How to calculate the cost of cosmetic formulas
You’ve made a great cosmetic formula, now you want to know how much it costs to produce. Where do you start? Follow our easy step-by-step guide so you can calculate the cost of cosmetic formulas.
Step 1: Make sure your formula is in the right format.
All cosmetic formulas should be written to 100% by weight in metric (grams). If you’ve been using millilitres, fluid ounces or drops, you’ll need to first re-measure all ingredients by weighing them in grams, and then converting the final formula to 100%.
The great news is that if you’ve been using the create cosmetic formulas program, your formula will already be in the right format. All cosmetic formulas created by the create cosmetic formulas program are instantly written to 100% by weight in metric ready for you to make.
If you are not sure how to prepare your cosmetic formula in the correct format, please watch our free video: How to write a cosmetic formula
Step 2: Calculate the batch size you want to create.
Making just 100g of cosmetic formula each time is very time consuming. You need to start by preparing small samples of 100g, because that is easiest from your formula, and makes sure you don’t use too many raw materials while you make any desired changes in sample revisions.
But, once you have that fantastic formula, its time to make a larger batch. It is far more economical to make a larger batch of each cosmetic formula (once you have a formula you love) because purchasing raw materials in larger quantities becomes more economical, and the time it takes to create one kilo of product (that is, 10 times the size of your 100g sample) is usually only a little more than it takes to create your original small sample. This is known as economies of scale, and it means the cost of labour to create multiple products, as well as reduced cost of raw materials because of savings when purchasing larger quantities, means a cheaper per unit price overall when a larger batch is made.
So think: how much product do you expect to use for yourself, or sell to others, in the next 6 months? For personal or family use, one kilo of product may be enough. If you plan to sell your product to others and you want to grow your business slowly, then you may want to make five or even twenty kilos of product. If you want to grow your business faster than that, please see our additional tips section at the end of this blog.
Learn how to calculate the larger batch size with this video: How to calculate large batch sizes. You’ll see how easy it is to calculate the larger batch size once you have your cosmetic formula in the correct format (refer to step 1).
Once you have the large batch size calculated, you are ready to move to step 3.
Step 3: Prepare raw material purchase list.
At this step, you will need to investigate a few options for each material. Let’s say you need 500g of a material for your larger batch, and you can purchase it from a supplier in 500g, 1kg or 5kg quantities. (If your supplier sells in ounces or fluid ounces, create an excel spreadsheet to help you convert their per ounce price to per kilo price, as it will make your calculations much easier because of the way cosmetic formulas are written and costs are calculated).
As an example, lets pretend the pricing is:
$38.50 for 500g (the per kilo price on this is $77/kg)
$55.00 for 1kg (the per kilo price on this is $55/kg)
$236.50 for 5kg (the per kilo price on this is $47.30/kg)
The price per kilo is going to be the cheapest when purchasing 5kg, but, will you use all of that within 1-2 years? If not, you could end up throwing out a lot of the material! However, you may find you would easily use 1kg within 1 year, and the 1kg price – when calculated as a per kilo price – would still be better than the 500g price (when converted to price per kilo).
Make sure you investigate the most economical option for all materials using the same approach. Check too that you have enough storage space for the left overs, and store them in a controlled environment, like a spare room or cupboard inside your house (rather than a very hot or freezing outdoor shed!)
Need help finding suppliers? Refer to our global cosmetic ingredient supplier list on this page.
Step 4: Use a spreadsheet to calculate the cost of materials in your formula
Once you have determined the most economical per kilo price for all of your materials (refer to step 3), and have your formula prepared with quantities to suit the larger batch size (refer to step 2), you are ready to use a spreadsheet (e.g. excel) to calculate the exact cost of each material in your formula.
Set up your spreadsheet to calculate the cost per kilo by the amount of material that will be used. Using our example from above, lets say we had 500g of this material, but we purchased it in the 1kg quantity (to get the lower per kilo price):
55 x 0.5 = $27.50
In this case, the cost of that material as part of the overall formula is $27.50.
Prepare a spreadsheet where your columns are set up to multiply automatically – that is the fastest and most accurate way to then get the individual costs of materials, as well as sum them up for the total batch price.
You should include a cost to cover the time it takes you to produce the product and clean up after – this is a labour cost and is important to include in the cost of the batch if you are going to be selling the product commercially. If it is for your own use, then you don’t need to calculate a labour cost.
Step 5: Calculate the per unit price + extras
Once you have a total batch price, divide this by the number of units that batch will create. Let’s say you are making 2kg of product and then packing off into 50mL jars.
- Check the weight of the product in the 50mL jar. Most creams, even when filled to the top of the jar (50mL), will weigh less than the volume. For example, you may only fit 48g of product in each 50mL jar. Your label should say 50mL because that is the volume you have filled to, but for your batch calculations, since they are done by weight, the actual weight is used (in this example, 48g).
- You will need to keep some retention samples for your own reference (to check stability and quality over time) and need to allow for some product as waste (when manufacturing larger quantities, you will have residue left in equipment you can’t access).
- In this example, let’s divide our 2kg by 48g = 2000 / 48 = 41.6 jars. We could therefore, with waste, expect 40 jars. Let’s hold on to 3 jars for stability testing and quality checks; we would therefore have 37 jars to sell.
I can then divide the total batch price (from step 4) by 37 (the amount of jars I can realistically sell allowing for waste and retention samples), and that will give me an overall price per unit.
Additional tips to grow your cosmetic business fast
Now that you have calculated the cost of your cosmetic formula, what price should you sell it for? The general rule is to sell it for twice the cost to produce, so that you have funds to allocate to sales, marketing, administrative costs and of course, some profit. Learn how to set prices and what else you’ll need to consider when setting up a brand with our Build your Brand workshops or get full professional cosmetic brand management training with our Diploma of Cosmetic Brand Management.
There are additional things you will need to consider to start a cosmetic business fast, such as:
- Labels and claims compliance – this is taught in the Diploma of Cosmetic Brand Management or you can study it as a quick certificate option, with our Certificate in Cosmetic Labels & Claims.
- Find a strong point of difference to ensure your brand is successful – this is taught in our Diploma of Cosmetic Brand Management or you can study it as a quick certificate option, with our Certificate in Cosmetic Market Research.
- Effective social media and marketing – this is taught in our Diploma of Cosmetic Brand Management or you can study it as a fast workshop option with our Social Media for Cosmetic Brand workshop series.
- Quality and shelf life – learn this as part of our Certificate in Advanced Cosmetic Science program or Diploma of Personal Care Formulation, or study it as a quick certificate option, with our Certificate in Cosmetic Quality & Stability or Stability testing workshops.
- If you are starting to manufacture cosmetic products in batch sizes of 5-10kg or more, you will benefit from our how to manufacture cosmetics in small batch workshop series.
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