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Written by: Esther Strauss
Esther is a business strategist with over 20 years of experience as an entrepreneur, executive, educator, and management advisor.
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 October 7, 2021
Investment range
$2,000 - $6,000
Revenue potential
$90,000 - $456,000 p.a.
Time to build
3-6 months
Profit potential
$73,000 - $182,000 p.a.
Industry trend
Growing
Commitment
Flexible
When establishing your soap-making business, consider these significant factors:
Whether you’re trying to find your golden idea or you’ve already decided on soap making, it’s essential to analyze the industry before jumping in. By taking time to evaluate the opportunity, you’ll be able to determine if the opportunity is worth the investment.
Let’s start with analyzing the pros and cons of soap making.
Bath and body soaps have the largest share in the soap industry at 76%, followed by kitchen and laundry soaps. Top US manufacturers, such as Colgate-Palmolive, Procter & Gamble, and Johnson & Johnson, dominate the market, but there’s increasing interest in more transparent and all-natural independent soap makers.
Soap market growth is steady, but consumers have begun to favor liquid soaps over traditional bars. This is due to the belief that liquid soaps are more hygienic when shared and tend to last longer.
Trends shaping the soap making industry include:
Challenges in the soap making industry include:
Startup costs in the soap making business are low thanks to operating from home, inexpensive equipment, and the long shelf life of soap. It costs roughly $4,000 to start a soap business, with the major costs being materials and marketing.
| Start-up Costs | Ballpark Range | Average |
|---|---|---|
| Licenses and permits | $200 - $500 | $350 |
| Insurance | $250 - $375 | $312 |
| Marketing and advertising | $750 - $3,000 | $1,875 |
| Website | $200 - $1,000 | $600 |
| Software | $150 - $300 | $225 |
| Equipment | $300 - $500 | $400 |
| Raw material | $100 - $200 | $150 |
| Miscellaneous | $50 - $125 | $88 |
| Total | $2,000 - $6,000 | $4,000 |
When it comes to profitability, once your business is established you could earn close to $200,000 per year. This article uses a production cost estimate of $1 per bar and a $5 resale price, for an 80% margin.
In your first year or two, you could sell 50 bars of soap per day and make more than $90,000 in annual revenue. This would give you a profit of $73,000, assuming that 80% margin. After you build a reputation you might be able to sell 250 bars per day, but this would require you to add workers and rent a production facility, cutting your margin to 40%. Still, with $456,000 in annual revenue you’d make more than $182,000 in profit.
While the investment needed to start a soap business is minimal, there are some complex barriers to overcome in the industry.
You’ll have to comply with the Food and Drug Administration (FDA) or Consumer Product Safety Commission (CPSC) regulations. If your soap falls under a cosmetic or drug category, you’ll be dealing with the FDA, while the CPSC regulates the rest.
You can check out the FDA’s frequently asked soap questions for more information. To be safe, you can either use ingredients that are free from regulation or contact a representative from the relevant authority to evaluate your ingredients.
Since soap has been around for hundreds of years, customers may be loyal to specific brands simply because that’s what their family has used for generations. To gain customers, ensure your product is different from the run-of-the-mill brands and caters to a specific need, for example, all-natural or premium ingredients not found elsewhere.
Big brands dominate the shelf placements in many local supermarkets. Often, it’s difficult for small brands to get noticed as they can only afford less optimal shelf locations.
What you can do is to avoid the usual distribution channels, like supermarkets, where you’re competing against large companies. Instead, you can sell direct-to-customer and place your ads on social media.
With every established industry, large companies will always have an advantage when it comes to price. Since they operate at scale, their production costs are lower, which means they can offer their products at lower prices than new businesses entering the market.
Instead of bringing down your price, create a story for your brand and develop a unique value proposition that is worth more than saving a few dollars.
On the other end of low production costs is a considerable research and development budget. Large companies are always trying to develop new products to get one up on their competition, which can put smaller businesses out of the game.
Don’t compete for the same customers. Small businesses have a significant advantage that large corporations don’t, and that is the ability to generate profits from smaller market segments. Find a small niche that corporations avoid and begin developing products for them.
Now that you know what’s involved in starting a soap making business, it’s a good idea to hone your concept in preparation to enter a competitive market.
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.
Research other soap makers to examine their products, price points, and customer reviews, as well as what sells best. You’re looking for a market gap to fill. For instance, maybe the local market is missing a great soap for dogs.
You might consider targeting a niche market by specializing in a certain aspect of your industry, such as all-natural ingredients.
This could jumpstart your word-of-mouth marketing and attract clients right away.
Consumers are becoming more aware of the ingredients in the soaps they put on their skin, and for that reason, there is a push toward label transparency. Certain large companies still use chemicals in their products and may obscure product contents with their labeling. These chemicals may be cheaper than natural alternatives, increase the shelf life of their product or have another benefit for their bottom line, hence the reluctance to remove them.
As an alternative, all-natural soap manufacturers have grown in popularity, in particular, home-based operations. This growth may be because small businesses that operate from home are less concerned with their bottom line and want to provide the best products to consumers.
If you pursue this opportunity within the market, ensure that you don’t cut corners and use only the safest ingredients for your customers. Doing so will improve their satisfaction and build loyalty to your brand—the first steps to growing your business.
A crucial question for any business is, what products will you offer? You’ll need to determine which soaps you’ll offer, how you’re going to make them, which ingredients you’ll use, and the price at which you’ll sell your soaps.
The products should be competitive and reflect the needs of your target market. Your soap can meet your customers’ needs in three main ways: scent, ingredients, and manufacturing method. It’s your job to figure out which combination of these three factors will give your customers the highest level of satisfaction.
Your choice of soap making method may be influenced by the availability of supplies and equipment, personal preferences, and consumer needs. Nevertheless, the following techniques are popular and used by common brands to produce quality soaps.
Cold pressing is a popular method that involves blending fat or oil with sodium hydroxide (lye). When mixed, it forms a chemical reaction called saponification, and it takes around 4-6 weeks for the soap to cure with this method. The main advantage of this method is that you can customize every ingredient as desired.
The melt and pour method is best suited for beginners. First, a pre-made base is bought, melted, modified with your favorite color and scent, and then poured into a mold. Since you’re using a pre-made base, you won’t need to handle any chemicals or undergo saponification—unlike the cold press method.
In the hot press method, you cook the soap to form a gel, which you then pour into a mold. This method also allows you to customize all the soap ingredients, similar to the cold press method.
The main difference between the hot and cold press methods is that the former uses external heat to form a quick chemical reaction, whereas the latter may take 4-6 weeks to cure the soap.
Rebatching is another method well-suited for beginners as it allows you to skip saponification. In this method, a pre-made soap is reprocessed to form a new soap that looks and smells different.
For example, you buy a bar of soap from the market, melt it, customize it with your favorite color and scent, and then pour it into a new mold. It will give a new life to the soap with your color, fragrance, and branding.
If you’re a beginner, you likely won’t know the best ways to begin making your soap, so you’ll need to invest in some education. You’ll need to know the best methods for making soap, how to buy supplies and protective gear, and what it takes to become a successful soap maker.
To learn these, you could start researching through Google or YouTube to find some free resources. But if you want to get started as quickly as possible, it’s a good idea to invest in a course from a reputable provider. Here are a few that you can check out:
The average price of a soap bar is around $5, while it costs about $1 to produce that bar, resulting in an 80% margin. However, this is just a starting point. You should base your prices on your own cost to produce your soap.
For example, if your soap costs $1.50 to make, you could either maintain an 80% margin and charge $7.50 or reduce your margin to 70% and charge a more competitive price of $5.
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.
Generally speaking, females are the primary target market for soap as they tend to be more conscious of their skin and well-being, but males are also becoming more aware of their health. In either case, your customers will likely be more established, so you could find them on Facebook, LinkedIn, and Instagram.
There is also potential to make B2B sales to hotels and spas, but that may require customized soaps.
Operating your business from home in the early stages will help keep costs low, but as your business grows, you’ll likely need a production facility so that you can optimize your soap making. 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 soap making.
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 soap making 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 soap making business. You might also try crowdfunding if you have an innovative concept.
Starting a soap making business requires obtaining a number of licenses and permits from local, state, and federal governments. And you may need additional permits or licenses depending on the ingredients in your soap.
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 soap making 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 may also want to consider industry-specific software such as SoapMaker to manage inventory and issue invoices. You can also use manufacturing tools like Odoo and MRPeasy to manage production processes and distribution.
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 different website builders. 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.
Customers 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 powerful marketing strategies for your future 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 soap 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 soap making 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 soap business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been making soap 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 soap making. 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 a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential employees for a soap making 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.
If you’ve made it this far, you’ve learned nearly all there is to know about starting a soap making business. It should be easy to sell soap since you don’t have to convince consumers that they need it. But for you to penetrate this saturated market, you’ll have to come up with unique products and be creative about marketing these.
You might want to consider making soap from all-natural and organic ingredients to answer the demand for sustainable products. You can also develop products targeted at a certain demographic. Whatever you decide, it’s time to get out there and chase your soap dreams!
Soap-making is indeed a profitable business. The cost of production generally accounts for only 20% of the retail price. Plus, if you run your business from home, you won’t have any large overheads, aside from promoting and marketing your business. A solopreneur can expect to make up to 70% in net profit, while a large company could make up to 30% in net profit (although total profits are much higher.)
Soap-making is easy since you can learn everything you need to know online. There are four methods to make soaps, and two of them, namely Melt-and-Pour and Rebatch, only require you to add color and fragrance after buying the pre-made base. While the process of making soap is easy, creating unique and popular recipes is more complicated.
The price largely depends upon the ingredients and reputation of your brand. On average, you can sell homemade soap for $5 per bar. However, if you are in a luxury soap segment with premium and high-quality ingredients, the price could be well over $10 per bar.
Soap making is not expensive unless you intend to use premium ingredients. The main ingredients include fat/oil and lye. Both of these are affordable, leading to a typical cost per bar of $1.
Soap is an excellent business. It offers you the flexibility to produce soaps from home without needing special or expensive equipment, so you start it as a side hustle until it gains traction. The soap business also has a ton of upside with the potential to develop a national or international brand.
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