Mar 25, 2019
How to Determine Your Pricing for Skin Care
When pricing your skin care products, keep in mind that skin care private label differs greatly from other private labeling. Driving down the price of your products in order to sell more will negatively affect the perceived value of your brand. Beating your competitors on price does not mean you will sell more products. Instead, you are pricing yourself to fall in a market niche that might not correlate with your brand value. In the skin care market, a mid-range product will leave you with a confused audience. Is it a luxury product or a cheaper alternative you might get from a drug or retail store? With skin care private labeling your price point is an indication of the market you want to enter.
Your landing cost is the cost of creating your product, and all other expenses you might incur to get your product to your customer. This includes shipping from your manufacturer to your warehouse, as well as shipping to your customer if you offer free shipping. If there are any fees associated with selling on a particular platform, or distribution costs when selling in a retail store, you need to include this in your landing cost calculations.
The golden rule in private labeling is never to price your product under three times the manufacturing cost. That means your minimum profit margin should be 33%. However, in skin care your profit margin should be higher. The cost of raw materials fluctuates greatly, and you might get stuck with a higher landing cost than your expected. This will force you to change your pricing constantly. Not a good idea since this will affect brand loyalty from existing customers.
In order to have a healthy business that can take care of your marketing efforts, consider your numbers carefully. Most skin care products are priced at five to six times the landing cost. In the example below, that gives you a profit margin of roughly 80%. You calculate profit margin by taking your profit and dividing it by your retail price, and then multiplying it by 100 to arrive at a percentage. It will look like this:
Profit / Sale Price x 100 = Profit Margin %
If your landing cost is $10, and your sale price $50, then your profit will be $40. That means your profit margin will be 80%
$40 / $50 x 100 = 80%
Use this calculation to price your item to reach the right market. Whether that be more affordable products, or a luxury item.
Traditionally, your wholesale price will be 50% of your SRP. If your product cost you $10 to make, you will charge $50 to $60 if you use the suggested retail price calculation to arrive at a good profit margin. Say your SRP is $50, then your wholesale price should be close to $25.
In order to reach your market when your product hits the physical or virtual shelves, you will need to spend money on marketing to rank on search engines or eCommerce platforms you are using. Or in the case of retail, marketing materials to get attention from customers entering a store. You will also be doing giveaways to get your product in front of consumers. Consider sending products to influencers on social media to get the attention of your preferred audience. You will also give away a large number of products to get word of mouth going when you don’t have many customers yet.
Direct costs are all the costs you incur to create your product, including labor and shipping. This can also be called Direct Material Cost or Landing Cost. Indirect Costs will include all expenses to set up your business. They are also called Fixed Overhead Costs. This will include business insurance, website maintenance costs, electricity and renting office space to name a few.
Your direct costs can be lowered by buying your material in bulk. This will increase your profit margin significantly. However, keep in mind that many ingredients in skin care products have a shelf life. Make sure that you produce an amount that you can reasonably sell to avoid losing your inventory because it’s gone bad. In the case of skin care this can be the finished product sitting in your warehouse, or the raw ingredients used.
It is imperative that you calculate a reasonable profit margin for yourself, as your business can become a cash-eating monster if you price your product too low. Remember that you will also run promotions and discounts on your product, and that essentially costs you money. You should still make a profit even when running these promotions.