The first and best thing you can do
The first and best thing you can do to get a price you’ll love is to have a manufacturing price point in mind. BPI Labs will work to meet that price point so long as we know it at the outset. BPI Labs can then help you design your product to hit your optimal manufacturing price point.
Pricing is multifaceted
There are three phases to pricing your cosmetic product
Pricing at BPI Labs is a multi-phase approach that occurs during the development or on-boarding of a custom product. The costing phases begin with the formula and its ingredients. Then there’s a phase where we consider the packaging and filling cost for your formula. The final phase has us considering additional bill of materials requirements and manufacturing agreements such as warehousing agreements, product certifications, turnkey manufacturing, non-standard testing such as assay testing, and other specifics your brand and company desire.
There are three primary variables in pricing your cosmetic product
Variables that affect the cost of your product include the cost of ingredients used in your formulation, the difficulty of obtaining and using packaging to fill your product, and the volume discounts we can apply to your orders. Read on to learn how to use these variables to your advantage and get a personal care product manufactured at a price point you love.
The variables that matter
Materials Used in Your Formulation
There is significant flexibility in pricing in the formulation of your product. Generally, the greater percentage of water present in a formulation the cheaper the materials costs will be for manufacturing. Water is one of the cheapest ingredients that can be used in a formulation, and it is certainly an essential ingredient for personal care products in most cases. Our customers, who compete on price, run into difficulty when they would like to include in their formula expensive ingredients at greater quantities than competing products. Examples of expensive ingredients include: fragrances, essential oils, OTC drugs, rare ingredients from limited sources, and premium ingredients, like materials with advertised anti-aging properties.
Our customers, who compete on price, run into difficulty when they would like to include in their formula expensive ingredients at greater quantities than competing products.
The materials price does not need to come as a shock, however, since BPI Labs can create a formulation and price it simultaneously. Your first price is a budgetary, bulk material price and it is the cost involved in just the material acquisition and compounding. If you do not like this price then we will iterate on the formulation until you have satisfactory price or until we don’t believe the formulation can be feasibly altered any further for cost savings.
Packaging and Direct Labor
There are two important considerations when it comes to packaging. First, how would you like to have your packaging purchased and shipped? BPI Labs can provide a turnkey service where we will source, purchase, and store packaging for your orders. This comes with a 20% additional cost on the packaging after it has arrived at BPI Labs. However, our customers tell us it is worth the cost if they don’t need to arrange logistics, arrange tracking, and tie up their cash in packaging. Alternatively, our customers can source, purchase, and ship packaging to our location. However, many jobs over the years have been delayed because a customer forgot to purchase and have shipped an essential packaging component.
Second, packaging that can’t be used on automated machinery will create bottlenecks that slow production speed. Special stickers, brochures, or any hand-applied packaging components increases the amount of time to complete a job. This, in turn, increases the amount of direct labor required to finish your job. The metric we use to determine direct labor is pieces-per-minute (PPM). This metric is the number of finished goods we complete every minute, and the higher this number the faster we’re completing the job. Using packaging that works on automatic machinery improves the PPM and decreases the cost of your job.
Volume discounts have a cascading affect, and they’re most important to consider with smaller orders. Shipping, materials, and fixed costs all dramatically decrease on a per unit (finished good) basis as your order size increases. BPI Labs’ volume discounts also increase to our customer; but by how much? In 2018 we did a small study of how the cost-per-piece of finished goods goes down with every increase of a thousand units ordered. We looked at over 150 products we priced over the last couple of years. The results suggest that you’ll see dramatically increasing cost savings up to 20,000 units. (These prices don’t reflect the shipping cost.)
Graph Above: The horizontal X-axis shows the number of units ordered. The vertical Y-axis shows the decrease in percent on average for all products we produce from an initial order of 1000 units on a per unit (finished good) basis. I.E. A shampoo at 1000 units could have a 75% decrease in per unit cost at 20,000 units.
It is important to interpret the graph accurately. Every point on the graph is an average price paid for all products, which means individual product categories might vary significantly in price at different order volumes. When looking at specific product categories, such as lotions or creams, there is a significantly greater degree of variance than there might be for salts or powders. The fact remains that our customers can choose to have either a premium or cost-effective product made at BPI Labs. The graph shows that your cost savings per unit purchased are most significant up to about 20 – 40 thousand units purchased.
The most important and best thing you can do to get a price you love is to have a manufacturing price point in mind at the outset of any project. Beyond that, there are three primary phases and variables influencing your product’s price. The variables include the cost of materials, obtaining and using packaging, and order volumes. BPI Labs only recoups its costs when its customers are successful in the market. Consequently, we’re highly motivated to manufacture a product for you that has market staying power and has a profit margin you love.
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