How To Price Private Label Cosmetics

2 Dec

Pricing Your Product

When you are in the early stages of planning your own private label cosmetics line, a lot of things can feel overwhelming. One thing we see a lot of people struggle with is how to price their items. As our CEO recently told me, “Pricing strategies can make or break brands.”

But don’t panic. In this blog, I will give you all the information you need to develop a successful pricing plan that will work for you. Even better – I will put it in laymen’s terms. I promise you: if I can figure it out, you can too.

*note to audience: I’m not a businessperson. I’m just a writer.

Genie Supply wants to see your private label cosmetics brand thrive, so please contact us if you need any additional help.

FIRST RULE OF THUMB: MRSP = X*COGS

Generally speaking, you will want to price your items at 8 times what they cost you. For instance: if you spend $2.00 per unit, then you will want to set your MSRP (manufacturer’s suggested retail price) at $16.00.

This is not a fast and steady rule, but it is a helpful tool for a healthy profit margin. This will give your private label cosmetic line room to grow, which I’ll explain in detail later.

You could, at a bare minimum, set your MSRP at 4 times your cost of goods. If your cost per unit was $2.00 in this case, then your MSRP would be set at $8.00. If you plan to always sell your cosmetics directly to your customers, then you can still make a profit this way.

However, you must be sure that you only ever plan to sell direct, because setting an MSRP at 4 times your cost of goods will leave you no wiggle room to work with distributors later.

For that reason – before you do anything else – it is a good idea to think about your future goals and what you want for your private label cosmetics line in the long-term.

“CAN’T I JUST SET IT AT 4 TIMES NOW AND RAISE IT TO 8 TIMES LATER?”

No. And here’s why:

Along the way, you will likely gain many repeat customers. In fact, one of the keys to success is keeping those repeat customers happy. Not only do you want their loyalty, but you also want them to spread the word about your private label cosmetic line.

Put yourself in their shoes. Would you be happy if your favorite lipgloss went from costing $15 to $30? Of course not. So, why would you expect that to be okay with your customers?

It’s much better to sell it at a higher price to start off with and then lower the price later.

THINK ABOUT FUTURE REORDERS

When you buy from a wholesale cosmetics company like Genie Supply, you will likely start small and grow slowly, which is why planning ahead is so crucial. When you set an MSRP for an item – whether you are setting it at 8 times your cost of goods or 4 times – it needs to be based on what your price per item will be at your endpoint, not your starting point.

I repeat: your MSRP needs to be based on your future cost of goods, not on what they will be when you first start out.

Why? Because you’re not currently operating at scale. Your price per unit will go down as your reorders go up. For instance, if you ordered our lipgloss line at the MOQ (500 pcs) your price per unit would be approximately $4/pc.

You would only get 500 pieces, but it would get you off the ground and running and would only cost you around $2000. But, as your brand grows and you are able to reorder in greater quantities, your cost per unit will drop and allow your profits to expand.

In other words, if growing your private label cosmetic brand is a goal you want to set – if you want to eventually get your product into a larger marketplace – then you should not base your MSRP on the $4 per unit price you might pay Genie Supply for your first 500 pieces of lipgloss.

Instead, you should try to determine what your price per unit will be down the road, wherever that may be. What will your reorder look like once you meet your long-term goal? Will you be reordering 2000 pieces or 20,000? This will affect your endpoint pricing strategy, because the more you order, the less you will pay per unit.

That’s a lot to pay for a start-up lipgloss. It makes more sense to imagine your future cost of goods – perhaps $2 per unit, for instance – and set your MSRP at $16.

It might feel like a pinch at first. Your early profits will be considerably less than your future profits. But – we promise you – if you stick to a reasonable plan, the wait will be worth it, and your customers will thank you for it.

KNOW YOUR PATH

Selling your product directly to your customers is a great way to start out. Plus, it has the added benefit of cutting out the middleman.

However, there are other goals you can set for yourself and selling direct-to-customer is only one option. In fact, it may be more of a starting point than ending point. Before you even decide on an MSRP for your items, you need to have a good idea of what you want that endpoint to look like.

Ask yourself if you plan on working with any of the following:

E-tailers: Online retailers will usually want to buy your products at 50% of the MSRP. If you have set your MSRP at 8 times your cost of goods, this should leave you with a satisfactory profit. If you have set your MSRP at 4 times your cost of goods, the profit may feel less satisfactory.
But, even at 4 times the cost of goods, you will still make a profit. This is why you should not set your MSRP below 4 times the cost of goods.
Double-down distributors: These companies will help get your private label cosmetics onto the shelves of stores and retailers, but they will only buy from you at 25% of your MSRP. In other words, while you might still make a profit if your items are priced at 8 times your cost of goods, you will not make one at all if you have priced them at 4 times your cost of goods.
Brick + Mortal Stores: Stores with physical locations like Wal-Mart, Macys or Nordstroms will buy your private label cosmetics at around 40-60% of your MSRP. This can be a great goal to set for yourself, but it can also take time to attain. That’s why coming up with a long-term plan is key when determining your MSRP.
In order to grow your brand, you need to prepare some leeway. It will give you the opportunity to work with distributors and retailers.
Discount Brick + Mortar: Discount department stores like TJMaxx and Marshall’s want to give consumers a decent discount - up to 50% off. This means they’ll only be offering you about 25-40% of MSRP. The opportunity may come faster than you imagined, but can your brand sustain these types of deals?
Maybe you can take a hit on the first order in hopes of the second. This is great, but understand that it’s also a risk. They may come back with a bigger PO.. or not.
Deep Discount E-tailers: Some of the most attractive market opportunities are the toughest to do when you’re just starting out. The Ipsy’s and FabFitFun’s of the world reach out the small brands frequently (their main job function is, after all, new product discovery) and get your product in a LOT of hands VERY quickly.. but it comes at a steep price.
These retailers want to offer consumers a great deal and still make a buck. Where does this leave you? It leaves you with 12-20% MSRP in hand for your goods. That’s 1/5 - 1/8th of the MSRP (see where the x8 comes from?). Unless you have great margins, these opportunities will be unattainable - or attainable at a real cost to your brand.

Want to stay small? That’s okay too. And, if that’s really your endpoint, then the 4 times cost of goods model might be the best choice for you. This will still allow you to sell “at scale” while also making a small profit. Just remember that it will limit you to selling direct – you will not have the wiggle room needed to expand your business.

Even if you do want to stay small, there are still just a couple more things to consider.

DON’T FORGET OTHER COSTS IN YOUR BUDGET

What kind of marketing do you plan on doing for your private label cosmetic brand, and how much will that cost? How much will you spend on website building, if any? Will you be buying the packaging for your products separately or included with your wholesaler?

Everything adds up, and it will all affect the decision you make about your MSRP. If you won’t make at least a small profit after you add all this up, then you need to re-evaluate your pricing plan or your costs.

LET GENIE SUPPLY GET YOU STARTED

Our lipgloss starter pack is great, and you can read more about it and our other lipgloss packs here. But it is only one way to get started with Genie Supply. From cosmetics to skin care – from products with CBD to products without it – we have an awesome selection of wholesale cosmetics and skin care products to choose from.

And we would be honored to help you at each step of your private label journey.

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