The $50 billion US beauty industry is bigger than ever and much of its growth can be attributed to indie brands. As customers become more mindful of their choices, many gravitate away from bigger businesses and turn to smaller skincare brands that share their values.
This growth creates plenty of opportunities for entrepreneurs looking to make their mark in the beauty scene. But before you set out to make the next great skincare company, you need to know how to get your business off the ground. This step-by-step guide walks you through everything you need to know to start a skincare business.
Time to build
Step 1: Decide if the Business Is Right for You
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.
Pros and cons
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.
Sell online and scale globally
Startups can innovate and build a major brand
Product ingredients are readily available
Flexibility to start small with a hero product and diversify over time
Building a brand takes time and hard work
Startup costs can be high
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 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.
How much does it cost to start a skincare business?
The cost of starting a skincare business ranges between $2,000 and $20,000, averaging $11,000. A detailed break-down of costs is below.
Licenses and permits
Marketing and advertising
How much can you earn from a skincare business?
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 $270,000, and a tidy profit of nearly $110,000.
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 20191https://www.forbes.com/sites/chloesorvino/2019/10/08/hot-skincare-brand-drunk-elephant-sells-for-845-million-minting-founder-a-fortune/?sh=7859f65a5140.
What barriers to entry are there?
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 which may serve as another barrier to entry. Your products will undergo tests and trails 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 from Formula Botanica or Create Your Skincare, to improve your knowledge.
Step 2: Hone Your Idea
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.
Why? Identify an opportunity
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 are 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.
What? Determine your products or services
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.
How much should you charge for skincare products?
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 Stepprofit 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.
Who? Identify your target 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.
Where? Choose your business premises
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. 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:
Central location accessible via public transport
Ventilated and spacious, with good natural light
Flexible lease that can be extended as your business grows
Ready-to-use space with no major renovations or repairs needed
Step 3: Brainstorm a Business Name
Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.
Here are some ideas for brainstorming your business name:
Short, unique, and catchy names tend to stand out
Names that are easy to say and spell tend to do better
Name should be relevant to your product or service offerings
Ask around — family, friends, colleagues, social media — for suggestions
Including keywords, such as “___” or “___”, boosts SEO
Name should allow for expansion, for ex: “Jim’s Bakery” over “Jim’s Cookies”
Avoid location-based names that might hinder future expansion
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. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.
Step 4: Create a Business Plan
Every business needs a plan. This will function as a guidebook to take your startup through the launch process and maintain focus on your key goals. A business plan also enables potential partners and investors to better understand your company and its vision:
Executive Summary: Brief overview of the entire business plan; should be written after the plan is complete.
Business Overview: Overview of the company, vision, mission, ownership, and corporate goals.
Product and Services: Describe your offerings in detail.
Market Analysis: Assess market trends such as variations in demand and prospects for growth, and do a SWOT analysis.
Competitive Analysis: Analyze main competitors, assessing their strengths and weaknesses, and create a list of the advantages of your services.
Sales and Marketing: Examine your companies’ unique selling propositions (USPs) and develop sales, marketing, and promotional strategies.
Management Team: Overview of management team, detailing their roles and professional background, along with a corporate hierarchy.
Operations Plan: Your company’s operational plan includes procurement, office location, key assets and equipment, and other logistical details.
Financial Plan: Three years of financial planning, including startup costs, break-even analysis, profit and loss estimates, cash flow, and balance sheet.
Appendix: Include any additional financial or business-related documents.
If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist at Fiverr to create a top-notch business plan for you.
Step 5: Register Your Business
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!
Choose where to register your company
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.
Choose your business structure
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:
Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.
Corporation – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation.
S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just need to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.
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 ZenBusiness’s 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.
Step 6: Register for Taxes
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.
Step 7: Fund your Business
Securing financing is your next step and there are plenty of ways to raise capital:
Bank loans: This is the most common method but getting approved requires a rock-solid business plan and strong credit history.
SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via anSBA-guaranteed loan.
Government grants: A handful of financial assistance programs help fund entrepreneurs. VisitGrants.gov to learn which might work for you.
Angel investors: Reach out to your entire network in search of people interested in investing in early-stage startups in exchange for a stake. Established angel investors are always looking for good opportunities.
Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
Personal: Self-fund your business via your savings or the sale of property or other assets.
Bank and SBA loans are probably the best option, other than friends and family, for funding a skincare business. You might also try crowdfunding if you have an innovative concept.
Step 8: Apply for Licenses/Permits
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:
Cosmetology license if you plan to apply makeup to your customers
Manufacturer license if you intend to develop your own skincare line
Esthetician license if you offer skincare services
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.
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.
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.
Step 10: Get Business Insurance
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:
General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
Business Property: Provides coverage for your equipment and supplies.
Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
Worker’s compensation: Provides compensation to employees injured on the job.
Property: Covers your physical space, whether it is a cart, storefront, or office.
Commercial auto: Protection for your company-owned vehicle.
Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of the above insurance types.
Step 11: Prepare to Launch
As opening day nears, prepare for launch by reviewing and improving some key elements of your business.
Develop your website
Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism. 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.
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.
Essential software and tools
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.
Some of your business will come from the casual passerby or online visitors, but still, you should invest in digital marketing! Getting the word out is especially important for new businesses, as it’ll boost customer and brand awareness.
Once your website is up and running, link it to your social media accounts and vice versa. Social media is a great tool for promoting your business because you can create engaging posts that advertise your products:
Facebook: Great platform for paid advertising, allows you to target specific demographics, like men under age 50 in the Cleveland area.
Instagram: Same benefits as Facebook but with different target audiences.
Website: SEO will help your website appear closer to the top in relevant search results, a crucial element for increasing sales. Make sure that you optimize calls to action on your website. Experiment with text, color, size, and position of calls to action such as “Buy Now”. This can sharply increase purchases.
Google and Yelp: For businesses that rely on local clientele, getting listed on Yelp and Google My Business can be crucial to generating awareness and customers.
Focus on USPs
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 ___ meets 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:
Fully organic and all-natural skincare to bring out the real you
Spoil your skin with the best care money can buy
A complete line of products for all your skincare needs
Take advantage of your website, social media presence and real-life activities to increase awareness of your offerings and build your brand. Some suggestions include:
In-Person Sales – Offer your skincare products at local markets, trade shows
Sponsor events – Pay to be a sponsor at events that are relevant to your target market
Post a video – Post a video about your skincare. Use humor and maybe it will go viral!
Limited edition – Offer a one-time version of your best product.
Email marketing/newsletter – Send regular emails to customers and prospects. Make them personal.
Paid ads on social media – Choose sites that will reach your target market and do targeted ads.
Influencer marketing – Pay people with large social media followings to promote your skincare brand. You can find micro-influencers with smaller followings and lower rates.
Do a webinar – Share your skincare expertise online with a video seminar
Testimonials – Post case studies about how your skincare helped a customer
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 unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.
Step 12: Build Your team
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:
Sales Staff — make sales, customer service
General Manager — oversees operations
QA Manager — ensure quality of all products
Marketing Lead — SEO strategies, social media
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.
Step 13: Start Making Money!
Skincare is a huge and growing industry, with a lot of opportunity. 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 depends how big you want to start. For a small company with a single, hero product, you can expect the start-up costs to be around $11,000. The cost can be extremely high if you want to establish a large production facility with multiple products and nationwide distribution.
Is it legal to sell homemade skin care products?
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.
What is the #1 skin care line?
Many brands vie with each other to claim the #1 title. But, Neutrogena is the #1 Dermatologist-recommended skin care brand by far.
How long does it take to start a skincare line?
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.
What is the markup on skin care products?
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.