How To Price A Beauty Product
There is nothing more basic and more complex than pricing products. Prices can be the difference between profit and loss, and communicate to consumers a brand’s positioning in the crowded beauty marketplace. Stumble on either the financial or psychological aspects of pricing and your business is likely to stumble as well. Beauty Independent picked the brains of beauty industry experts on the fundamentals of product pricing and honed in on seven key considerations that shouldn’t be skipped in order to effectively price a beauty product.
- Pick your retail lane and price accordingly
- Although beauty customers shop across the retail spectrum from big-box stores to upscale boutiques, beauty brands typically aim for a specific retail segment and price products to fit that segment. A product priced for department stores such as Nordstrom or Neiman Marcus isn’t going to make sense at Walmart. “People need to understand their demographic and where they really want to be when they price out their product,” recommends Ashley Prange, founder of Au Naturale Cosmetics.
- Comparison shop
- Once a retail target is selected, Lisa Adams, a brand retail strategist at The Beauty Matchmakers, suggests brands conduct a price comparison analysis by picking three brands similar to them and closely scrutinizing those brands’ prices. For instance, a natural makeup brand with an eye on Sephora could examine how much natural makeup brands currently carried by Sephora like Antonym, RMS Beauty and Ilia charge to gauge feasible product prices.
- Do the math
- A basic rule of thumb many beauty insiders use to determine a product price is double the cost of goods for the wholesale price and quadruple it for the retail price. If it costs $5 to make a lipstick, that lipstick would be priced at $10 wholesale and $20 retail. Figuring out costs is the tricky part. There’s the building blocks of the product - componentry and formula – and then there’s everything else that might drain funds. “All your costs have to go into that one product: any marketing, PR, staff, shipping [or] issues that pop up. There are always unexpected things. It gets costly,” warns Juline Hamilton, business and product development manager at New Look Cosmetics. To be on the safe side, Doreen Bloch, founder of Poshly, asserts, “A brand will have more confidence if they do the comparable approach and back it up with a cost-based approach as well.”
- Beware of being in between
- The term masstige, generally referring to premium products marketed toward mass retail customers, has taken hold in the beauty industry. Despite interest in masstige and some products pushing the price ceiling at the upper end of the mass segment, a true mid-tier price range between mass and prestige hasn’t been well developed. “If you are trying to play in the middle space, you are stuck out there and floundering. You will be too high for mass and the prestige buyer will say no,” says Adams. To be specific, selling a nail polish at $10 to $13 could be problematic when mass market retailers typically charge $3 to $7 for polishes, and polishes at department stores and specialty retailers primarily span $15 to $27.
- Assess costs and margins
- A brand’s cost of goods at the beginning when they are making small production runs are greater than once they manage to increase production. Price products with the knowledge that the cost of goods and, therefore, margins could shift. “In the beginning, the margins that you give yourself may be 40 to 50%, but your goal is to get that to 50 to 60%,” says Beatrice Feliu Espada, founder of feminine care brand The Honey Pot Company. Of course, prices have to take into account the margins retailers will take, too. “Retailers take anywhere from a 40% to 67% margin. It used to be that 40% was the standard, but retailers are now at 60%, 65%, 67%,” reveals Murphy Bishop II, founder of Bleu Brand Development. “The days of the fair split are largely over.”
- Remember the middlemen
- The beauty business sometimes seems like an onion with many layers between the product and shoppers. Layers that tend to get ignored in pricing are retail brokers and distributors. “At the beginning, a lot of young brands sell directly to stores, and they might only know the five stores within 10 miles of their home. Once they open those five doors, they don’t know what to do, so they reach out to distributors like us, but they don’t understand that they have to pay us,” laments Kim-Van Dang, co-principal at luxury fragrance distributor KVD NYC Inc. If a brand’s goal is to get into major retailers, they’ll almost certainly have to tap middlemen to assist with those retailers, and it’s worthwhile to price in their cut. In the beauty industry, retail brokers often insist on 5% to 6% of retail sales and distributors reel in as much as 25%. Breaking down a distributor’s fee, Julie Clark, founder of Province Apothecary, says a distributor might charge $4 on an item the brand wholesales for $8 and retails for $16. “It was totally crazy for us,” she exclaims. “We did not price out products to work for this cut.”
- Think about rounding up
- “If I were to give advice to a new brand, I’d say trend high on the price,” offers Prange. Her rationale is that costs unpredictably can climb. The costs of raw ingredients can be especially unstable and fluctuations are difficult to foresee when establishing prices. Jessica Morelli, founder of Palermo Body, raised her skin and body care brand’s prices – she bumped up body scrubs by about 10%, for instance – due to unforeseen escalations in ingredient and labor costs. “If you are being run into the ground and your business isn’t making money, then your product isn’t priced appropriately,” she says. There are product strategies that can help beauty brands seeking to lift prices. Bloch notes limited-edition items and bundled products command loftier price tags. “Instead of selling a highlighter separate from a bronzer, maybe you put them together,” she says. “You can price the product higher because there is a perception difference, but there isn’t necessarily a cost difference.”