As a consumer you think when you pay $X for a product you are paying for the quality of the ingredients. This is especially true when purchasing something natural or expensive.
I thought this too. But when I got into the beauty space, I saw the truth and boy was I wrong. In reality, pricing is determined by the profit that is needed to be made at each level.
Let us talk numbers.
When you go buy any beauty product at any store, that product has to make the store at least 50% in profit margin.
PROFIT MARGIN = ((RETAIL PRICE – COST PRICE)/RETAIL PRICE) *100
What does this mean?
For example, for a $100 product, the store wants at least 50% of profit margin. This means the store buys the product for $50, but sells it for $100, making $50 profit.
Now you’re thinking this was an example of a high-end product. But as a founder of a beauty company I learned this STILL applies irrespective of the price of product. So, whether you are selling a $12.00 or $100 product, the store wants to make at least 50% profit.
Kind of scary right? But, we aren’t done yet.
So now the question becomes, who is the store buying from? They can either buy it from a 3rd party such as a distributor or directly from the brand.
Let’s start with the 1st scenario: 3rd party like a distributor.
In order for the distributor to sell the product, it needs to buy it from the brand. Again, in this process, the distributor hopes to make profit margin; usually 30%). Hence in our example of the $100 product – the distributor is buying the product at $35, and selling it to the store at $50.
Beauty brands want at least 50% or more in profit. This means that at the $35 sale price, they want to make $17.50 or more in profit.
Leaving only $17.50 available for packaging, manufacturing and ingredient costs.
Packaging and manufacturing are almost always be a big chunk of the cost. Whilst this cost varies from brand to brand, I have found it is at least 50% of the cost.
Hence, of the $17.50:
1) $8.75 is for packaging and manufacturing and
2) $8.75 for ingredients.
On average, most beauty products have on average at least 14 ingredients(168 ingredients/12 products). This means on the $100 product you are buying each ingredient is costing about $0.62, ($8.75/14).
Now let’s look at the 2nd scenario: the store buys the product from the brand.
The store is still buying the $100, from the brand at $50. Which means, the brand has more money available to spend on better ingredients. Unfortunately, this is not the case. Most companies, simply keep the extra profit.
I am sure many of you are thinking I used the example of a high-end product. And that this might be different for a lower priced like $15 or less. Unfortunately, that is not the case. Our Face Gems are $8.99 and we still have to give the stores the 50% profit.
Bottom line: PROFIT determines the amount spent on ingredients.
I didn’t learn about any of this until I launched my company. It made me sad, because we as consumers are getting taken advantage of. Of course, not all companies are like this, but I want to share how the industry works and what the standards are. I don’t believe it is right. We all deserve to have a good product irrespective of income, our $ are precious so we should get good quality.
At Feather & Bone we invest the most $ in our ingredients. We only have 3 ingredients in our Face Gems, so we make sure they are pretty damn good. We don’t invest tons in our packaging. In fact, some of our customers tell us our packaging isn’t fancy; we did this intentionally. We want you to have good ingredients.
Why believe me? Why am I sharing this?
I am a consumer just like you. So even though I am a business owner, it hasn’t changed the fact that I am still a consumer. And as a fellow consumer I want to help you.
How do you feel about your beauty product, and the amount you are spending after reading this?