A small handmade cosmetics business can earn wide margins, because the ingredients in a jar or a bar are usually a small part of its price; the packaging, your time and the products that don't sell are what eat into it. In the examples below, a 4 oz body butter costs $5.16 all in and earns a 51% margin at $10.50 wholesale and 71% at $18 retail, while a lip balm costing $1.20 earns 60% wholesale and 80% retail. A cold process soap bar is the thinnest at wholesale, 32%, because curing time and labor are a big share of a modest price. What decides whether the business pays is less the margin per item than volume, the mix of wholesale and retail, and the leaks. Below are four products costed, margins by channel, what a month looks like, and where the margin goes.
The short version
- Cost every product all in: ingredients, packaging, labor and a share of overhead.
- Packaging is often the biggest single line after labor; price it in.
- Retail margins run 60% to 80% in the examples; wholesale margins 30% to 60%.
- The thinnest margins are on products with lots of hand time for a modest price.
- Samples, unsold scents, wholesale discounts and price rises are where margin leaks.
- Recalculate when ingredient prices move; shea and lavender oil do.
- TaroStack costs every batch from what you paid and reports margins by product and customer. More below.
Four products, costed
The first three come from earlier articles in this series; the lip balm is costed here.
| Per unit | Full cost | What's in it |
|---|---|---|
| 4 oz whipped body butter | $5.16 | Butters and oils $1.95, lavender oil $0.60, jar and label $1.10, labor $1.00, overhead $0.51 |
| Cold process soap bar, 5 oz | $4.10 | Oils $1.34, box and label $0.40, labor $2.11, overhead $0.25 |
| Bath bomb, 5.5 oz | $2.50 | Ingredients $0.70, shrink bag and label $0.15, labor $1.25, overhead $0.40 |
| Lip balm, 0.15 oz tube | $1.20 | Butter, oils and beeswax $0.25, tube $0.35, label $0.10, labor $0.30, overhead $0.20 |
The body butter is costed in cosmetic business startup cost, the soap in soap business profit margin, and the bath bomb in starting a bath bomb business.
Margins by channel
| Product | Wholesale price | Wholesale margin | Retail price | Retail margin |
|---|---|---|---|---|
| Body butter | $10.50 | 50.9% | $18.00 | 71.3% |
| Soap bar | $6.00 | 31.7% | $10.00 | 59.0% |
| Bath bomb | $4.25 | 41.2% | $8.00 | 68.8% |
| Lip balm | $3.00 | 60.0% | $6.00 | 80.0% |
Margin = (price − full cost) ÷ price
Retail margins here are before the card fee, about 3%. Wholesale gives up 20 to 30 points of margin for volume and fewer selling hours; a shop that pays $10.50 for the body butter sells it near $18, the same as your own stall, so you're not undercutting the shops that stock you. How margin differs from markup, which trips up a lot of pricing, is in markup vs margin.
What a month looks like
Selling 150 body butters retail and 300 wholesale in a month brings in $5,850 and, after what each jar costs to make and sell (its overhead share left to the monthly costs), leaves $3,677 of contribution; take off $870 of monthly costs (workspace, insurance, market booths, marketing, website, card fees) and the month makes about $2,800, on top of the $1.00 a jar already paid for the making. The same month at half the volume makes about $970. Volume, not margin, is the difference. The whole first year, month by month, is in skincare business plan.
Where the margin leaks
| Leak | Effect on the body butter |
|---|---|
| Samples and giveaways not counted | Each free jar costs $5.16 of a later sale's margin |
| A scent that doesn't sell | The batch's full cost, jars and labor included |
| A shop's 15% opening-order discount | $1.58 of the $5.34 wholesale margin |
| Shea butter up 20% | About 23 cents a jar, every jar, until the price changes |
| Small batches | Labor per jar goes up when a batch makes 20 instead of 33 |
| Damaged or returned jars | Their full cost, plus a replacement |
The leaks are small one at a time. Together, and unrecorded, they're why a business with 51% margins on paper can feel like it makes nothing.
Where this stops working
A cost sheet holds the $5.16 from the day it was worked out. Then the shea supplier raises prices, the jars come from a new supplier at $1.25, three scents sell and two sit, and the shop discounts and samples aren't written down anywhere. The margins on the price list stay at 51% and 71% while the real ones drift.
How TaroStack does it
TaroStack keeps the cost of every product real and shows the margin you made, product by product and customer by customer.
Every batch, costed. Each product is a recipe, with versions as you reformulate and units converted: buy shea by the kilo, use it by the gram. Recording a batch takes the butters, oils, jars and labels off stock from the lots used, at what you paid, and divides by what came out good, so a price rise or a small batch shows in the cost the day it happens. A price-creep report per supplier shows who's raising prices.
Margins on what things really cost. Margins are reported by product and by customer, on what each item actually cost when it shipped, over the last 30, 90 or 365 days, so the shop whose discounts eat the margin, and the scent that doesn't pay, are visible.
And the leaks, recorded. Samples, damaged jars and expired stock come off with their reason, so the losses report shows what each leak costs, by item and reason. Stock that isn't moving shows how long since it last went out, so the slow scent is visible before you make more of it.
| The question | Cost sheet | In TaroStack |
|---|---|---|
| What does a jar cost now? | The day it was worked out | Every batch, at what you paid |
| Which products earn? | Margins on paper | Margins by product, on actual cost |
| Which shops pay? | Unknown | Margins by customer |
| What do samples cost? | Not counted | Losses by reason |
Lots, recipes, batches, margins and the losses report are on every plan, from $49 a month. The first 30 days are free, with no credit card. If you'd like a hand setting up, ask, and we'll do it with you.