profit margin for this product. We certainly don’t times every cost by 5 because of course the market cannot always handle that, and some products are far less profitable for us than others. If you require that 5x pricing than I would look to ways to cut costs in other realms, specifically your packaging. Can you substitute out any other bottles for a similar look? And finally, it really depends on the product and your brand. If you are talking $76.30 for a serum, that is a great deal. If it’s shampoo, obviously less so. It sounds like many great ingredients are in this product, so if you can’t alter any other part of the supply chain I would focus on accurately marketing the product and focusing on education about what makes its ingredients worth paying more for. Alternatively, can you find substitute ingredients? Pricing is rarely cut and dried (unfortunately), so I hope you can find wiggle room in the right places to get the balance you need.

1 year ago

Very helpful article! What’s the benchmark of a good profit margin? My product has a cost of $11 (includes raw ingredients, packaging and shipping) and it I were to price at $26.90, it would be profit margin of 59%. Is that correct? Would that be a good profit margin? The standard pricing for the mid-tier brands are in between $20 – $30.

Secondly, how do you calculate your labor cost and what the calculation based on?

Would really appreciate your reply as I’m launching my products soon.

Thank you and hear from you soon 🙂

Admin
1 year ago
Reply to  Amanda

Hi Amanda,

Congrats on your upcoming launch! That is really exciting 🙂
Hopefully I can help address some of your questions.

Profit Margin (often abbreviated to “margin”) is the difference between how much revenue you capture and how much you spend to capture it, expressed in percentage terms. Here’s the formula for Profit Margin:

((Revenue – Cost) / Revenue) * 100 = % Profit Margin

So yes, with a revenue of $29.60 and a cost of $11 your profit margin would be 51%.

Many big names in the beauty industry achieve gross margins of 60 to 80%.

The cost of labor is the sum of all wages paid to employees, as well as the cost of employee benefits and payroll taxes paid by an employer. Does that help answer your question about labor cost?

Best of luck on your launch!
-Brandon

Iboro Inyang
1 year ago

Hello Laura, thank you so much for this article. It is brilliant. I have been trying to help my fiance price her natural hair care and skin care products and its been a bit tricky, but I find your approach to pricing very brilliant. Thank you so much.

4 months ago

Hi I am the owner of a natural personal care line “Healing Nature” by BE Raw. My advice on pricing is base your price on how much the product is worth versus trying to give your customer the best deal. When you try to appease the customer in that way, it will ultimately devalue your brand.

Admin
3 months ago
Reply to  Tania H.

Thanks for the feedback, Tania!

Samir Shalaby
4 months ago

I am looking for the list of the ingredients that go in making [Angel for men] also, (Aramis 900)
Thank you,
Samir Shalaby

Admin
3 months ago
Reply to  Samir Shalaby

That sounds like a fun project!

Unfortunately we don’t have any aromatherapists that specialize in perfumes.

Be sure to check out our selection of essential oils and fragrance oils >> https://essentialwholesale.com/shop-ingredients/shop-by-type/essential-fragrance-oils

Let us know if you have any questions about skin care or hair care products!

Warmest regards,
-Brandon

Alina Ortega
3 months ago

Hi! love to see how much experience you have, i like to see if you can help me ? can you tell were to get certify for Cosmetic Formulator.

Admin
3 months ago
Reply to  Alina Ortega

Hi Alina!

A great place to start would be with our friends over at Formula Botanica. Just search their name on Google and you’ll find them 🙂

They offer really great courses and certifications to help you learn cosmetic formulation.

Good luck!

-Brandon