How To Start a Cosmetics Business

by Temiloluwa Alagbe
192 views 6 minutes read
A cosmetics business owner showing a customer her products.

Starting a cosmetics business is an exciting and rewarding journey as the business allows you to express your passion for beauty while earning you a profit. Whether you are a professional in the beauty industry or an entrepreneur with a dream, this article will provide all the information you need to have before you start a cosmetics business. Let’s begin our exhilarating journey into the cosmetics industry.

What We Covered In This Article

Overview of The Cosmetics Industry

The cosmetics industry is a large one that covers various cosmetic products and beauty services. The industry is a fast-paced one estimated to be worth over $500 billion annually. The business is majorly driven by the increasing global demand for organic products. Rising disposable incomes, the growing e-commerce sector, and the increasing popularity of men’s grooming are also contributors to the exponential growth of the beauty sector. In essence, the cosmetics industry is a thriving one with many profitable business opportunities.

Is The Cosmetics Business Profitable?

Because of the ever-increasing demand for cosmetic products, the cosmetics business is indeed a profitable one. The cosmetics business has the potential to give you a large customer base and the average profit margin of a cosmetics business ranges from 10% – 20%. Many people are conscious of their looks and hence, they pay attention to the products they apply on their skin. For this reason, the beauty market is a growing one and starting a cosmetics business can be very profitable. Factors like your business location and marketing strategies also determine how profitable the business will be for you.

Cost of Starting a Cosmetics Business

1. Legal costs

There are some licenses you need to obtain to legally operate a cosmetics business. They include:

i) Business license

A business license is a typical requirement for every business owner as it proves the credibility of your business. The application process and processing period for getting a business license depends on your business location. However, we can tell you that the processing period usually takes a couple of weeks and costs about $100.

ii)Health department permit

Because cosmetics have a direct effect on individual health, you will need a health department permit to run a cosmetics business. The application process depends on your state and the processing period ranges from 30 – 90 days.

iii) Tax ID number

A tax ID number is required for when you are ready to hire employees because it verifies employment information. Before you begin your application for a tax ID number, you need to confirm the eligibility requirements in your chosen country of operation. Once you have done this, you need to obtain the necessary documentation (typically includes a proof of identity and a proof of residency). After you have confirmed that you are eligible for a tax ID number, with the necessary documentation, you can send an application online to the Internal Revenue Service (IRS). A response is usually received immediately. The application process is generally free but you may have to spend a few dollars processing the required documents.

iv) Cosmetics manufacturing and retail licenses

If you plan to manufacture cosmetics for wholesale purposes, you need to get a cosmetics manufacturing license, and if you want to make retail sales, you will need a cosmetics retail license. To get a cosmetics manufacturing license, you need to submit an application to your state’s regulatory authority along with the necessary documentation. You need to prove that your business is in compliance with good manufacturing and safety practices and this will be done by an inspection by the concerned regulatory body. The processing period can range from weeks to months.

Please note that this is simply an outline of the basic licenses and permits you will need to start a cosmetics business. Depending on your jurisdiction, there could be other licenses or permits you may need to obtain. In essence, you can expect to spend between $1,000 – $4,000 on legalizing your business.

2. Product development costs

This includes the cost of researching and testing ingredients to create the perfect cosmetic products. Your products need to go through a series of tests and evaluations before they are released to be public. This is to ensure your products are safe for human use and you should expect to spend between $5,000 – $15,000 on research and product development.

3. Inventory costs

Whether you are selling your own cosmetics or selling other producers’ cosmetics, you will need to build an inventory. The cost of developing an inventory ranges from $20,000 – $150,000, depending on various factors.

4. Operational costs

This includes the cost of getting an office space, hiring staff, and purchasing equipment. In other words, the cost of the effective day-to-day running of your business. This could range from $10,000 – $150,000 or even more, again, depending on several factors like the location of your business, your business model, and some specific business needs.

5. Insurance costs

The amount of money spent on insurance is dependent on your insurance plan. Insurance costs may be optional, but it is not a smart business decision to run a business liable to risks. Insurance costs can range from $500 – $5,000 annually.

6. Packaging and marketing costs

Packaging and marketing costs are highly dependent on your tastes and your target market’s preferences. Because the most effective promotional strategies are dependent on your target market demographics, they are major determinants in the amount of money you would spend on marketing. Likewise, your design and packaging preferences will determine your packaging and branding costs. Packaging and marketing costs range from $10,000 – $50,000.

Best Countries to Start a Cosmetics Business

1. South Korea

South Korea has a large beauty sector that is ranked one of the top five largest global markets. The country has a high value for beauty and skincare, highly advanced technology to increase product development speed, and a strong global reputation. In addition to these, the South Korean government supports the beauty industry by providing incentives and grants for businesses in the beauty sector.

i) New Cosmetic Product Development Support

The Korean Ministry of Trade, Industry, and Energy funds this programme to aid the development of new cosmetic products. This funding is available to registered Korean cosmetics businesses with at least 3 years of business experience with the capacity to develop new cosmetic products and it covers up to 50% of the project bill.

ii) Overseas Market Expansion Support

This programme aims to help cosmetics businesses with the desire to expand to international markets. To qualify for this funding, you need to be a registered Korean business with at least 2 years of experience and a clear plan to expand to foreign markets. This funding caters for up to 50% of expansion and growth expenses.

iii) Small and Medium Enterprise (SME) Support

The SME support programme provides financial and non-financial aid to SMEs. The programme provides funding, loans, training, and consulting services to businesses that are in the SME category. This includes cosmetics businesses as well. In order to qualify for this programme your registered business needs to demonstrate financial stability and have a viable business plan.

2. France

France is a country associated with luxury, elegance, and sophistication, thus, they have a global reputation for producing high-quality skincare products. This gives the French cosmetics industry a large customer base, making it one of the best places to start a cosmetics business. There are also some grant programmes applicable to cosmetics businesses based in the country. Some of them include:

i) Bpifrance Innovation

This is a grant programme organized by a French public investment bank known as Bpifrance. This funding programme aims to help companies develop innovative cosmetic products by providing grants of up to €500,000. To qualify for this grant programme, your products must showcase a strong potential for commercialization within the next five years.

ii) Young Talents Programme

This funding programme was set up for young researchers with a high potential to contribute to the cosmetic sector in France. The programme provides funding of up to €200,000 to aid product research and development and the eligibility requirements include a demonstration of your potential to make major contributions to the French beauty industry.

In addition to these grant programmes, the French government also provides various local and regional incentives. Therefore, depending on your jurisdiction, you can also enjoy government incentives in France.

3. Japan

Japan’s cosmetics market is the third largest global market. This implies that the country has a high demand for cosmetic products. In addition to this, the country’s consumers are willing to try out new brands, creating a level playing field for new business owners. The Japanese government also put some incentives like subsidies, tax breaks, and special depreciation allowances in place in a bid to help the cosmetics industry in Japan grow.

4. Germany

The German cosmetic industry is a thriving one with diverse niche opportunities. Germany is also a leading country in cosmetic innovations and research. Furthermore, the German government also creates a friendly environment for cosmetics business owners in a bid to grow the country’s beauty sector. For these reasons, Germany is an excellent country to start a cosmetics business.

Most Profitable Cosmetic Products to Sell

Some cosmetic products perform better on the market than others. This is because they have a relatively higher demand than others. Here’s a list of some of the most in-demand cosmetic products.

1. Skincare products

Over time, skincare products have seen a significant increase in demand. This is because that more people are becoming aware of the importance of skincare and are willing to pay whatever amount is necessary to maintain healthy skin. Some popular skincare products include:

  • Moisturizers.
  • Face serums.
  • Cleansers.
  • Face and eye masks.
  • Sunscreen.

2. Perfumes and fragrances

Just as people have become conscious of their skin, they are also conscious of their scent. For this reason, many are willing to pay premium prices for long-lasting perfumes and fragrances. Therefore, selling high-quality perfumes, body sprays, roll-ons, and body mists can be a highly lucrative cosmetics business idea.

3. Makeup products

Nearly every female in the world uses makeup products from time to time. With increased knowledge, male makeup products are no longer an absurdity. Starting a make-up line with diverse make-up products suitable for all different skin tones can earn you a substantial profit.

4. Haircare products

Haircare is a large market with diverse niche opportunities. The haircare industry has also experienced a spike in demand as global preference shifts towards natural hairstyles. Because of this, it can be very profitable to sell haircare products like shampoos, conditioners, hair treatments, and hairstyling products.

How To Start a Cosmetics Business

1. Define your niche

The cosmetics sector is filled with many niche opportunities. It is advisable to pick a niche and gain your customer’s trust in that niche rather than try to do it all. You can decide to niche down on one of the most profitable cosmetic products we have listed above. Whatever your choice is, ensure you are excellent in it and that your products are highly effective with minimal or no side effects.

2. Conduct market research

Once you have selected a niche, you need the people’s opinion on that niche. You need to find out your target market’s needs, how to meet them, and the best way to reach your target market. With this information, you can decide on what products will sell best in your jurisdiction and you can work towards making those products available.

3. Conduct product research

If you plan to manufacture your cosmetics yourself, then you need to conduct product research. Product research, in this case, refers to identifying the ingredients that work best for your goal and researching recipes that will help you combine them most effectively. If you intend to resell already manufactured products, product research means identifying the best products to sell to your target market.

4. Build your brand

The next step to take after conducting product research and deciding on the best products to sell is to create a brand identity. This involves coming up with a creative brand name, a catchy logo, and an equally creative business slogan. This step is important as it distinguishes your business from the many other cosmetics brands in the world.

5. Draft a business plan

When you have made necessary findings, you should put all that on paper, along with your plans for your business by creating a business plan. If you intend to apply for funding, then you need a winning business plan; a plan that convinces the organizers that your business is worth their money.

6. Register your business

After drafting your business plan, the next step is to get your business on the right side of the law by applying for all the various licenses and permits you may need. It is advisable to begin the necessary application processes the moment you decide to start your business because some of these processes take months to complete.

7. Secure a business location

Whether you build your business location from scratch, purchase or rent an office space, or even set up your cosmetics business right in your home. Either way, you need a space to prepare, package, and even store your cosmetic products. We recommend that you strategically choose a business location using the results of your market research.

8. Implement marketing strategies

You have thoroughly researched your target market, drafted a business plan, and chosen a place to begin operations. Now, all you need to do is let people know about your business. This can be accomplished in many different ways. From putting out flyers and banners to handing out free samples, there are many advertisement strategies to choose from. The best and most effective strategy to implement can be deduced from the results of your market research. This is why it is important to first research your target market before going on with your business plans.

Cosmetics Business Plan

Here’s an overview of what the business plan for a cosmetics business should look like.

1. Executive summary

An executive summary is a brief description of the entire business plan. It should contain your cosmetics business’ missions, visions, target market, products offered, competition, and financial projections.

2. Company description

This is a more elucidatory description of your business. This section should contain everything there is to know about your business including its background, the company’s team, and production and marketing strategies.

3. Products and services offered

As the name implies, this is a complete description of any products or services offered by your beauty business, including ingredients used, manufacturing processes, and safety precautions observed.

4. Market analysis

This would contain all the results of the market research you have previously conducted. This section typically includes your target market demographics, buying behaviour, industry trends, and growth projections.

5. Marketing and sales strategy

This section includes sales channels, pricing strategies, and promotional strategies. It is basically an overview of how you intend to amass profit for your business.

6. Operations plan

The “operations plan” section of your business plan includes the processes involved in the day-to-day running of your business. The production process, quality control measures, inventory management strategies, and logistics and distribution channels are all explained in detail in this section.

7. Management and organization

This is a description of all the members of your company’s team and an overview of its organizational structure. This highlights your team members’ qualifications, experiences, and how they contribute to the successful running of your business.

8. Financial projections

This section contains your business’s financial predictions over an estimated period. It includes your company’s projected sales, revenue, expenses, profit margins, funding requirements, funding sources, and the financial viability of your business.

9. Conclusion

In this section, you will summarize the contents of your business plan, briefly highlighting its key parts and reiterating your company’s mission and vision statement. You should also include your contact information for potential investors to reach you.

You can find business plan template guides to aid your understanding here.

How to Start a Cosmetics Business from Home

1. Choose a niche

Because of the diversity of the cosmetic industry, niching down is important. Selecting a niche is the first step to starting a cosmetics business at home.

2. Research your target market

Whether you are starting the business in your home or not, it is still important to research your target market as this will help you predict their reactions to your product, thus helping you predict the rate at which your products sell out and this in turn, will help you maximize profit.

3. Research ingredients and recipes

It is very possible to make cosmetics products in your home. To accomplish this, you need to research ingredients and recipes. As stated earlier, a thorough understanding of ingredients and their properties will help you come up with the best recipes for your home-based cosmetics business.

4. Build your brand

Like every other cosmetics business, you need to create your brand too. With a catchy business name and slogan, your home-based cosmetics business can be just as fancy as any other large beauty brand.

5. Get your products tested

You need to send your products to an official laboratory for testing. This is to ensure that your product does not pose a threat to consumer well-being. This is also important in confirming your product’s efficacy and consistency.

6. Build a strong online presence

As you don’t have a large office building displaying your brand name just yet, you need to take your brand’s online presence seriously. This can be achieved by blogging, creating video content, and interacting with potential customers online.

7. Implement marketing and promotional strategies

You should put more energy into promoting your home-based cosmetics business because as we have said, you do not have a large, fancy building with your brand’s name displayed on it…yet. Talk about your business to anyone willing to listen (and even those who are not). Advertise your brand with any opportunity you get and with time you will have as large a customer base as any other cosmetics business.

If you are looking to start a cosmetics business from home while incurring zero costs, you should consider dropshipping cosmetics products. The dropshipping business allows you to start a cosmetics business with no capital. As your online cosmetics business grows, you can begin manufacturing your own products for sale.

How To Succeed in The Cosmetics Business

1. Create and maintain high-quality standards

A key part of building a successful beauty business is setting high-quality product and service standards. Because of the delicacy of the beauty business, the damage caused by selling ineffective products, or even harmful ones, can be lethal. For this reason, you should not compromise on quality for any reason. It is also important to test products before releasing them for sale. High-quality customer service is a highly effective sales boost too because customers will go where they are respected.

2. Keep up with beauty trends

The world of beauty is constantly evolving and if your business doesn’t evolve too, it will eventually be left behind. Now, we are not telling you to bounce from niche to niche in a bid to keep up with industry trends. We are simply saying that you keep up with industry trends within your niche.

For example, the make-up industry has seen industry has seen significant changes. In earlier times, an eye pencil and some lipstick were enough make-up for most women. In present times, putting on make-up has become a lot more complicated than that. Now, men too wear make-up and this was considered an absurdity in the earlier times. Make-up businesses too have started to sell more products as they are aware of the changes in the industry. In the same sense, regardless of your niche, your business should keep up with market trends.

3. Maximize online marketing strategies

E-commerce has become globally popular and for this reason, optimizing digital marketing strategies is paramount to your success. You can start building your online presence before you even launch your business. Matter of fact, this is what is recommended. For instance, you want to start a skincare business. You can begin writing all the blogs that address issues skincare consumers face. This way, you are building your customer’s trust before even launching your business. When you finally launch your business, your brand will have a headstart.

4. Build relationships with other cosmetic brands

Partnerships go a long way in building a successful cosmetics business brand. Attend business-related programmes, interact with other business owners’ posts, and even build relationships with customers and you will certainly meet the right person who will help take your business to the next level. Providing excellent customer service will come in handy in this area too.

5. Be patient

Naturally, there will be businesses that would be way larger than yours but you need to understand that it’s only because you didn’t start at the same time. Most of the large cosmetic brands you know now launched a long time ago. It took years of consistency to reach their current heights, hence, you need to be patient. Even if you start with no capital, given enough time, you will be producing, packaging, and distributing your products yourself. Give your business time to grow.

Conclusion

The beauty industry is a prospering one with diverse niche opportunities. Because of its large global demand, it can be very profitable to launch a cosmetics business. Many countries support the growth of the beauty sector and we have listed a few of them above. Armed with the knowledge you have gotten from completing this article, we are confident in your ability to start and run a successful cosmetics business and we look forward to being a part of your customer base…wink.

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