16 Min Read |
The cosmetics industry is growing at a rapid rate. With the explosion of indie beauty brands, the rise in demand for organic products and growing interest in sustainability, many entrepreneurs are seeing new opportunities in the beauty space and seeking knowledge on how to start a cosmetic business.
As it stands the global beauty industry is valued a $532 billion annually. The U.S. is the world’s largest beauty market, with about 20% share, followed by China (13%) and Japan (8%). The forecasted growth is expected to increase at a 5%-to-7% compound-annual-growth-rate to reach or surpass $800 billion by 2025.
Even in the current climate, with the world economy expected to contract in the short term, the beauty industry is more likely than other categories to weather the storm. The “Lipstick Effect,” a theory proposed by Professor Juliet Shor back in 1999 in her book The Over-Spent American, hypothesized that in times of economic crisis, consumers will continue to indulge in prestige cosmetics – small luxuries – which gives them an emotional boost, while sacrificing expenditure on higher-priced luxury items.
Consequently, this could be a great time for those who want to start their makeup line or cosmetics business and pursue their venture in the beauty industry. That being said, starting a makeup line or other form of cosmetics business comes with its own set of challenges, particularly if careful planning is not considered.
With the beauty industry being made up of a considerable array of businesses from manufacturers to distributors, anti-aging clinics, spa’s and salon’s, cosmetic retailers, and even makeup artists, if you are planning to start a cosmetics business, there is enormous opportunity for growth. The beauty industry offers up a lot of room for growth into niche product categories – from skincare, makeup and perfumes, to toiletries, hair products and deodorants. This indicates that even though it is a competitive landscape, the size and diversity of the market makes it easier for new entrants and smaller players in the segment to carve out a place.
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With the anticipated growth in the industry, it’s encouraging to see entrepreneurs taking a leap into the business. Now that more and more brands are emerging with creative marketing concepts and strategies, new entrants into the business must be able to provide something unique and attractive in order to capture the attention of the consumer.
In this article, we have put together a comprehensive guide to create structure as you get started on your journey in the beauty and cosmetics industry.
Table of Contents
- Choose A Niche
- Manufacturing Strategy & Product Development
- Brand Building
- Developing A Winning Marketing Strategy
- Create Your Retail Strategy
- Participate In Trade Shows
- Understand Your Finances
- Find Mentors
1. Choose A Niche
Big cosmetic companies try to appeal to the widest audience they possibly can. They go for the big markets where the demand is high. But, within a crowded industry, even they have learned that it is just not possible to market a product to everyone, and businesses who want to survive have to find ways to stand out and differentiate themselves in a sea of liquid lipsticks and highlighter palettes.
Starting out, choose your area of specialty in which you intend to focus your business. Maybe you have manufacturing experience within industry or retail experience selling cosmetic products.
Focus on an area that you are familiar with, or where you see the greatest opportunity for you to add value with your products. In the beginning, it’s advisable not to try sell or manufacture multiple items at the same time, stay lean and build authority within your niche first.
From research you will find many successful companies started or operate within a specific industry niche. In 2014 Glossier launched its first set of products: a four-piece collection of skin lotions and balms. Hims’ started off as one-stop shop for men’s wellness and personal care in 2017, providing treatment options for hair loss. Before you start out on your journey, do some market research and consider your own preferences and where your knowledge lies: after some deliberation, you’ll have a better idea of the type of cosmetics business you want to start.
It’s worth considering dividing the market into segments. As many segments are still quite large, smart businesses break the market into even smaller categories. The most common being;
- Benefits – Targeting a specific need or want of a defined group. For instance, this could be marketing to a female audience who want to straighten their curly or frizzy hair.
- Demographics – Selecting a group of individuals with similar earnings, occupations or ethnicities. For example, this could be creating a makeup line for Asian skin.
- Occasions – Creating products appeal to an audience during special occasions. A spa offering a special honeymoon package is one example.
- Lifestyle – Creating products for people who have a certain value system. This could be selling your makeup line to consumers who are interested in sustainability practices.
Keep in mind, as much as we like to think that consumers are always looking to try new beauty products, an Ipsos 2019 survey found most consumers are satisfied with the products they currently use and are available today. Over 80% agreed with the statement “My personal beauty and grooming needs are met by products I can buy today.” Further a majority (55%) are likely to “choose a trusted brand that I know over a new brand that I haven’t used before,” with the same percentage (55%) saying “I am loyal to the face, body, hair or beauty care items I use.”
Consumers’ preferences for brands they know, and trust present challenges for new products and entrants trying to break into the market. New brands must offer something unique and different to draw consumers away from what they are currently using.
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⚪️ Building a group of brand ambassadors
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2. Manufacturing Strategy & Product Development
Product development can often involve a sizeable investment and commitment. However, there are numerous approaches you can choose that have varying investment levels, formulation development, packaging selection, and due diligence testing. Some are complicated, while other available options are less time consuming and less expensive.
Cosmetic Formulation & Regulations
Starting out, you will need to familiarize yourself with the rules of your national and local regulatory bodies for cosmetic manufacturing and distribution. Many regulatory bodies will have set out guidelines and regulations that dictate the kinds of ingredients you can and cannot use in your cosmetics products, the types of claims you can make about the ingredients on your labels, and the legal responsibility you have for the safety of your products. This means accepting responsibility for the ingredients that make up your products, and that you ensure your products have not become contaminated and remain in compliance with national and local labeling guidelines.
It’s essential to work with country specific national and local regulatory bodies to identify what licenses are most appropriate for your business. Regulations will often vary by locality, country or region. For instance, the European Union will have set standard of regulations for manufacturers will need to follow, which may differ from countries based in the United States or China.
For example, in the US you may need to apply for a general business permit from the state, on top of applying for specialized county or local agencies permits if you are producing or selling cosmetics products. If you have a direct-to-consumer business model, various state and federal taxes may also apply.
If you are operating as a home business, you may need to obtain a home business license, as well as permits for your manufacturing space. Contact your city’s business development department to learn more about regulations and requirements.
You may need to consider that in some cases, your product could be classified as a drug. For example, in the United States, the FDA declares that a cosmetic products purpose is intended to improve the user’s appearance. However, a drug is designed to cure or to treat a specific medical condition. Therefore, if your product treats dandruff, acne or protects your skin from external exposure then it is likely to the product will be subject to further examination.
Many compliance issues need to be considered when it comes to labeling, including the accuracy of ingredient lists, medical claims, potential risks of using the product along with the inclusion of specific ingredients.
Businesses entering the beauty industry should have a sound knowledge of the regulations surrounding the manufacturing or selling cosmetics products. This will help businesses avoiding any serious legal issues in the future.
If you don’t have a background in cosmetic chemistry, you have a number of options when it comes to your manufacturing strategy:
- Contract a cosmetic manufacturer for your beauty business to work with you when developing your product range. Alternatively, depending on your business structure and level of investment, you could hire a cosmetic chemist directly as either as an employee or as a consultant.
- Find a private label or white label manufacturer that offers tailored solutions. These companies can manufacture customized beauty products to your specifications. Private labeling, for example, involves partnering with a co-packer who already has dozens if not hundreds of “stock” formulas available. You decide on which one you like, and the manufacturer produces the product with your brand on it. These manufacturers keep their relationships strictly confidential, so the wider public is unaware who is manufacturing the product.
There are many advantages that come with private labeling, such as little to no research and development (R&D) costs. Typically, these formulas have been commercialized for other buyers in the market and have all their due diligence testing complete. There can also an opportunity for some customization like fragrance, color, extracts and packaging. However, private labeling also means that your product formulation and packaging are not completely unique.
- If you are willing to commit several years to understanding the field of cosmetic chemistry, then you could earn a formal qualification, like a degree from an established university for instance. This will require several years of study, however it will give you an extensive knowledge of the products you sell.
The product development path that you choose entirely depends on your specific case and business model. There are advantages and disadvantages in every scenario, so you will have to consider your options carefully.
After your product development phase is complete, it then becomes time to start producing your product. This requires a great deal of additional work, and a potentially high investment.
You will need to understand what your minimum order requirements are. This will determine what type of contract manufacturer you will work with, what suppliers you will work with, how many ingredients you will need to buy, and how many units you will produce per run. Your minimum is the smallest number of units you should make when production starts. It is calculated from estimates on your annual sales volume.
For simplicity, if you estimate you will sell 5,000 units of one of your products in one year, than your minimum will be 5,000 units if you intend to have one production run per year. However, most companies will have multiple production runs each year.
Starting out the most cost-effective option will likely be to use a contract manufacturer. Most start-ups will find the cost to build their own manufacturing capabilities much too prohibitive, potentially running into the millions of dollars. On top of that, you will have added liabilities like insurance, employees and so forth.
While contract manufacturers charge a premium per unit to produce your product, this expense usually pales in comparison to the investment required set up a manufacturing facility. Of course, as you build your business, you may reach a point where you reconsider the cost-benefit analysis of using a production partner versus having your own inhouse facilities.
3. Brand Building
This is the exciting part. Branding is the act of creating a story that evokes an emotional response with your target market. It’s the practice of creating a name, symbol or design that is easily identifiable as belonging to your business. This helps consumers identify a product and distinguish it from competitors. It’s very easy to think that your brand is ‘just’ your logo, but your beauty brand is much bigger than that.
To be a successful beauty business, you need to understand marketing is not simply about creative concepts and intangible assets, but instead a strategic business function that needs to be involved in all areas of the business and impacts your customer experience and perception of the brand. Each part of your company, from your formulation, packaging, web design, marketing and visuals has to work together and create an emotional response from your target audience so that your brand truly resonates with them.
Many brand owners think it’s enough to create a marvelous website or have better formulations than their competitors, and this is enough to attract a new customer base. This is the wrong approach: you must attract your customers to your brand by having a well-defined brand identity and then create a rich, sensory experience, which covers visual, emotional, and physical experiences.
A remarkable brand, that is better than the competition, is a mixture of key tangible or intangible experiences every time the customer engages with it. So aside from the image and raw materials used to create a product, thought and attention needs to be given to every brand touchpoint, from the customer service team through to the sales representatives. Ultimately, a successful beauty brand is one that changes customers’ lives, even if in a small way.
4. Developing A Winning Marketing Strategy
Successful completion of your product production and branding is an extraordinary achievement. However, generating revenue from the time and money you have invested depends on your ability to sell the product. And the only way to sell your product is if your target market is aware that it exists.
Marketing and selling your beauty products can be one of the most overwhelming parts of starting a cosmetic business. You may love formulating more than you love marketing. However, every beauty brand needs a marketing strategy to grow. It’s no longer enough to sell face to face or through physical retail alone. If you want your beauty brand to be successful, then you will need to embed marketing into the core of your business.
So just how do successful beauty brands gain success in a short space of time and what can we learn from it? Here are 5 things to consider when launching your product in the market;
- Treat Your Customers Like Friends
Having a brand identity that’s relatable to the consumer is essential in order for it to resonate with the audience and fuel engagement. It’s important to humanise your content to set yourself apart from other predictable, corporate brands that take a more conservative approach to marketing and advertising. Speaking to your customers on a personable level encourages a personal connection with the brand.
- Embrace Brand Evangelists
The key to a stratospheric sales trajectory is word-of-mouth advocacy. Glossier’s CEO and Founder Emily Weiss credits 90% of revenue growth to peer-to-peer recommendations rather than marketing or advertising. Glossier sees their community as co-conspirators, co-builders, co-storytellers. As a result, user-generated content is a key part of their marketing strategy and the brand frequently extends event invitations and discount codes to keep their loyal customers up-to-date with the latest brand announcements.
- Highlight Customer Service
Customer service is vital to the long-term success of the brand. Responding directly to all comments, queries and feedback, whether positive or negative is essential for the brands reputation. Social media isn’t just a promotional tool, but instead has the ability to create a two-way conversation, where customer opinions truly matter. Brands should include shoppers in their brand journeys – using any criticism to shape and develop their products. Additionally, they should seek to add value to the consumer by providing helpful content and stories to their followers.
- Consider Gifting Programmes
To get your brand in the media and public eye quickly, it may be worth investing in a highly targeted gifting outreach programme. For example, many brands send out samples to prominent makeup artists, encouraging them to try out the products on their clients and share the results on social media. By using an influencer relationships your brand can become part of newsworthy events and get in front of a relevant key audience.
- Packaging With Shareability In Mind
Ensure the visual identity of the brand is clear and consistent. Keeping shareability at the forefront of development, skillfully designing packaging with Instagram in mind can make your brand instantly recognisable amongst the social media generation. If pursuing a millennial audience, brands should never underestimate the influence of perfect packaging.
Marketing is all about getting your target customer to be aware of your product. With the awareness comes a desire to buy and ultimately, that is your goal when creating your own makeup line. Using the social media, influencers, customer service and appealing packaging are key elements of a successful beauty brand.
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5. Create Your Retail Strategy
Before you start your cosmetics business, you should have a clear retail strategy in mind. You need to ask yourself if you intend to sell your products through your website? Will you sell in department stores or independent high-end retailers? Or will you distribute through channels like salons? Online marketplaces like Amazon can also provide exceptional opportunities to drive sales.
There are dozens of retail channels you can choose from, but ultimately you will need to decide which ones work best for your business. If you want to sell directly through retailers, you should be clear what retail category you fit into, e.g. organic, sustainable, luxury, etc. It’s a misconception to think that your cosmetics brand can be sold anywhere to anyone. Below are some of the more common channels used by beauty brands when looking to get distribution for their products –
Direct to consumer means you are selling your product directly to your end customers without third-party retailers, wholesalers, or other middlemen. With ecommerce platforms like Shopify, you can quickly get started and host your store online. Shopify is a software service subscription that allows you to create a website and use their shopping cart solution to sell, ship, and manage your products. Using their service, you can get access to a dedicated backend where you can add products, process orders and enter store data. Many major beauty brands use Shopify, including Kylie Cosmetics, KKW Beauty and ColourPop.
Since its launch in 1995, the e-commerce giant has become the destination for just about everything. Companies like L’Oreal and Maybelline are among the wide range of big-name beauty brands on the Amazon site. Amazon has even launched its own brand, Belei, which is now being sold on the platform. If you’re considering selling online you should take your time to familiarize yourself with the various opportunities of selling on Amazon – how to start, how to grow and the ease of expanding to global markets.
The beauty industry has seen enormous innovation and entrepreneurship in the last several years. However, there is one thing that has changed in almost every other sector of retail, except for beauty: beauty products are still sold primarily as they always have been, in retail stores.
Unlike many other types of retail, online purchasing of new products has been slower to catch on in the beauty business. Many industry professionals agree that it’s hard to see if a product works for you without using it yourself first. Beauty products are specific to each individual, so it’s among the last industries to adapt to online selling.
Starting out with your new beauty business you should not be tempted to include the major department stores or multinational chains when thinking of selling your makeup line. Your small company may not be ready for the big retailers, and the demands that are placed on suppliers. In the beginning, it can be better to choose small to mid-size retailers as your first clients, who will be more likely to guide you through the process of establishing your beauty brand.
- Trade Intermediaries
Traditional distribution includes distributors, wholesalers and independent sales reps. They typically have established relationships with retailers within your desired market, sales teams to rep your brand and offer marketing support to help their accounts sell your products. In these instances, the distributors and wholesalers typically take product possession and responsibility for distributing your product to retail accounts. These trade intermediaries can be vital to your distribution channels, as they assume financing, warehousing and distribution risks that exceed the capabilities of smaller independent retailers. However, because trade intermediaries represent an additional link in the supply chain, they add further margins for services delivered, which naturally results in higher prices for consumers.
6. Participate In Trade Shows
Trade shows provide an immense opportunity for promoting your business to prospective consumers such as wholesalers, retailers, and manufacturers. Opportunities to connect face-to-face with industry peers, network with other brands and beauty professionals are rare. Online marketing and sales have created a vast array of new opportunities, however they have created a disconnect between buyers and sellers as many people don’t often visit physical retail spaces as frequently to meet your team and see, touch, smell and experience your products or beauty services.
So, industry events are invaluable. They allow you to meet and interact in person with your audience; including potential customers, social media influencers and other industry professionals who could help to promote your brand. Having direct access to many industry leaders and influencers all in one place provides an unmatchable networking opportunity and the potential to meet perfect the supplier or marketing collaborators. In addition, a well-organized conference or trade show gives you the chance to gain valuable feedback on your product and learn about the emerging trends and opportunities within the industry.
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7. Understand Your Finances
You won’t be able to build a successful beauty brand without understanding and managing your finances. From the beginning, you need to make sure you set your business up properly and your financing is in order.
If you have never started a business before, financial planning can seem overwhelming and overly detailed. However, without getting your finances sorted, your money management can quickly spiral out of control. The key to success is knowing how to balance your cashflow. As the founder of your beauty brand, you must have a clear overview of your business’s finances, so financial planning will become a firm part of your daily and weekly routine.
As a business matures and becomes more successful, a founder may need to seek out financing to help with its growth or to keep it going through difficult periods. So, planning how to fund your beauty business is an important topic to consider. The good news is, there are quite a few places to get it (and many that are frequently overlooked).
When first getting started, many entrepreneurs use “bootstrapping,” This typically means using your savings account, credit cards, and any home equity lines you may have to finance your company.
This can be a great approach, as you won’t have extensive loans and monthly payments to weight you down at the beginning, especially if you run into complications along the way.
- Friends and Family
Asking your friends and family for money might seem like an overwhelming prospect—but drawing on those closest to you is often a good first step before getting external funding. However, before approaching your friends and family for money, you should have a business plan prepared. This way, you can explain to them exactly what you’re selling, what you plan on charging, and how you’ll make money.
- Angels Investors
If you have a start-up that’s experiencing high growth, you’ll likely need to source outside investors. A good place to start is angel investors, usually established high net worth individuals who are looking to invest in promising companies. An angel can invest anywhere from $10,000 to a few million dollars.
If you’re looking for some serious funding to get your business to the next level, you’ll need to turn to venture capital. Venture capitalists (VCs) are more likely to require an in-depth and high growth business plan, but they also have the capacity to invest greater amounts of money. However, VCs are often looking for a return of anywhere from 3-10 times their original investment, usually within the next 5-7 years, so it’s best to have an exit strategy in mind.
- Exploring Alternative Sources
If you’re looking for a relatively small amount of money, popular crowd-funding sites, such as Kickstarter and IndieGoGo, can provide a platform to raise money from individual, or group of supporters across the internet.
You’ll set up a campaign and set a funding target, as well as create benefits and incentives for contributors who pledge a specific amount of money. With Kickstarter, you’ll only get to keep the money if you raise the full amount of your goal, but IndieGoGo will let you keep anything you raise (minus a processing fee).
Looking for finance can be one of the hardest parts to getting your business off the ground, but also the most worthwhile. Once you’ve saved, gotten approved for a loan, or found other people to invest in your business, you can get take your company to the next level. Though it can be a long road to success, finding the right partners along the way to help make your business excel can make all the difference.
8. Find Mentors
Throughout your entrepreneurial journey, you will come across a variety of challenges and have many critical questions that Google just won’t necessarily have the answer for. Search queries like, “How do I find a halal compliant formulations?” and “Where do I find labeling translators in export markets?” don’t often provide reliable or informative answers.
Often, the people with answers to these questions will be beauty industry insiders and veterans who have been in a similar position in the past. By connecting with these individuals —through Instagram, email, and Facebook groups you will gain valuable insights.
Having a network of support in the beginning is essential, especially in the event of not having a business partner. Perspective can be tough when you spend much of your time on your own, working constantly. You need people you can trust, who can guide you through the challenges, share how they scaled their business or teach you the strategies that worked for them.
Starting your own makeup line will be one of the greatest journeys in your professional career.While the beauty industry is extremely saturated and competitive, there is still extraordinary opportunity for new and exciting brands. If a brand can develop a solution to a problem experienced by consumers, then there will always be the opportunity for a successful, profitable business. Amongst the countless different customer groups, you simply need to uncover one that is not being sufficiently catered for by any other brand.