The cosmetics industry is worth $532 billion, so there’s plenty of space for a brand-new cosmetics company to succeed. If you have a passion for skin care, makeup or hair, this can be a really creative and rewarding business, but it’s by no means easy. Starting a cosmetics business from home takes a rather sizeable upfront investment. Plus, everything from your ingredients to your marketing plan will be regulated. There are some things to consider — from cosmetics business ideas to your company's structure — before jumping right in.
Does Starting a Cosmetics Business Make Money?
You may have read the Forbes article that dubbed Kylie Jenner the youngest self-made billionaire. The idea of a reality star being “self-made” was bound to become a Twitter meme, but let’s focus on the billionaire part. Yes, it’s true that a cosmetics business can make you a boatload of money, but it’s difficult to do it on your own.
As of 2017, just seven conglomerate beauty companies owned 182 of the most popular beauty brands. Nonetheless, independent makeup moguls like Jeffree Star, who launched his cosmetics line in 2014, still manage to sell more than $100 million worth of makeup annually. For comparison, the average Avon representative makes around $135 per month, according to a 2015 Avon annual report.
There is, of course, a middle ground between millions and $100. This is where most cosmetics businesses fall.
Pick a Sector of the Industry
There are a lot of different types of cosmetics business ideas, so try to figure out which route your company is going to take. Most likely, you’ll be choosing from a couple of different cosmetics business ideas. You can go the route of influencers like Jeffree Star and Huda Kattan and start your very own makeup line or launch a company like Milk Makeup, which is a hybrid of makeup and skin care. There’s no one formula. Options include:
- Skin care: Skin care makes up 30% of all cosmetics sold, which is the largest market share of any other cosmetics category. This includes things like soaps, facial washes, toners, serums and anti-aging creams. It even includes sunscreen and sunless tanners.
- Hair care: Hair care is responsible for 25% of all cosmetics sales. This includes things like shampoo, hair dye, conditioner, serums, sprays and styling mousses.
- Color cosmetics: This is the most regulated of all cosmetics because the government restricts what can and can’t be used in coloring, particularly around the eye. Typically, you think of color cosmetics as makeup, but it also includes products like nail polish. This sector makes up 20% of all cosmetics sales.
- Fragrances: Celebrities make big bucks in the fragrance industry. Fragrances only make up about 10% of all cosmetics sales. According to Glassdoor, perfumers (or perfume chemists) make around $128,450 a year, but you’ll likely be hiring a lab to create your scent if you go this route.
- Personal care products: This includes products like toothpaste, mouthwash, whitening products and antiperspirants. Personal care products make up 15% of all cosmetics sales.
Find Your Niche With Some Peer Research
After you choose the sector (or sectors) on which your cosmetics business is going to focus, you need to pick your niche. The most successful cosmetics companies have a clear focus and a decisive brand. They know their customers inside and out, which is an important thing to include in your cosmetics business plan.
For example, Rihanna’s Fenty Beauty line has an emphasis on makeup that dazzles on darker skin tones, though it does carry shades that suit fairer customers. Glossier is known for its barely there, “your skin but better” makeup looks and Lime Crime is known for its bold, wild colors like bright blue lipsticks and glittery lip toppers.
Before starting a cosmetics business, take a solid look at your favorite cosmetics companies. To whom do they market, and who is their customer? Are they marketing to teens, 20-somethings or middle-aged women? Remember that skin is different across the ages, so what works for a younger person may not look as great on mature skin. Decide whom your customer is and build your brand around that.
Custom or Wholesale?
Once you know for whom you’re making products, you can actually make the products. This can be done a number of ways. You can buy wholesale pigments and repackage them with your brand’s label, or you can create your own formulas.
The former is often utilized by indie makeup brands that sell their cosmetics on small marketplaces like Etsy. There are a number of private-label cosmetics companies that will do the legwork for you. You can simply choose already existing cosmetics from their product line, and they’ll customize them with your logo. The downside is that a number of other cosmetics lines might be selling the exact same product, but it’s a lot cheaper than starting from scratch, and there’s no product development phase.
If you want to manufacture your very own custom formulas with custom packaging, you’ll need to find a manufacturer who specializes in product development. You’ll have to search for a laboratory with a good track record and value, or you might end up facing a similar fate as Jaclyn Hill, whose contaminated makeup products caused a mass online uproar and forced her to issue refunds to all of her customers. It’s best to always inspect the laboratory in person because you don’t want to drop thousands on products you can’t put on the shelf.
Create Your Business Plan
A cosmetics company isn’t really a hobby you can start and scale into a full-fledged business. They’re expensive, so it’s important to have a solid business plan. All business plans should include things like estimated startup costs, monthly overhead, marketing plan, pricing, product lines and estimated revenue. Investors or banks want to see that you have a clearly outlined path to profitability.
Get the Financing
It’s extremely likely that launching a medium-sized cosmetics line will cost more than $150,000 if you’re going the route of working with a private laboratory to create your own custom formulas. It’s difficult to start with less than $2 million. You’ll need to get financing, so you should have a pretty solid plan that you can print out and bring with you to the bank.
If you’re not independently wealthy, you’ll most likely need to get a business loan, but you can also opt for crowdfunding websites like Kickstarter. Crowdfunding is easier if you’re creating a product people can’t get anywhere else because they’re more willing to preorder and wait months for the development.
Handle the Legal Requirements
The first major step in starting a cosmetics business in the eyes of the law is to determine your business structure. You’ll likely choose from a sole proprietorship, a limited liability company, a partnership (if you have partners), a corporation or an S corporation. This tells the IRS how you’re going to pay taxes and what allowances you have.
Each structure has its own benefits. For example, a corporation's debt is not passed onto its partners, so you don’t put your personal assets at risk if that’s the structure you choose. LLCs provide owners with liability protection without the double taxation of a corporation, which makes it extremely popular for small business startups.
You can apply for an LLC online, but you’ll want to consult an accountant or tax attorney before you make the final call. This is also when you’ll want to get the required insurances and a business license from your local municipality.
Mind the Regulations
What most people don’t consider when starting a cosmetics business is that cosmetics are highly regulated. Although the FDA considers the rules to be lax when compared to other industries, there are hard-and-fast rules about what you can and cannot use in your products based on the application. What’s safe for the skin might not be approved for use on the eyes and lips, and all ingredients must be clearly listed on the packaging. This backfired for Huda Beauty in 2017 when it had its Lip Contour Duo lipsticks rejected at U.S. customs because they contained unapproved color additives.
There are some tricky labeling loopholes that companies use to dance around FDA laws. For example, makeup companies notoriously market brighter neon shades as eye shadows but label them as “pigments.” This is because many neon colors have not been deemed safe for eye use by the FDA, even if many of these shades are permitted for eye use in the European Union, which has notoriously stricter ingredient laws.
The FDA also has regulations for what it considers “combo” products. These products don’t just color the skin but act as an actual drug as well. For example, a tinted sunscreen would be considered a combo product because it first changes the appearance of the skin and then prevents harmful UV rays. Consult the Center for Drug Evaluation & Research for a full list of regulations and laws regarding combo products.
Refine Your Product Line
When you’re starting a cosmetics business, you’ll want to initially launch with a couple of options. It’s a good idea to start small rather than hit the market with dozens of expensive products. You want to build your customer base first and then keep them coming back for more.
For example, Jeffree Star Cosmetics launched with just three shades of liquid lipstick and later expanded its product line to highlighters, lip scrubs, lip glosses, traditional bullet lipsticks, eye shadow pallets, brushes and concealer. You don’t need to bankrupt yourself. Let your successes fund your company’s future.
Whether you’re working with a lab or a private-label cosmetics company, start with a small number of options. You might choose to launch with three hair-dye shades or a single shampoo and conditioner set. Figure out which formulas best represent your brand.
Pay Attention to the Marketing
Marketing is one of the most important parts of running a successful cosmetics business, but there are a lot of regulations on how you can market your products. According to Pacific Standard, as long as your marketing materials don’t claim your product can “mitigate, treat, or cure disease, or otherwise affect the structure and function of the body in any way,” then it’s considered a product and not a drug, and you won’t have to prove its function.
FDA regulations are the reason you often see face creams claiming to “reduce the appearance of wrinkles” but not “cure” wrinkles and “promote” the production of collagen rather than a less-ambiguous claim. You’ll likely want to consult an expert marketer and legal team if you’re working with skin care that’s a combination product.
Influencer marketing is one of the more popular marketing methods. Since cosmetics typically provide an aesthetic value, you’ll want to have a heavy focus on Instagram and YouTube, where visuals reign supreme.
- Seventeen: Everything You Need to Know About Makeup Guru Jeffree Star
- Insider: These 7 Companies Control Almost Every Single Beauty Product You Buy
- The Finance Guy: Can You Make Money With Avon
- Glassdoor: Perfumer Salaries
- Cosmetic Index: Private Label Cosmetics Companies
- Refinery29: Neon Eyeshadow Has Never Been More Popular, But Is It Safe?
- Small Business Brain: How Much Does it Cost to Start a Makeup Line?
- Entrepreneur: Business Structure Basics
- Racked: It Costs $2.50 to Make Lipstick — Here’s Why You’re Charged So Much More
- Pacific Standard: How Cosmetics Companies Get Away With Pseudoscience