Lip balm profit margin is the price minus the full cost of a tube, divided by the price. The formula is the easy part. The trap is the cost: the wax, butter and oils in a tube come to about nine cents, so a maker who counts only ingredients sees a 98% margin. Once the tube, the label, the hour it takes to pour and cap a batch, and a share of overhead go in, a tube costs about 89 cents. That still leaves a strong margin, 79% at a $5 retail price and 62% wholesale at $2.50, but it's a margin on very few dollars: in the example below, it takes about 290 tubes a month sold retail, or about 740 wholesale, to cover $150 of fixed costs and pay $1,000 of profit. Below is the formula, what a tube costs, margins at retail and wholesale, how many tubes it takes, and a free calculator.
The short version
- Margin = (price − full cost) ÷ price. Markup is the same difference divided by the cost.
- The full cost of a tube: ingredients, tube, label, your time and overhead.
- Ingredients are the smallest part; the tube, label and time are most of it.
- At $5 retail, a tube costing $0.89 leaves about $3.96, a 79% margin.
- At $2.50 wholesale, it leaves about $1.56, a 62% margin.
- Bigger batches lower the time per tube more than cheaper wax lowers the ingredients.
- TaroStack keeps each batch's cost, tubes and lots together. More below.
The formula
| Measure | Formula | Example |
|---|---|---|
| Profit per tube | Price − full cost − card fee | $5.00 − $0.89 − $0.15 = $3.96 |
| Margin | Profit per tube ÷ price | $3.96 ÷ $5.00 = 79.2% |
| Markup | (Price − full cost) ÷ full cost | ($5.00 − $0.89) ÷ $0.89 = 460% |
Margin and markup describe the same tube differently, and mixing them up is how prices end up too low: a "100% markup" on an 89-cent tube is $1.78, a 50% margin. More on the difference, with a calculator, is in cost plus pricing example.
What goes into a tube
Elder & Oak Apothecary, a made-up apothecary in Pennsylvania I use in these examples, makes peppermint lip balm in 8-ounce batches:
| Ingredient | % of batch | Price per lb | Ounces | Cost |
|---|---|---|---|---|
| Beeswax | 30% | $12.00 | 2.40 | $1.80 |
| Shea butter | 30% | $8.00 | 2.40 | $1.20 |
| Coconut oil | 20% | $5.00 | 1.60 | $0.50 |
| Sweet almond oil | 19% | $10.00 | 1.52 | $0.95 |
| Peppermint flavor oil | 1% | $32.00 | 0.08 | $0.16 |
| Batch | 100% | 8.00 | $4.61 |
About 5% stays in the pot and on the filling tray, so the batch fills 50 tubes at 0.15 oz each. How to turn prices per pound into a cost per ounce is in how to calculate cost per ounce. Then the whole tube:
| Per tube | Cost |
|---|---|
| Ingredients, $4.61 ÷ 50 | $0.09 |
| Tube | $0.25 |
| Label | $0.10 |
| Your time: an hour to melt, pour, cap and label 50, at $20 an hour | $0.40 |
| Overhead: power, insurance and supplies, a share | $0.05 |
| Full cost | $0.89 |
The ingredients are a tenth of the cost. The time is nearly half, which is why the cheapest way to lower the cost is a bigger batch on a filling tray: if 100 tubes take an hour and a half, the time per tube drops from $0.40 to $0.30, a saving no cheaper beeswax can match.
Retail and wholesale
| Retail | Wholesale | |
|---|---|---|
| Price | $5.00 | $2.50 |
| Full cost | $0.89 | $0.89 |
| Card fee, 3% | $0.15 | |
| Case and shipping share | $0.05 | |
| Profit per tube | $3.96 | $1.56 |
| Margin | 79.2% | 62.3% |
A shop buying at $2.50 sells at about $5, so your own retail price should be the same, or the shop is undercut by its supplier. How to set a wholesale price that leaves you enough is in how to price handmade items for wholesale.
How many tubes it takes
The margin percentage flatters lip balm; the dollars are what pay the bills. With $150 a month of fixed costs, insurance, market fees and the website, and $1,000 a month of profit as the goal:
| Selling | Profit per tube | Tubes a month |
|---|---|---|
| All retail, at $5.00 | $3.96 | 291 |
| All wholesale, at $2.50 | $1.56 | 739 |
That's why lip balm earns its keep best alongside other products, a balm at the till of a soap or skincare stall, rather than as a whole business on its own. Each tube sold to a customer already buying soap adds $3.96 for almost no extra selling time. How lip balm's margins compare with body butter, soap and bath bombs is in cosmetic business profit margin.
What a lip balm can claim
A lip balm that softens and moisturizes is a cosmetic. One that claims to protect or relieve chapped or cracked lips uses the wording of a skin protectant drug (21 CFR 347.50), and one with SPF or sun-protection claims is a drug as well as a cosmetic (FDA), with drug labeling and manufacturing rules. What a cosmetic label needs, and what MoCRA asks of a small maker, are in cosmetic labeling requirements and MoCRA for small businesses. This is general information, not legal advice.
Get the calculator
Download the lip balm cost and margin calculator. The Formula sheet takes your batch weight and each ingredient's percentage and price per pound, and works out the batch cost. The Margin sheet takes what's lost in the pot, the fill per tube, tubes, labels, your time, your prices and your fixed costs, and works out tubes per batch, the full cost of a tube, profit and margin at retail and wholesale, and the tubes a month it takes. It's an ordinary Excel file with no macros, and it works in Google Sheets, LibreOffice and Numbers.
Where this stops working
The calculator holds one flavor at one set of prices. A maker with six flavors, three sizes and a tinted line buys beeswax by the slab, tubes by the thousand and flavor oils from three suppliers, and every one of those prices moves. The cost per tube in the spreadsheet is from the last time anyone updated it, and when a customer asks which batch their tube came from, the answer is a guess.
How TaroStack does it
TaroStack works out the cost from what each batch actually used.
Formulas with versions. Each balm is a recipe, every ingredient by weight, with a scrap % for what stays in the pot, and units convert: beeswax bought by the pound, weighed by the gram. Tubes and labels are part of the recipe, so they come off stock with each batch.
Batches at what you paid. Recording a batch takes the ingredients off stock from the lots used, at what you paid, and divides by the tubes that came out good, so the cost per tube follows your suppliers' prices without anyone updating a spreadsheet. Every batch goes into a lot with its code, and lot labels print with it.
And the margins in dollars. Margins are reported by product and by customer, so the flavor that sells and the shop that pays its way are both visible, and the reorder list works in days of cover, so tubes don't run out before a market.
| The job | Spreadsheet | In TaroStack |
|---|---|---|
| Cost per tube | Last updated in spring | Each batch, at what it used |
| Which batch is this tube from? | A guess | The lot code on the tube |
| Tubes before the market | Counted the night before | The reorder list, in days |
| Which flavor pays? | A feeling | Margins by product |
Recipes, batches, lots and margins by product and customer 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.