You may have noticed that many pharmaceutical companies are now pushing themselves further into the cosmetics industry. There’s a very good reason for this and it is all to do with profit margins. Despite a global recession, the cosmetics industry saw continued expansion and growth. This is due to the industry’s excellent marketing and constant innovation, particularly when it comes to skincare products. There has been a new dawn when it comes to anti-aging products within the last decade. This specific product area has seen quick growth in terms of its turnover and profit margins.
Cosmetic Price Points
An important point to note is that price points for skincare products have increased hugely within the last ten years, particularly for under-eye and face products. Both popular brands and premium ones have been able to charge prices way beyond what marketers could have expected a couple of years ago. A typical anti-aging cream can now cost between $18 and $30. However, premium branded products can cost $250 or more. This has therefore meant a huge impact on margins.
If you're wondering how to cost your cosmetics, the performance of the product is only one element that needs to be taken into consideration. In trying to build a brand, you don't want to compete with a price; you'll be crushed by the bigger companies. Big companies are able to sell things at a loss and stay in business while they introduce a new product. Smaller companies cannot afford to do that, so don't start out that way. A product that costs $2 takes just as much effort to make, market, and sell as one that costs $100. If you're doing the work, price it to make it worth it. This is why beauty products can have huge profit margins.
Lowering prices later is always an option. Raising prices significantly after you’ve started is not really possible if you want to make big profits. It is no secret that bigger companies want to take up small brands. Burts Bees is one such example whereby entrepreneurs sold their company for profit.
Let's take a look at some figures. In a 2019 study of more than 13,000 retailers, the average gross profit margin was 53.33% generally in retail sales. In specific industries, it was found to be higher, with cosmetics at 58.14%. Let's take a well-known Estée Lauder as an example. It’s one of the largest beauty companies in the world and has also acquired smaller brands within it too including Clinique and Smashbox. For the financial year ending in 2017, Estée Lauder had a 79.39% gross margin, with a five-year average of 80.19%. Other companies have similar results. Avon had a margin of 81.61%, and Revlon 61.45%.
It should come as no surprise that cosmetic companies have potential high-profit margins. But it goes without saying that you need to pitch it right in the first place. Too cheap and you’ll be associated with cheap brands and products, too expensive and you might not make enough sales. Let’s face it, if someone is going to pay $2000 for a miracle face cream, they may as well opt for dermal fillers or cosmetic surgery for guaranteed results!