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Written by: Carolyn Young
Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.
Edited by: David Lepeska
David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.
Published on September 27, 2021
Investment range
$2,000 - $20,000
Revenue potential
$90,000 - $230,000 p.a.
Time to build
3-6 months
Profit potential
$55,000 - $92,000 p.a.
Industry trend
Steady
Commitment
Full-time
When launching your skincare business, keep these essential aspects in mind:
Before you get started, you should understand the skincare industry’s opportunities and challenges to help you get an idea of whether it’s a good fit for you.
It’s helpful to start with a quick glance at the positive and negative aspects of running a skincare business. Here are a few with the biggest impact on your decision.
A skincare business will experience complex operational challenges, such as sourcing raw materials, R&D, skilled manpower, testing and trial, labelling and packaging among others.
The global skincare market is valued at $155.8 billion in 2021 and slated to expand as much as 25% by 2025, with North America being a major revenue driver.((https://www.statista.com/statistics/254612/global-skin-care-market-size/))
The growth of natural and organic products has outpaced industry growth over the past few years. Some 57% of American women prefer all-organic skincare products to conventional products.
Trends shaping the skincare industry include:
Challenges in the skincare industry include:
The fastest growing skincare products in the US((https://www.skinstore.com/blog/skincare/the-skin-report/)) and their growth rates in Google searches are:
The cost of starting a skincare business ranges between $2,000 and $20,000, averaging $11,000. A detailed breakdown of costs is below.
| Start-up Costs | Ballpark Range | Average |
|---|---|---|
| Licenses and permits | $200-$1,000 | $600 |
| Insurance | $200-$600 | $400 |
| Marketing and advertising | $500-$5,000 | $2,750 |
| Website | $100-$5,000 | $2,550 |
| Software | $200-$900 | $550 |
| Equipment | $500-$5,000 | $2,750 |
| Raw Material | $100-$2,000 | $1,050 |
| Miscellaneous | $200-$500 | $350 |
| Total | $2,000-$20,000 | $11,000 |
The average per-unit price of facial products is about $9, with the average profit margin in the industry at about 60%. Your revenue will of course depend on your capacity to generate sales.
In your first year or two, you might sell 200 units per week, giving you more than $90,000 in annual revenue and about $55,000 in profit. Once you’ve built up a reputation, you might be able to sell 500 units per week, but with increased costs your margin would fall to 40%. You’d still have annual revenue of $230,000, and a tidy profit of nearly $92,000.
There is no cap on your earning potential in a skincare business. For example, seven-year-old female-led skincare brand Drunk Elephant was valued at a whopping $845 million at the time of its acquisition in 2019 ((https://www.forbes.com/sites/chloesorvino/2019/10/08/hot-skincare-brand-drunk-elephant-sells-for-845-million-minting-founder-a-fortune/?sh=7859f65a5140)).
Barriers to entry in the skincare industry include strict regulation from the Food and Drug Administration (FDA) and the Food and Cosmetics Act. Your products will need to meet the safety requirements of these two regulatory authorities, and at the start, you may have a hard time clearing their hurdles in terms of ingredients and testing.
The second barrier to entry is cutthroat competition. The market is saturated with both established and innovative skincare products, making it hard to make inroads and establish a new beauty brand.
Learning and understanding various types of skincare products and their ingredients is a mammoth task that may serve as another barrier to entry. Your products will undergo tests and trials on multiple skin types to ensure product effectiveness and safety. As a result, it may take significant time to launch a skincare product. You might want to take an online course, such as Formula Botanica or Create Your Skincare, to improve your knowledge.
Once you’ve completed your initial research on the skincare space, you need to move onto the specifics of your business. This entails the why, what, and who of your business.
Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.
Skincare is one of the fastest growing industries in the world. With a rapidly growing consumer base and widespread acceptance, there is always a demand for new ideas, advice from skincare enthusiasts, and innovative products.
At the same time, there is a multitude of skincare products available for both men and women, with the latter segment being the center of attention for many brands. Research major and independent skincare brands to examine their products, price points, and customer reviews, as well as what sells best.
You’re looking for a market gap to fill. Maybe the market is missing a fully organic and eco-friendly brand. You might consider targeting a niche market by specializing in a certain aspect of your industry, such as products for dry-skinned men. This could jumpstart your word-of-mouth marketing and attract clients right away.
Your flagship product shouldn’t just solve key consumer problems, but also generate great demand generation. Once the target market is solidified, you can roll out new products over time.
Skincare products are used for various treatments, from routine skin care to solving complex skin issues. Some of the most common types of skincare products are listed below:
While you don’t necessarily have to be a skincare expert or dermatologist to start a skincare line, you should develop sufficient knowledge about your target market and your range of skincare products. Again, it might be a good idea to take an online course to establish a base of industry understanding.
Your prices will depend on your costs and overhead, as well as the prices of your competitors. A crucial decision will be if you want to be a discount or high-end brand.
Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price point. Remember, the prices you use at launch should be subject to change if warranted by the market.
Your target market will mainly consist of women aged 18-60, unless you decide to focus on males. Either way, you can find them on sites like Facebook, Instagram, and TikTok.
You could also target businesses, such as retailers and distributors, who could buy your products in bulk. You can find them online and contact them directly.
In the early stages, you should probably run your skincare business from home to keep costs low. But as your business grows, you may need to rent out a storefront or a production facility. You can find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.
When choosing a commercial space, you may want to follow these rules of thumb:
Here are some ideas for brainstorming your business name:
Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool below. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.
Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that set your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.
Here are the key components of a business plan:
If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.
Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.
Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!
Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to skincare.
If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.
Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your skincare business will shape your taxes, personal liability, and business registration requirements, so choose wisely.
Here are the main options:
We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.
Choose Your State
The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.
Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.
The IRS website also offers a tax-payers checklist, and taxes can be filed online.
It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.
Securing financing is your next step and there are plenty of ways to raise capital:
Bank and SBA loans are probably the best options, other than friends and family, for funding a skincare business. You might also try crowdfunding if you have an innovative concept.
Starting a skincare business requires obtaining a number of licenses and permits from local, state, and federal governments. As previously mentioned, one of the hurdles for starting a skincare business is the regulatory burden from the FDA and Food and Cosmetics Act.
For a skincare business, you may need the following licenses and permits:
You can read this FDA fact sheet for more insights on cosmetic industry regulations.
Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits.
You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more.
You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.
This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties.
If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.
Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.
Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your skincare business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.
Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.
Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.
Here are some types of insurance to consider:
As opening day nears, prepare for launch by reviewing and improving some key elements of your business.
Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.
You can industry-specific software like Cosmetic Product Manager, BatchMaster, and ProcessPro to manage formulation, R&D, compliance, manufacturing, inventory, and sales.
Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism.
You can create your own website using services like WordPress, Wix, or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.
They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google.
Here are some practical marketing tips and ideas to boost your skincare business:
Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your skincare products meet their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire.
Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your skincare business could be:
You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a skincare business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in skincare for years and can offer invaluable insight and industry connections.
The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in skincare. You’ll probably generate new customers or find companies with which you could establish a partnership. Online businesses might also consider affiliate marketing as a way to build relationships with potential partners and boost business.
If you’re starting out small from home, you may not need any employees right away. But as your business grows, you’ll likely need workers to fill various roles. Potential positions for a skincare business include:
At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need.
Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.
Skincare is a huge and growing industry, with a lot of opportunities. After reading this article, you know all the steps required to get your business off the ground. Now it’s just up to you to take the initiative and start building your skincare empire!
It is absolutely legal to manufacture and sell homemade skin care products as long as you adhere to the FDA’s Good Manufacturing Practice Guidelines and be ready for periodic facility checkups. In fact, it is the go-to market strategy for bootstrapped start-ups to begin from home, get the market response and scale operations over the time period.
Many brands vie with each other to claim the #1 title. But, Neutrogena is the #1 Dermatologist-recommended skin care brand by far.
Launching a single, hero product and managing its consumer response is much quicker and easier than launching a portfolio of skincare products. However, you should expect a minimum of 3 months and a maximum of 6 months to research and develop, test and distribute your flagship product.
Looking at your markup (or margins) is one way of deciding how to price your products. With this method, you need to estimate your production costs and add a reasonable gross profit. The markup in the cosmetic industry is 78% on average.
Starting a skincare business can be challenging, but with proper planning and execution, it is achievable. Consider key factors such as understanding the market, conducting thorough research on skincare products and ingredients, complying with regulations, and creating a unique selling proposition.
To sell skincare products to clients, establish an online presence through a professional website or e-commerce platform. Optimize your website for search engines and provide detailed product information, including ingredients, benefits, and usage instructions. Utilize social media platforms like Instagram, Facebook, and Pinterest to showcase your products and share engaging and educational content related to skincare.
To market your small skincare business effectively, define your target market and tailor your marketing efforts to reach them. Develop a compelling brand story that communicates your mission, values, and unique selling points. Utilize online marketing channels such as social media, email marketing, content marketing, and SEO to raise awareness about your brand.
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