Jeffree Star And Shane Dawson Reveal Money Secrets The Beauty Industry Has Kept Under Wraps. Will Others Follow Suit?

Even in a beauty industry nodding toward transparency, talking about money is taboo. Jeffree Star has broken that taboo big time.

Leading up to the super influencer and brand founder’s collaboration with comedian and YouTuber Shane Dawson, the duo posted a docuseries featuring a conversation with Emine ErSelcuk, vice president of global retail at Morphe, disclosing Morphe would potentially purchase 350,000 to 500,000 units from their upcoming collaboration to yield $13 million to $20 million in sales. In total, the pair disclosed the expectation that the collaboration would generate $35 million in sales. They are well on their way to that amount. Fans snapped up 1 million eyeshadow palette units from Star and Dawson’s Conspiracy Collection in 30 minutes on Nov. 1. The brand is busy restocking 60,000 units of the collection’s two palettes.

The more sensitive details disclosed by Dawson and Star involve the cost of makeup goods and influencer payment. They figured eyeshadow palette COGs often ring in at $7. For the Conspiracy Palette in their collection, the COGs are higher, at $20, making the retail price 260% above the COGs. Retail prices can easily soar to 700% above COGs. On the topic of influencers, they pegged the typical influencer take on a collaboration at 20% of sales. Dawson is commanding 25% to 30%. Star estimates Dawson will rake in $5 million from the Conspiracy Collection on revenues from one palette alone.

Star and Dawson’s openness has been welcomed by consumers, but makes many in the beauty industry skittish. To understand why, Beauty Independent checked in with 13 beauty entrepreneurs, consultants and influencers to ask: What do you think of these money matters being shared, and would you share them?

Austin Katz Founder and CEO, Shea Brand

Sales figures are good to disclose if you’re growing. Otherwise, they might not serve your narrative. Revealing profit margins on products could work for or against you, depending on your audience’s perception of your margins and your brand ethos. For instance, given wider margins, some customers think you are being greedy. On the other hand, perhaps, they don't care so much about margins or transparency, which is something larger companies rely upon for success to a fairly large degree. I've seen brands have success with providing some context and reasoning behind their margins by showing how much goes to sales, raw goods, manufacturing, etc. It’s something people can respect and probably respond positively to, especially if it seems justifiable to them.

Smaller businesses have claimed moral high ground when it comes to natural, sustainable and earth-friendly practices. In many ways, we are under more scrutiny to provide transparency than larger businesses. At the same time, small brands stand to gain a lot of trust with their user base.

I think [being transparent] does two things. First, it provides a window into how the sausage is made, which allows customers to better understand the inner workings of a business. It also possibly nudges the consumer toward doing more research to better understand things like the difference between a good and a bad product, and what to expect of cost given profit margins. Over time, this could have a measurable effect on people’s expectations of products and probably drive product quality towards higher standards and fairer pricing. Second, it will likely affect their opinion of the company depending on how they evaluate the practices.

Anita Archeou Beauty Influencer, The Wrinkle Phobic

Transparency, within limits, can help a brand gain trust from consumers. It can prove a brand’s ethical stance, may attract more customers and investors as a result, and help the business grow. Too much transparency, such as disclosing amounts paid to influencers for advertising, will not be beneficial for the brand in that influencers may demand the same payment is made all around. It may damage influencers too. Imagine this scenario: If all influencers demand the same payment from brands, the brands may decide they can only afford one mega influencer rather than 20 of various influencers. This might reduce the amount of collaborations brands are able to offer. Negotiation and fees should be kept private.

From a customer’s perspective, this information shouldn’t make a difference to their decision whether to buy from the brand or not. They can see from the financial statements what a brand has paid annually toward advertising, if the brand makes this information available. The influencer is always required to disclose if it’s a paid partnership. If the customer believes an opinion to be influenced––and hence, dishonest––when a monetary exchange occurs, it won't matter if the payment was 5 or 500 pounds.

I think there should be transparency with regards to financial statements, but not for individual collaborations. Each influencer has their strengths and a price they find acceptable. It’s not necessary to disclose how much each collaboration costs, and I don’t think this will help the brands or the influencers in the long run. [It’s] totally fine as a total annual expense to show a brand’s total advertising budget. I also think it’s good to make commission percentages public as these can be fixed and encourage promotion.

Phoebe Song Founder and CEO, Snowfox Skin Care

Transparency is always good when you have nothing to hide. Of course, certain things like personal information, company accounting figures, etc., should not be released. However, things like environmental policies, company mission statements and philosophies should be shared. Those are all important elements of the overall brand values and company culture. Being transparent definitely builds up consumer trust as well as further positions the brand as successful to investors. Unfortunately, there is no real way of checking whether a company is truly transparent as it is a generalized term. This is why I think it's good to start by sharing policies, missions and other elements of the company's claimed culture.

Disclosing profits and sales should be entirely voluntary, as it can have some negative consequences. When we first reported sales of over $1 million, our company was immediately targeted by hackers. They actually managed to get into one of our vendor's databases. They locked up important files and demanded bitcoins to release them. We've also had hackers send fake invoices from real vendor emails. They got into their email servers. This is particularly dangerous as many companies pay invoices without double-verifying in person or over the phone that the receiving account number is correct. We've noticed that, even when your company is targeted and manages to avoid any damage, it's common for the hackers then to aim at your vendors in hopes of finding one that has weaker security systems.

It's so important for customers to know where and who their money is supporting. If you want to change the world, start by voting with your dollars. At the end of the day, businesses are dependent on their customers and will always listen to them if enough of them are requesting the same thing. When a business offers transparency, customers get a clearer overview of who they are supporting, and I think that is great. You can't claim to be an ethical brand and have unethical company practices. So, in this way, customers can take on a more active role in ensuring the authenticity of brand or company's claims. Especially as a person of color myself, I've seen and been subjected to racism and awful behavior in the industry by those who claim to specialize in the opposite. Those experiences left me much more in favor of the public knowing what sort of people they are supporting with their spend.

Annie Tevelin Founder, SkinOwl

I believe money shouldn't be discussed in most or all relationships. I don't talk about my salary to my friends. Therefore, I wouldn't talk about profit and sales to my customers. It truly isn't anyone's business in the same way our customer's salary isn't any of mine. I think by removing money and profit from the conversation, you allow your customer to have a more enjoyable experience. Otherwise, it can open up the door to misinterpretation, judgement and misplaced curiosity. Transparency builds trust in a medium that has often felt secretive and out of reach. For a retail product to disclose their innermost practices shows that they have nothing to hide, which gives the consumer purchasing confidence. The con is that you might be asked to be transparent in ways you aren't comfortable with. Not all transparency begets other transparency. It is up to the brand to create boundaries for what lives in the public eye.

Ikram Elharti Founder and CEO, Sahara Rose Skincare

Transparency is very important to gain consumers’ trust. I am for being open to information about processes, culture, values, production, ingredient sourcing, sustainability measures, things that directly concern the consumer. Disclosing confidential information such financials, formulas, vendors, sourcing, payments make it, unfortunately, easier to copy, especially in a very competitive market. So, I totally understand when a brand doesn’t disclose certain information. For a private company, I personally see it as a private information. It is like asking you to disclose your salary or income. It is a personal decision.

The benefits of being transparent for brands is building trust and a relationship with the customer. The cons mostly relate to copying best practices, trade secrets, business model, etc. From a consumer perspective, the benefit of being transparent is to allow the consumer make an informed purchase decision based on the consumers’ values and priorities. The cons might be how certain information might be interpreted, and sometimes it requires simply more investment in educating the consumer.

Ric Kostick Co-Founder and CEO, 100% Pure

Transparency with sales figures, cost of goods, profit margins, order sizes and collaboration percentages can work as a particular strategy, but it can also distract brands. However, you do have a glimpse into some of this with public companies in the beauty industry, including sales, profit margins and, sometimes, the details of large celebrity and influencer partnerships. I suspect most consumers do not actively research those financial statements, nor do they care that much about it because they still buy from brands with large gross margins and large sales volumes. The benefit of a product is more important to a customer than the costs of the product, the margins and influencer marketing spend.

A benefit of transparency for brands is if they primarily sell direct to the consumer, eliminating the resellers that cause prices to be higher, and use the lower markup to gain affinity with consumers through their value positioning. I have seen a couple of brands take this approach. However, there is more to a product than just the cost of the physical items that go into it. There is goodwill, creativity, innovation and emotion committed to that product with all those involved in its development that customers don't see. Elements that do not have a tangible value and are difficult to value on the surface level are sometimes challenging to explain.

At the end of the day, the best companies sell intangibles. For example, it could be to attain a happier, healthier life as we aim to do at 100% pure. This is what you are ultimately paying for and intangibles are the best return on your money. The cost of what the product you purchased from that company is negligible when compared to the benefit to the customer.

From another perspective, I see the benefit of transparency when it is integrated into the supply chain, and proves the authenticity of the ingredients and components of a product. This can give consumers a better feeling when using these products to know the brand truly is what they claim to be. It’s difficult to do this currently because of such complex supply chains, but progress is being made.

As for influencer payments, brands are all different sizes with different abilities to pay. Sometimes, influencers will lower their fees to work with smaller brands that are more aligned with their values. If fees become public knowledge, it may change the behavior of how influencers choose their partnerships as they might want to maximize their reported value since that will help them negotiate higher future deals.

Sharon Cutler Founder, Uoma

Things like sales figures, cost of goods, and profit margins are boring. The consumer doesn’t need that information. It’s too much. I don’t want to be an accountant when I walk into a shop. I just want to buy what I think is cool. With influencers, when there is a paid partnership, I do believe it should be disclosed. There is a trust relationship between the followers and the influencer. You used to be able to watch television and know that you were watching an advertisement. Now, it’s different. Consumers have the right to be aware of what is an advertisement and how much that person was paid to promote the product. In the influencer community, sometimes when someone has a good/profitable relationship with a brand, they will intentionally ignore a competitor’s product or give it a bad review so it doesn’t affect their paycheck. It’s tough. 

Profits and sales are disclosed through financial reports, and a lot of companies do provide that information. Private companies don’t. I think that this isn’t to hide from the consumer, but rather to hide from competitors. You don’t want your competitor to know how much you make, how you structure your business or your competitive advantage. I wouldn’t mind sending my customer an email and letting the know my profit margins, but I would mind my competitor seeing it. Consumers at the end of the day want a great product. That’s what they care about. Knowing that a company is more profitable than its competitor wouldn’t change my mind about buying a product that I like.

Quani Deb Burnett Beauty Influencer, Beauty4brownskin

In general, transparency should be an integral part of the brand. For me, personally knowing if ingredients are ethically-sourced, the type of labor involved, and ingredients chosen are what I look for in a company that is transparent. I think something such as overall sales or order sizes should be made public to show how well a business is doing. But a company is still proprietary, and some things have to remain as such in order for the company to run successfully and earn margins. Depending on how specific a brand gets, they may lose customers who may not support big companies. Conversely, a brand may gain customers based on its ability to be transparent.

Kristine Ravenscroft Founder and President, Beauty Gourmet

In a world where it is believed that a message needs to be conveyed in as few words as possible to grab a consumer's attention, it is difficult to imagine that providing consumers with all of this information would do anything more than muddy the waters. You would have to understand all of the other associated costs that come with that business like customer acquisition, chargebacks, expired inventory, etc. Cost of goods would be the most misleading figure you could give someone who does not understand the complexities of doing business in these industries. However, I do believe compensation to influencers should be disclosed or at least that there was some compensation. We need to know when the people we trust have potentially other driving motivations to promote a product besides the fact that they simply think it is a wonderful product.

 

For the most part, brands have so much to gain with transparency. Today, consumers do not want to be provided a generic product from a huge faceless conglomerate. They want to know who is driving the decisions at a company, why that company exists, and if that company is meeting the collective goals of everyone involved. For us, ingredient transparency is huge. Consumers want to know what is in their products and where those ingredients come from. By providing ingredient transparency, it also allows us to continue to make our products better based on consumer preferences. We all win.

 

Again, sales and profits are not all telling figures. If a smaller company put all of their money back into the business and they are running at a loss, would that make the product better or worse? These are moving targets. Did a company invest a certain amount of money and time to create a new ingredient? Would that investment show in sales and profits? These figures are more complicated than they appear. I believe transparency best serves us in the ingredients and processes a company uses to create their products. If you are transparent on that, the consumer can make an educated decision if a product is worth it compared to other options available on the market.

 

The benefit of being transparent would be that you could get valuable feedback to tailor your products to more specifically meet consumer needs all while gaining consumer loyalty as people tend to buy from people they trust. The disadvantage would be if the metrics used for transparency did not tell the whole story, consumers could be given an inaccurate impression of the actual cost of doing business or some other cherry-picked reference point. This could give a false impression of the business or the product.

Loraine Dowdy Founder and CEO, Coloured Raine

I think it’s up to the brand owner to make this type of call. I do think there should be a healthy medium. No one will understand your audience better than you as the brand owner. Customers love honesty. Can they handle it? [That’s] the true question. We have to think about it like this. If it’s a publicly-traded company, all of the financial information will be readily available and can be easily accessed. I think the only con would be the consumer would second guess paying in excess if they feel the retail price is too high. The consumer will also expect to be informed on every project going forward. It’s almost like your consumer is now the acting board of directors in a sense. The benefit would be the possible financial gains due to the transparency and openness. The consumer will want to spend their hard-earned dollars on your brand.

Rachel Mulcahy Founder and CEO, Ivy Wild

Consumers have become more savvy when it comes to how they use their spending power. Most consumers already understand that brands mark up product pricing in order to be more profitable. They already know that influencers are paid for their collaboration with brands. I think the real opportunities for brands to offer transparency are related to quality, cost of materials and ethical practices. Many of the clean brands we work with do not have the scale and efficiency of mainstream traditional brands, and they face higher ingredient sourcing and production costs. Additionally, some of these clean indie brands are investing more in fair trade partnerships and sustainable ingredient sourcing. In most cases, they are still pricing products within range of larger prestige brands who may not be following the same standards. For larger prestige brands, offering more transparency is a big opportunity to win consumer preference.

For clean, sustainable and ethical brands, transparency helps consumers understand what they are paying for. Many consumers are willing to pay slightly more for a product when they understand that high quality ingredients cost more but are safer and better for them. If a brand is following sourcing and production practices that are more environmentally sustainable or they are supporting fair trade/work conditions, consumers will understand that and appreciate it. Brands should help people make informed choices about where they spend their money.

Ameann Dejohn Founder and CEO, Ameann Beauty

Transparency is an interesting topic. It’s super controversial and somewhat of a trade secret. A trade secret to me is something about your business that you know or do better than someone else or another company. So, if you start comparing business just on the margins alone, it is not looking at the whole picture. You could have a company that has low margins, but never invests in company culture, etc. Whereas a similar company may also have low margins, but invests in the company and staff. It is not apples to apples here.

Formulas are trade secret, and the way businesses are operated –– not just cost of goods sold –– are proprietary. So, although information could be shared, it is what gives one brand a competitive advantage over another. Every consumer brand is similar. We all make items for less and sell them for more. That is how it works. If brands want to expose their margins, they could, but there are always ways to manipulate numbers. So, even if some brands disclose, there is no governing body to manage this. How do we even know it would be accurate?

Ben Smith Founder and CEO, BioXskincare

Industry execs worry transparency sheds a bad light by exposing margins, but, in fact, fan reviews [validated Jeffree Star’s] the hard work. Complete transparency shows that the industry is not easy to break into and requires a serious amount of diligence to make it happen. Influencer pay is a major concern for the industry. After Too Faced and NikkieTutorials’ collaboration, fans are watching, and whistleblowers are eager to release the latest facts and figures. For us, as a company, we need to make sure plans are fair and balanced with an upside for success for the influencers.

In full transparency, we tend to have lower margins to avoid gouging claims. But, by choosing to share certain data, you can be semi-transparent without adversely affecting the bottom line. For us, we choose not to disclose our sales figures, an option for most privately=held indie beauty brands. We find that disclosure can affect decisions about carrying your line. The decision to disclose comes down to how strong the numbers look and what connections will it open or shut down. 

If you have a question you’d like Beauty Independent to ask beauty entrepreneurs, please send it to [email protected].