When deciding how much to markup your products, it’s important to factor in all costs associated with manufacture, including the cost of the raw ingredients, formulation, filling and packaging, and any labor and shipping costs. Working with a contract cosmetics manufacturer can be a good way to get an idea for these costs prior to investment.
Keystone Markup
Many businesses in many industries have what’s known as a ‘keystone’ markup approach, which is simply two times the cost of the product, or a 50% markup. For example, if a product costs $5 to create, you’d sell this direct to customers for $10. However, this is not set in stone. Premium and luxury cosmetics may be marked up by up to ten times the factory cost. In fact, ABC’s Shark Tank even featured the story of skincare brand Fur, whose body oil costs $5.34 to manufacture and sells for $46; that’s more than a 700% markup in total.
Wholesale
Wholesale pricing is typically 50% of retail cost, so for products with a 50% keystone markup, wholesalers may acquire products at cost. For brands with a higher markup, retailers can still acquire products for significantly less than end consumers. Retail markup for cosmetics is usually greater than brand markup - around five or six times the cost of manufacture - to ensure that both the retailer and the brand makes a profit.
A New Beauty Future?
Product markups have been the norm for a long time. However, one of the most interesting trends in the beauty industry is transparent, no markup pricing. A number of brands have started to introduce this, selling makeup at cost. These brands make a profit through creating a paid, members-only sales platform driven by subscriptions.