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How to Start a Skincare Line

How to Start a Skincare Line

Many people know that sunblock helps prevent skin aging and complications. But for many, skincare goes beyond simply applying sunscreen or anti-aging cream. As a result, skincare products are growing in popularity and were the highest-selling category among beauty products in 2021. Many skincare brands have succeeded in this industry, selling products ranging from acne control to overnight creams.

Because the skincare industry is increasingly competitive, businesses with unique products or targeted remedies tend to stand out and do well. So, if you are interested in skincare and getting in on an industry that’s expected to grow, starting a skincare business may be an ideal opportunity.

Business Description

A skincare business develops and sells individual cleansers, creams, lotions, and toners. They also create products that target a specific concern, such as aging or acne. The products are sold through websites, retail stores, or contracts with other companies like spas and hotels.

When a skincare business develops a new product, the launch usually entails—

  • Development and testing. After brainstorming several product ideas, the business will formulate, blend, and test its products. Product development also includes bottle and label design.
  • Manufacturing. Once a product has been developed, it is sent to a manufacturer to produce on a large scale. Manufacturers typically have a minimum order quantity (MOQ), with the minimums generally starting at 1,000+ pieces per order.
  • Sales. Finally, the products are sold through websites and retailers for profit after thorough testing and production.

Industry Summary

The cosmetic and beauty manufacturing industry generates $48 billion annually. The U.S. has approximately 4,300 businesses developing cosmetic and beauty products for sale globally. 

Beauty and cosmetic manufacturing has seen revenue fluctuation over the last five years, with an overall average decline of 0.7%. However, the industry has recovered some growth in 2022 and grew by 1.4% compared to the year before. 

Industry Trends

Some trends that have caused a decline in revenue for the beauty and cosmetic industry are expected to change in the coming years. 

Growth. Statistics reveal that Gen Z is one of the largest consumers of skincare products. As that population continues to enter the workforce and build wealth, the demand for the skincare industry will likely grow with them.

Challenge. Competition is one of the main challenges for skincare brands. Each year, the number of new beauty and cosmetic manufacturing businesses increases. For instance, cosmetic and beauty products manufacturing increased by 3.4% in 2022 and, over the last five years, has grown by an average of 4.7% each year.

The growth in new businesses increases the competition among sellers, making it challenging for a new skincare business without a solid reputation to break out and succeed.

Target Market

Skincare is a top beauty category shopped for among all age groups, according to a study by Statista. However, Gen Z spent most of their beauty care spending on skincare products and made up the largest group of purchasers of skincare products. These statistics reveal that although skincare matters across all age groups, there is a considerable emphasis among buyers aged 18 ­– 24.

Social media has also played a role in the growing interest in skincare. So, developing a marketing plan that includes a prominent social media presence is important for your business’s success.

When you think about starting a skincare line, what comes to mind? Do you think it’s something only big businesses can do? That’s not the case at all! In fact, there are many small businesses who have started their own successful skincare lines. So, how do they do it? And more importantly, how can you do it too?

Here, we’ll break down what you need to know in order to start your own skincare line. Are you ready to get started? Let’s go!

Step 1: Write a Business Plan

Starting a skincare business can be exciting, but it’s important to remember that success won’t happen overnight.

A business plan is essential for laying out your goals, identifying potential challenges, and creating strategies for success. This document will also come in handy if you are seeking funding from investors or banks. Additionally, having a strong business plan can help you stay organized and on track with your goals as your business grows and evolves.

Without a clear plan in place, it’s easy to get overwhelmed and lost in the day-to-day tasks of running a business. So before diving into launching your skincare line, make sure to spend some time developing a solid business plan. It may seem like extra work upfront, but it will pay off in the long run.

Related: How to write a business plan

Step 2: Name the Business

Coming up with the perfect name can be a struggle. One approach is to start thinking about the main benefits or selling points of your products. Are they organic? Anti-aging? Ecologically friendly? If this fits, you can incorporate words or phrases relating to those qualities into your brainstorming sessions.

It can also be helpful to look at names of successful skincare lines for inspiration, just make sure to stay away from copycat titles.

Another approach is to focus on the key benefits or unique qualities of your products. For example, a nourishing facial oil could be called “Nurture,” or a brightening serum could be called “Illuminate.” Another option is to choose a name that evokes the feeling or experience you want your customers to have while using your products. “Elevate,” “Indulge,” or “Renew” are all options that convey luxury and rejuvenation. Alternatively, you could opt for a more literal name that directly describes your product, such as “Facial Cleanser” or “Anti-Aging Moisturizer.”

The important thing is to choose something that accurately represents your brand and what sets it apart from other skincare lines.

Related: Tips on naming a business

Step 3: Form a Business Entity

A business entity (also referred to as a business structure) refers to how a business is legally organized to operate. There are four primary business structures to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.

When deciding on which business entity is best for a skincare line, it normally comes down to the sole proprietorship and Limited Liability Company.

A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay.
 
The corporation can be a good choice to minimize liability risk because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.

That leaves the sole proprietorship and LLC.

The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is that the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.

Related: Guide to forming your LLC
 

Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.


Some popular LLC formation services include:


IncFile - $0 plus state fees & free registered agent for 1 year!

IncAuthority - $0 plus state fees & free registered agent the first year!

ZenBusiness - $49 plus state fees & free registered agent for 1 year!

Step 4: Produce and package your products

One important and often most time-consuming step is finding the right supplier for your ingredients and packaging. It’s important to do your research and find a reputable supplier that will help support your new business. Be sure to look at minimum order quantities and small batch processing to be sure your products are profitable.

To find potential suppliers, consider reaching out to small skincare brands that you admire (and aren’t going to compete against) and asking for recommendations. You can also attend trade shows and networking events to connect with potential suppliers in person.

Step 5: Apply for Business Licenses and Permits

There can be specific regulations for skincare businesses to be aware of.

For starters, the Food and Drug Administration (FDA) doesn’t license cosmetic firms, however, they do regulate the ingredients of cosmetics under the Federal Food, Drug and Cosmetic Act (FD&C Act). Under this law, cosmetics must be safe for consumers, and they must be properly labeled and not deceptive. 

There are also certain color additives and ingredients that are prohibited or restricted by FDA regulations.

Products can be registered under the Voluntary Cosmetic Registration Program (VCRP).

In addition to cosmetic-related regulations, there are general licenses and permits that may be necessary. Requirements vary by state, but commonly a skincare line will need a local business license, sales tax permit, and Employer Identification Number (EIN).

Related: Common business licenses, permits, and registrations by state

Step 6: Find Financing

Starting a skincare line can be a rewarding venture, but it can also come with costly start-up expenses. One option for financing your business is to take out a small business loan.

Many banks offer loans specifically for startups, and the application process is relatively straightforward. Another option is to raise funds through crowdfunding platforms such as Kickstarter or Indiegogo. You can set a fundraising goal and offer rewards such as discounted products or personalized thank-you notes to incentivize potential investors. Finally, consider approaching family and friends for financial support. They may be willing to invest in your dream and becoming a successful entrepreneur.

Related: Finding the money to start a business

Step 7: Open a Business Bank Account

Keeping your small business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
 
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.

Step 8: Get your Marketing Plan in Place

When it comes to marketing a skincare line, the most important thing is demonstrating the effectiveness of your products.

Before launching any campaigns, make sure to gather feedback and testimonials from satisfied customers. These can be used in advertising materials or even incorporated into an influencer partnership or on social media platforms. It’s also helpful to offer sample sizes or discounted starter kits to give potential customers an opportunity to try out the products before committing to a full-size purchase.

In addition, focusing on an specific aspect or target audience (such as anti-aging or men’s skincare) can help consumers understand the unique benefits of your line and how it stands out amongst competitors.

Finally, don’t underestimate the power of word of mouth and customer referrals; consider implementing a referral program as part of your marketing strategy. Overall, careful consideration and promotion of your products’ results will ultimately drive sales for your skincare line.

Related: Low-cost ideas to market a new business

Every business is going to need a logo. Make a professional logo in no time with the free logo makers from BrandCrowd and Canva.

Step 9: Get Business Insurance

When starting a skincare line, it’s important to make sure you have the right insurance coverage in place. First and foremost, product liability insurance will protect your business from any potential lawsuits arising from the use of your products. If in addition to products, you will be providing any services, a general liability policy will cover any losses if a customer were harmed on location. Additionally, if you have employees, worker’s compensation insurance is usually required.

Related: Types of insurance your business may need

Step 10: Set up an Accounting System

While every business needs to have some kind of accounting system in place, skincare businesses have some unique considerations. For example, tracking inventory is important for any business, but it’s especially crucial for a skincare business to accurately keep track of expiration dates on products. In addition, many skincare businesses sell physical products as well as services such as facials and peels, so a reliable point-of-sale system can be essential for properly tracking sales and revenue.

Ultimately, the specific accounting system a skincare business chooses will depend on factors such as their size, budget, and specific industry needs. Working with a professional accountant or financial advisor can help ensure that the right system is chosen and implemented correctly.

Related: Setting up the accounting for your business

The thought of accounting can be intimidating for a lot of new entrepreneurs. There are a number of ways of handling bookkeeping, from DIY to hiring a bookkeeper. These include:

- Pen and paper - Low expense, but difficult to track.
- Spreadsheet - Low expense, but easy to make errors.
- Accounting software - Medium expense, but owner typically inputs expenses. Some great accounting software programs include Freshbooks or Wave Accounting.
- Hire a bookkeeper - Higher expense, though very affordable at $100-$200 per month in most cases. A dedicated bookkeeper will probably save money because, in addition to handling all of the bookkeeping (so you can focus on the business), they also provide personalized tax advice and ensure the business is in compliance.

Find bookkeepers in your local area or use a service like 800Accountant.

How much does it cost to start a skincare line?

A new skincare business can cost at least $7,000 to start and will likely exceed $10,000. But, of course, how much you do yourself at home and how much work you outsource to others modifies the overall cost.

Business formation. Some of the first things you will spend money on are business licenses, permits, and insurance. These three things are essential when starting a new business because they are preventative measures to avoid expensive fines and liabilities.

Licenses and permits vary by state but will generally cost less than $1,000
Insurance also varies, and policies renew yearly. It’s best to get insurance quotes from 2 – 3 companies to compare coverage options and pricing. 

(Note, the FDA may have regulations on some of the ingredients used in your products. Because of this, your business may require extra licenses. So, consider hiring an attorney to help determine what licenses apply to your business.)

Product development and testing. Ingredients and materials for development and testing are another initial cost. If you develop and test your products at home, you will need to get your own ingredients, many of which can be found in craft stores or local shops. 

However, you can use a service to produce and formulate your products for a fee. Formulation packages vary between companies, but Bellus advertises their service at $1,950.

Design and marketing. Design and marketing costs are other beneficial categories to budget for. For example, designers can help you develop your brand and bottle designs. The average hourly rate for freelance product designers is $44 per hour. Similarly, marketing professionals create advertising and marketing plans for around $26 per hour.

Manufacturing. If you decide to make your products at home, then you will bypass manufacturing costs. Instead, you will need to purchase supplies to produce, package, and ship your products from your home or office.

A manufacturer will likely cost more upfront because they require you to place a minimum order called a MOQ (minimum order quantity). For many manufacturers, the MOQ starts near 1,000 pieces.

For example, Genie Supply is a skincare manufacturer and estimates a minimum starting budget of about $3,000 per product, with a MOQ of 1,000 ­– 2,500 pieces, meaning each piece costs about $3 to manufacture.

Website. You will need a professional, secure website to sell your products online. A typical rate for a professional web designer is around $2,000. However, you can use website builders like Wix to design your own website for a minimal fee. 

How profitable is a skincare line?

Skincare products have a huge price range—largely dependent on quality and brand reputation. Many skincare products found at your local drugstore retail for less than $30. However, cosmetic and beauty stores like Ulta or Sephora sell more expensive skincare items that exceed $100. 

So, let’s say you market your product at $30, the high end of drugstore prices. Assuming you spent $3 to manufacture that product, you earn $27 in profit after the sale.

Since you purchased the manufactured products at an MOQ, let’s assume you invested $3,000 for 1,000 pieces. Once every part is sold, you will have earned a profit of $27,000.

Are there grants to start a skincare line?

It’s extremely rare to find a grant to start a skincare line. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.

Legitimate federal grants can be found at Grants.gov, and you can check on your state’s economic development office to see if they have any grants available.

What Skills Are Needed to Run a Skincare Business?

Starting any business requires a base set of skills—such as attention to detail and motivation. However, creating a skincare business will require a slightly more defined skillset to launch a successful product line.

Understanding of the skincare industry. Knowing what sells and what buyers want will help you appeal to your market and be successful. For example, knowing which ingredients and fragrances work well together will help you produce, market, and sell a desirable product.

Design and branding. Developing a solid product is crucial, but so is your product’s design and branding. Because many customers shop online, focusing on appealing product designs and branding are increasingly important.

Sales and marketing. Given the high competition in this industry, you may need more than having a great design, product, and brand to get you the sales you want. So, having a knack for sales and marketing (especially social media marketing) helps broaden your client base and improve your brand recognition. 

Knowledge of safety and labeling laws. Since you are creating a product that is absorbed into the body, it has the potential to cause unintended reactions. So, knowing product safety and carefully labeling products protects you from liabilities and your customers from harm. 

Additionally, some skincare products may fall under the drug category with the FDA. For example, moisturizers with SPF commonly fall under the drug category and require FDA approval before the product launches.

What is the NAICS code for a skincare line?

The NAICS code for a skincare line is 325620.

The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.

Related: What is a NAICS code?

Final Thoughts

Many people are willing to spend money on skincare–especially good-quality skincare products. SkinStore‘s research found Americans will spend $15,000 on skincare in their lifetime. So, a skincare line can be a great opportunity to produce a product and resell it for a far higher price.  

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