The Case For And Against Stock Beauty Formulas

In the beauty industry, there’s been a push toward brands owning custom formulas as they seek to differentiate themselves in a crowded market and appease investors prioritizing intellectual property. Still, a substantial portion of beauty products made and sold use stock and private-label formulas.

To find out more about the persistence, upsides and downsides of stock and private-label formulas, for the latest edition of our ongoing series posing questions relevant to indie beauty, we ask 12 contract manufacturers the following questions: What’s your definition of stock or private-label products? What do they cost relative to custom products for beauty brands to manufacture? Do you think brands should move away from stock or private-label products? What are the advantages/disadvantages of custom formulas versus stock or private label? Where do you see the business of stock or private-label products going?

Megan Cox Founder, Genie Supply

Stock or private-label products are formulations that have been pre-developed and pre-tested in the lab and are ready for manufacturing. Clients are able to customize these stock formulations slightly to moderately to fit their needs as long as the stability and preservative systems are not modified so significantly that they are compromised or can no longer be justified with the original testing data. As these are pre-developed formulas and the cost and time required to develop them was undertaken by the lab, the IP belongs to the lab.

The cost for stock products is typically just the cost of manufacturing. There's very little to no additional costs associated with manufacturing these items, whereas with custom formulations, the brand must pay for the development and formulation testing required to get the formulation ready for manufacturing.

This process can take nine to 12 months and cost anywhere from $5,000 upwards, with more novel formulas and more stringent markets or retailers costing anywhere from $10,000 to $20,000. Once the formulation is developed and tested, only then is it ready for manufacturing, so you can think of custom formulations as a set cost upfront plus the cost of manufacturing,, whereas stock formulas are just the cost of manufacturing and nothing else.

When starting a brand, one must decide where they're innovating: 1). ingredients or processes, 2). formulation or 3). market segmentation. (I have a pinned TikTok on this on our Genie Supply account).

A brand can become wildly successful by innovating in any of the three categories, but market segmentation innovation is the one category that does not necessarily require production innovation, just innovation in how or to whom the formulas are marketed. So, in that case, private label works just fine.

Fenty is actually a good example of this. Some of the formulations are innovative, but the true innovation is in the shade range and flawlessly delivered to an underserved market segment. She nailed the market segment. Half of her products could be private labeled, and no one would bat an eye.

Some would say that private label is dead, but it's only dead in the traditional sense: true, mass-produced products in mass-produced packaging that brands can purchase and resell without modification. Private label must adapt to consumer trends, and this means micro to moderate modifications in every batch for every brand. For CMs, this means a lot of SKUs to keep track of and perhaps higher MOQs to accommodate to the requested customization, but it's effectively the same model, just pivoted ever so slightly.

Anthony Standifer Founding Partner and CMO, mSEED Group

Private-label product development is and will continue to be a cornerstone of entrepreneurship in the beauty space. It provides critical access to aspiring business owners who do not have the luxury of planning a seven-figure launch for their vision.

In my experience, some categories make stock and private-label product options more accessible than others. Color cosmetics and skincare categories are historically known for large stock formula offerings.

In founding mSEED Group, we found a significant gap in textured haircare and not a lot of options for private-label solutions that made it possible to launch brands in an affordable manner. That was almost 10 years ago. Since then, the number of options has expanded in the category.

When talking with new founders, I encourage them to take the stock formula and private-label options when finances are tough, and they are just starting to validate their business idea. One downfall I see are founders who obsess over product development at a micro level only to find out that they are ineffective marketers or consumers do not accept the type of offering they are bringing to market. It's better to learn that lesson in the private-label arena.

As brands scale and begin to launch waves two and three of their product offerings, it may make more sense to then move into custom product development as the ROI can be realized in less than a year on this more expensive option.

While, yes, I understand the investment community's concern around IP ownership, I believe it's equally as important to understand the starting point founders face when attempting to launch. The price for custom product development represents a significant barrier to entering the market and shuts far too many people out that do not have access to capital at the pre-seed fund level.

Bob Goehrke Co-Founder and CEO, International Products Group

Private labeling is when you take top quality, time-tested and proven formulations and package them with your customers’ branded logo and label. These products are “ready-to-go” products that do not require further development or revisions except for a change to a desired aroma/fragrance.

There is a significant savings to buying private label as they often do not contain high-priced clinicals and the manufacturers can buy the raw materials at a favorable economic order quantity. There are way too many variables to assign an exact percentage, but typically private label may be anywhere from 15% to 25% less than a custom formulation.

At IPG, which is known primarily as a custom formulation house, we advocate a good/better/best approach to creating product lines, essentially building products that fit the performance and price sensitivity needs of a particular consumer base. While we often say at IPG that “the world doesn’t need another me-too shampoo or lotion,” we firmly believe that stock/private-label brands can enjoy strong performance and represent themselves firmly in the better strata of the good/better/best continuum.

The main advantage of private label is that it allows a smaller, start-up business to create a brand with the chance to achieve long-term growth. It is especially relevant for OTC products such as sunscreen as they will have already been validated, saving the startup brand many thousands of dollars in testing fees.

While custom formulas have a longer gestation period to launch, the end result can be an innovative, award-winning product line that delivers incremental benefits and commands a higher price at more premium retailers. However, private label allows the smaller entrepreneur to cost effectively get in the game and not use up their entire budget on product, allowing them to spend more on marketing, sales and business building.

Our business at IPG is certainly focused on creating and manufacturing custom, exclusive, innovative, award-winning formulas. But as long as there are grassroots entrepreneurs, there will always be a place for lower volume, fast-to-market, excellent quality private-label products. We support all founders and entrepreneurs and their vision to launch a beauty brand!

Sarah Grobel Director of Sales and Business Development, Federal Package

Stock is a formula that a manufacturer like Federal Package owns that can be customized with flavor/fragrance to fit a brand’s need. The formulas are pre-developed, pretested and ready for production and sale. Yet, stock formulas are the property of the manufacturer and can be produced for multiple brands.

Private label requires a more custom approach. At Federal Package, our private-label services create a formula exclusively for a customer. We will create formulations exclusively for the customer. In turn, the customer has more control over what goes into a formulation. The customer oversees scent, color and other ingredients. This creates a truly unique formula.

A stock formula is preexisting, ready to go and can be manufactured at a fraction of the time and cost. You don’t have to pay for formulation, stability, validations and other development costs.

At Federal Package, we love working with brands to create unique products that challenge and innovate. We happily work with customers that are pleased with our stock formulas just as much as customers that look for something creative and innovative.

We work hard to create high-quality products with brands that we hope will become popular and grow a brand’s business. There will always be room for both in the personal care market.

Many manufacturers work diligently to create in-house stock formulas to meet the growing demand. Leveraging a manufacturer's stock products is a great way to get products into the market quickly and affordably. While stock formulas help brands get to market quickly, they may be similar to other brands already on the market that also rely on stock.

Custom formulations take time. To create a successful product, we go through a process of formulation, testing, piloting and production to make sure we are creating a safe, high-quality product, fit for retail shelves. Taking the time to create your brand’s hero product, knowing that you will have something special for consumers is a great use of time and resources.

A stock formula is great to start, but may not be unique. However, due to upcoming MoCRA requirements, stringent GMP demands and consumers' growing appetite for more natural, sustainable products, we expect brands to continue to look to stock formulas.

Private label offers brands an opportunity to create something truly unique that they own from the start. As consumers’ interest in new and innovative products grows, we expect interest in private-label production will grow as well. Yet, even as interest in private label services has certainly grown, we expect brands will continue to take advantage of stock products at an equal rate.

Matt Unger President and Chief Commercial Officer, Cosmetic Solutions

The majority of products in the industry are custom formulated, aligned with the brand’s ethos and specific interests. That said, in the current business environment, custom formulators and manufacturers that seek to be long-term partners in growth understand that their clients will require formula ownership and the IP surrounding the formulas created specifically for them.

There will continue to be a role for white-label/stock formulas when speed is key. When this is the case, we partner with our clients to commercialize a formula quickly as is or make minor changes to it to carry any special emotives the brand desires to connect with its consumers. Regardless, speed to market is what drives all of our decisions.

There is room in the dynamic and continuously expanding beauty and personal care market for both approaches. The difference between a white-label/stock solution and a custom formula is not really the cost as either approach can address high, medium or lower end design needs. The difference is speed to market. A white-label solution can get to market in less than half the time of a custom formula, especially if it is an OTC and you can shorten stability, compatibility and validation timelines.

Noel Dutcher Business Development Director, Craft Beauty Lab

This is a question I get asked about on a regular basis. Often, brands or their brand developers are encouraged to own their formulas. I think it is a good sign that brands regularly think about protecting their intellectual property, but it's just as important to understand what that looks like.

When a brand is seeking out services for their products or ideas, it's always best practice to have an NDA in place between the brand and whomever they select to be involved. The brands should choose to work with those that they trust and feel is most closely aligned with their ethos.

More than likely, this brand also has an NDA or confidentiality agreement in place with its employees and other third parties involved. This is, in my opinion, the best way to safeguard the formula as a trade secret when it is developed specifically for the brand.

Formula ownership presents two perspectives: exclusive rights and full access. Exclusive rights enable a brand to potentially patent the formula for additional safeguarding and replication. However, the upfront costs for this exclusivity can be steep.

On the other hand, full access allows the brand to replicate the formula, although the developer retains ownership. The associated fees or commitments are often less than the exclusive rights option, providing a more cost-effective alternative depending on the developer's terms.

The hardest part to swallow about formula ownership is that, even having those protective measures in place, anyone could pick up a brand's product off a shelf and have it reverse engineered. Is that ethical or acceptable in this industry? Absolutely not! Does it happen? Yes!

You hear all the time about brands navigating lawsuits because they learn that their products and formulas are being "stolen" or duped regardless of patents. In the end, is it worth it to spend the money to own exclusive rights or access to your formula? This answer will differ from brand to brand depending on their situation.

As for stock and private label formulas, I'd say there is a healthy mix of custom versus stock versus private label in the beauty industry. Stock products are pre-made, "off-the-shelf" that offer no customization.

Private label is similar, but it is a product made by one company and then purchased and sold by another brand or retailer. There is a bit of a customization option here though to reflect the branding and identity and can also be a good target market option.

Typically, you hear numerous people say it is cheaper to purchase stock or private label instead of having a custom product made. This definitely can be true, but it depends on the type, size and quantity of the products.

On the flip side, sometimes the complete opposite is true, and I have been given some mind-blowing examples of this! There are many pros and cons to each of the three options, but those boil down to the amount of customization the brand wants, how it aligns with their brand identity and their desired speed of entry to market.

There is not necessarily one that is better than the other. Talking to a formulator or manufacturer can really help brands narrow it down.

I think, with the diversity of beauty products available to us, we will just continue to see increases in all three of those categories. Each is becoming a little more innovative, competitive, expansive, targeted and accessible.

Aaron Paas CEO, Prime Matter Labs

Private label or "ready to launch" as we like to call them are products that are proven formulas that have gone through testing (stability, preservative efficacy test, etc.) and are ready for production.

The formula is generally easily customized within a set of parameters depending on the type of product and ingredients. Brands can also customize packaging and labeling, although packaging options can be limited depending on the type of product and the packaging the product was tested in. Ready to launch formulas usually cost less to bring to market because they either reduce or cut out the cost of R&D and testing needed for custom formulas.

Both ready to Launch and custom products have a role in the beauty ecosystem. While custom products are great for driving novel innovation and helping a brand deliver specific claims on the shelf, ready to launch options are a fantastic way for brands of all sizes to respond more quickly to trends and consumer needs so that they can fill gaps in their lineup and increase their average order value with high margin SKUs.

Custom formulas are essential for brand innovation and can help brands create a product that truly stands out from competitors. They are also great for brands that are looking to differentiate themselves or target a particular audience or beauty issue.

Custom formulas may also be required for brands that want to incorporate specific ingredients that are core to their brand equity. They provide more control and flexibility for a brand looking to bring their unique vision to life.

Custom formulas will take longer and cost more than a ready to launch product because they will need to be developed by R&D and may need to go through the process of approvals by the brand, require testing by the FDA and any additional claims testing before it can move to production.

For Prime Matter Labs, ready to launch will continue to thrive as a faster and lower cost option for brands, but competition and a crowded market will continue to make custom development an essential alternative. The success of the beauty industry over the past few years has also made it an appealing category for non-beauty brands to dip their toes into.

Ready to launch is also a great option for an athletic or lifestyle brand that wants to incorporate specific product offerings into its brand. Contract manufacturers like Prime Matter Labs have been exploring ways to leverage technology to provide libraries of formulas with varying levels of customization and transparency for brands of varying sizes and needs.

Matt Stearn President, Innovative Cosmetic Labs

Formula ownership is important for brands looking to make an eventual exit. Anything with an intellectual property, new technology, or a patent creates a moat.

Stock/private label is a model that has been around in the manufacturing/beauty industry for a long time. It’s readily available and usually generic. Think commodities like a lavender shower gel and a vitamin C serum. Potential customers will ask for the manufacturer’s catalog of products with pricing. Availability and low pricing drive purchase behavior.

Custom formulation means a truly unique product to the world. This is a formula designed with intention to deliver results and enhance the brand experience. Whether it is special active ingredients, a fragrance, or special processing of the batch, custom formulas are not meant to be moved from manufacturers and “shopped” around for the best price.

Custom costs more because it costs more to R&D. The raw materials are usually more premium. The process is difficult but worthwhile for truly authentic brands.

Innovative Cosmetic Labs does not provide any stock formulas. We only do custom formulations because I believe that is where the industry is heading. Starbucks figured out how to customize coffee not only on a grand scale, but also individual customer preferences. How can the beauty industry replicate that?

ANDREA RODRIGUEZ Account Specialist, Indigo Private Label Cosmetics

I would say the majority of products in the industry are some version of a stock formula. It’s pretty standard for the contract manufacturer to own the formula.

Stock or private-label products are products that the manufacturer has already created already. They are readily available items that brands can put their logo on and sell them under their name. It is the easiest and least costly way to launch products.

Stock products can often be purchased with no minimums, but they generally cost more than products purchased at higher volumes. Clients pay more per unit, but pay less overall because they can purchase in small quantities.

Custom formulas have an upfront cost to create the formula and higher minimums. At Indigo, we only charge $500 to create a formula, and we agree to keep the secrecy of the formula as long as the customer continues to purchase it from Indigo. It allows brands to create their own formula at a low cost.

If a brand wants to own the formula, they can purchase it down the road when they grow and have more funds available. Indigo minimums are the lowest in the industry for custom formulas at only 50 units. When our clients grow and are ready to scale up, Indigo can produce 10,000 or 100,000 units for them. Of course, price per unit decreases substantially at higher quantities.

We think that private-label products are a fast, easy and low cost way to launch. These are great for spas and beauty boutiques where low minimums are important to make sure they can turn the product more quickly and don’t have expired products sitting on the shelf.

Nevertheless, custom formulas allow a brand to differentiate themselves in the market. The brand can have a coherent theme. At Indigo, we offer an in-between solution, which is to take our stock formulas and tweak them by swapping out ingredients so that the brand can add their own hero ingredients to them. They can also tweak color, scent, consistency, etc. There’s so much that can be done to stock formulas to make them unique.

We see private label continuing to grow and expand as it’s an easy way for small brands and stores or spas to create their own brand of products and enjoy high margins on the products. For instance, a beauty boutique or spa will purchase branded products to retail at 50% wholesale. If a product sells for $50 the establishment buys it for $25 and makes $25 profit.

However, with private label the store or spa can buy the product directly from the manufacturer for less than $10 and sell that same product for $50 giving them a $40 profit in each product they sell.

Eric Korman CEO, The Goodkind Co.

We define stock and private-label products differently. Stock formulas are formulas that are part of a formulator/manufacturer's library of existing formulas, which a brand purchases to be filled into components with their brand name on it, but without changing the formula. As such, the formula remains the IP of the formulator/manufacturer and IP ownership is not transferred to the brand.

Separately, private-label products would be products that are formulated/manufactured to be sold to consumers typically under a label captive to a specific retailer. So, for example, a retailer purchases body wash products to be sold under the private label brand they use across categories in their stores. While those private-label products may be stock formulas, they're often formulations custom/exclusive to that private label retailer brand.

Either way, the formulator/manufacturer is selling products directly to a retailer and in essence acting in part as a brand (i.e. taking on potential in-store marketing support, returns, etc). As a traditional brand has been removed as the intermediary between the manufacturer and retailer, private-label products are often sold to consumers at prices lower than comparable products, with the retailer and the manufacturer still recognizing acceptable margins.

Under my definitions, I think your question is really should brands market and distribute products made from stock or custom formulas. Presuming that's correct, my subjective response would be that brands should always look to market products that have been custom formulated for them.

The reason is simple: strong and sustainable brands are those that have meaningful points of differentiation from their competition, and so it follows that a brand's product development should be informed by those points of differentiation and in turn lead to a unique product perspective.

By definition, that unique product perspective could only be solved by custom formulation. On the contrary, if visual identity/packaging is the only difference between a brand's products and the competition because the brand relies on stock formulas similar to others, then it will be extremely challenging, if not impossible, for that brand to be successful long term.

In terms of the disadvantage of custom formulas, there really is only one: time. It will of course take longer to get a custom formulation to market than a product utilizing a stock formulation.

Most contract manufacturers offer both private-label/stock products as well as the ability to create custom formulations. Unfortunately, I can't offer any kind of broad industry representation, but I can share information about our operations.

In our business, we see the most traction with a hybrid approach: brands can get the best of both worlds. Custom formulas for a signature hero product, the ones that build that coveted brand moat, and private-label/stock options for filling out their product portfolios efficiently, especially for new brands or lines where budgets might be tighter.

We think of private-label/stock formulations as pre-built houses in a desirable neighborhood. They're solid, well-designed and offer excellent value. Alternatively, custom formulations make us think about that statement house in the most exclusive part of town with all kinds of technology and modern amenities. They're unique, recognizable, and everybody talks about them.

We consider private label/stock products essentially pre-existing formulas owned by the manufacturer.  Custom formulas are built from scratch to the brand's specific vision and needs with ownership either belonging to the brand or negotiated between the parties.

Custom formulas usually cost more upfront, but can offer better margins in the long run due to exclusivity and potential premium positioning. Private-label/stock products are more cost-effective initially, but brands have less control and face potential competition from similar products.

Private-label/stock products will always have a place for convenience and affordability, but brands increasingly crave a unique identity. We see the future in the hybrid model, where custom and private-label/stock solutions play complementary roles.

Christine Raitt Director of Sales, Elevation Labs

Most often customers collaborate with innovative contract manufacturers to create proprietary formulas. CMs have different formula ownership contracts, and it’s common for it to be difficult for customers to gain full ownership, although that’s not the case with Elevation Labs.

Stock or private-label formulas are developed by contract manufacturers, live in the company’s formula library, owned by the CM and are meant to have very little variation if the brand wants to put their own personal touch on the formula itself. These products tend to be “take as is.”

Pricing can vary greatly, really depends on product type and whether the product has been fully tested and/or if any associated claims have been clinically validated.

We believe most brands are moving away from private-label formulas to ensure they are delivering on the latest trends, how the products fits into their overall portfolio and brand ethos, and most importantly how each product will delight their target consumers.

Custom formulations deliver authenticity which is crucial in the beauty industry. We believe the stock or private-label business is decreasing due to the critical need for continuous innovation and uniqueness required by consumers. It’s difficult to win beauty awards with a private-label or stock formulation.

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