- Shahara Lum
The Real Costs of Starting vs Running a Skincare Brand
Starting a beauty or skincare brand can be exciting, with endless possibilities and desirable goals such as gaining popularity, striving to become the best, and achieving profitability. However, it is important to consider some of the challenges that may arise. Recently, there have been many closures of beauty and skincare brands, which paints a more challenging picture of what it takes to successfully thrive in this industry.
One of the most significant challenges is the initial investment of operational costs. It is crucial for anyone considering launching their brand to fully understand the financial commitment needed to make it a success. From sourcing ingredients and packaging to marketing and advertising, there are numerous expenses to consider.
Some people may tell you that you can start with a minimal investment of $100 or less, while others might suggest that you need a considerable amount of capital, such as $50,000 or even $1 million, to get started. [1]
The cost of starting a beauty or skincare brand
Developing a unique product line is a complicated process. The cost of creating such a product can range from tens of thousands to hundreds of thousands of dollars.
Starting a beauty or skincare brand requires the following:
Starting a business requires legal fees, licenses, and insurance, which can total $500 to $3,000. In addition, meeting regulatory standards for cosmetics can involve fees that range from $300 to several thousand dollars, depending on the market and region.
Looking at product development costs — building a brand identity includes the design of a logo, packaging, and promotional materials. Initial marketing efforts can also consume a substantial portion of the budget, especially if involving influencers or high-profile advertising campaigns. Startups might spend anywhere from $50,000 to over $100,000 in these initial stages.
One of the most significant challenges for small skincare brands is the upfront cost associated with initial production runs. These costs are often substantial as they typically require a minimum quantity to be produced, ranging from a few thousand to tens of thousands of units. Furthermore, it depends on the product type and manufacturing arrangements. As a result, a small skincare brand might have to invest anywhere from $30,000 to $150,000, which can be a significant financial burden for startups. [1]
In terms of long-term investments, the brand should invest in Research and Development (R&D), Market Expansion, and Technology Upgrades. This will continuously improve and expand their product lines, and brands can stay ahead of the curve and meet changing market trends and consumer preferences.
However, reinvesting in R&D can be expensive and time-consuming. Expanding into new markets is another way businesses can grow, but it requires additional marketing investment and regulatory compliance costs.
Investing in technology is also an effective way for businesses to improve e-commerce platforms, customer service, and operational efficiency. As businesses scale up, operational challenges can arise, making it difficult to deliver products or services effectively — using platforms — the monthly fees for e-commerce platforms like Shopify or BigCommerce range from $29 to $299 per month. Furthermore, initial website setup can cost $2,000 to $10,000, with ongoing maintenance and updates adding up.
The cost of running a beauty or skincare brand
Once the brand is launched, the financial demands do not decrease; maintaining and growing a beauty or skincare brand brings its own set of challenges and costs:
One of the primary keys to growing a beauty or skincare brand is to give a significant portion of the revenue back into marketing — meaning a brand should invest around 20–40% of its revenue into promotional activities to help boost its growth. For a growing beauty brand, this could mean spending up to $100,000 annually. [1]
Another expense to consider is day-to-day expenses such as utilities, staff salaries, and office supplies also need to be accounted for. These can vary depending on the size and scope of your business operations.
However, marketing is not the only expense that beauty brands need to consider. Efficient inventory management is also critical to avoid overproduction or stockouts. Ongoing production costs, warehousing, and logistics can take up a sizable portion of the budget, especially with fluctuating material costs and global supply chain issues.
For shipping logistics, it involves the entire process of storing, packing, and delivering products to customers. Logistic Fulfillment can be handled in-house, where the company bears all the staffing and warehouse costs or outsourced to third-party logistics providers. In the latter case, the logistics provider charges a fee per item shipped, along with handling fees.
It is worth noting that the cost of shipping logistics can vary widely, depending on the size and weight of the products shipped. The destination and the shipping method selected. Shipping logistics costs usually make up about 10–15% of the product’s retail price.
For ongoing operational costs setting up an online store often involves fees for e-commerce platforms like Shopify, which can start from $29 to $299 per month. Additional sales channels, such as Amazon or physical retail distribution, also come with their own set of fees and commissions.
Learning from recent closures
Recent closures of several well-known beauty brands underline the importance of this balance. Many of these companies expanded quickly, experiencing high operational and marketing costs that did not match their growth rate. This misalignment with intense competition and market saturation can lead to financial instability and closure.
Beauty companies should prioritize sustainable growth strategies that align with their financial capabilities. This means investing in areas with the potential for high returns and focusing on building long-term customer relationships. It also involves carefully managing expenses and avoiding over-investment in areas that may not yield the desired ROI.
In addition, companies need to stay competitive in an ever-evolving market by constantly innovating and adapting to changing consumer needs. This requires a deep understanding of customer preferences and a willingness to take risks and experiment with new products and marketing strategies.
Advice for beauty founders
As an entrepreneur, you should start small by launching a few products — this will gradually help you manage expenses and build a solid foundation for growth. You should also focus on differentiation by offering a unique value proposition that sets your brand apart from competitors.
Moreover, it is crucial to assess and optimize your marketing and operational strategies. As the market evolves, you must adapt and improve to stay ahead of the competition. This includes evaluating customer feedback, staying up to date with industry trends, and exploring innovative marketing channels.
Works cited
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