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How to Start a Soap Making Business

Overview

How to Start a Soap Making Business

Soap making may be an entertaining pastime, but when done right, it can be a profitable business venture, too. If you love making soap in your home, it’s possible to transform this hobby into a business. But starting a soap making business involves much more than just making soap. From marketing skills to creativity, read on to find out what you’ll need to start a business of your own successfully.

Business Overview

Soap making has been a popular hobby for years, but some talented creatives are putting their skills to work by making and selling soaps. Soap makers typically create handmade, unique soaps that offer quality and features that commercial, large-scale soap products don’t offer. Soap makers may sell their soaps online through their own e-commerce websites or on sites like Etsy. They may also negotiate space in gift stores and smaller shops to reach a larger audience.

Many soap makers work out of their homes, which can save businesses money over renting space. Soap makers often handle their own marketing, packaging, and shipping, too, so talents and knowledge across multiple skill sets are important in this industry. Larger businesses may expand into more formal business spaces, but many businesses stay small but profitable.

It’s important to realize that only a small portion of your time will be spent making soap when you have a soap making business. Modern Soap Making estimates that you should spend just 20% of your time making soap. The rest of your time will be devoted to other elements of your business, like product photography and marketing.

Industry Summary

According to IBIS World, the soap and cleaning compound manufacturing industry has dealt with competition from foreign manufacturers. These manufacturers have lower wages and operating expenses, and as a result, they’re able to produce competitively-priced products, driving down market prices. United States industry revenue decreased from 2015 through 2019, and in 2019, the industry was a $41.6 billion industry. IBIS World predicts that the industry’s revenue will increase moving forward, though.

As of 2019, the soap manufacturing industry consisted of 4,817 businesses. Those businesses employed a total of 49,634 staff.

Keep in mind that these statistics reflect commercially manufactured soaps. Statistics on the handmade soap industry are limited but handmade, and specialty products have a unique set of benefits that can help them compete against these commercial products. Using all-natural products to deliver quality and features that larger operations don’t offer, smaller soap making businesses can carve out their own markets.

Related Industries

Craft Business
Candle Making
Etsy Shop

Gift Basket
Jewelry Making

Industry Trends

Many trends are affecting the soap making industry. According to Twin Craft, consumers increasingly want to buy soaps from ethically and environmentally responsible companies. Cruelty-free and vegan soaps are highly valued, and customers want to know where and how the products used in soaps were sourced.

The self-care trend has recently shaped the wellness market, and self-care should continue to be popular in the near future. Because bathing is seen as a wellness ritual, the emphasis on self-care means that consumers are seeking bath products that promote relaxation and healing. Soaps that promote a spa-like experience are in-demand, and lavender soaps or bars of soap with natural fragrances can promote relaxation.

While soap scents and ingredients matter, soap makers also need to create visually appealing products. This visual appearance matters now more than ever because of visual social media platforms like Facebook, Pinterest, and Instagram. These platforms can help sell products, but consumers may also buy products knowing that a product’s unique look will help them take a social media-worthy photo while using that product.

Trends also influence soap trends in other industries, like pop culture and cooking. The Soap Queen blog references soap makers who have been inspired to design soaps to reflect unicorn, Minions, and cake decorating trends.

Target Market

While everyone uses soap, soap making businesses tend to target more specific audiences. A soap maker might market to adults who value vegan, eco-friendly products. Another business might market to buyers who like to give beautiful soaps as gifts. The specific target market will largely depend on a business’s branding and the products that it creates.

Checklist for Starting a Soap Making Business

Starting a soap making business can be an incredibly rewarding experience, but it’s important to make sure you’re prepared for the challenges ahead. Use this checklist to help get your business off on the right foot.

Step 1: Write a Business Plan

After coming up with the idea, the next step in starting your business should be to write a business plan.  Not only will a bank require you to have a business plan, but multiple studies have shown that a business plan helps increase the odds of starting a successful business.

Related: How to write a business plan

Step 2: 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 soap making business, 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 3: Name the Business

Finding the perfect business name can be challenging. Not only does the name have to resonate with your customers, but it also has to be available to use.

Related: Tips and ideas for naming a soap making business

Step 4: Select your Location

It’s possible to start a soap-making business out of your home’s kitchen, saving on rental costs. As the business expands, you might choose to rent a storefront or workshop space. Rental costs will depend on the type of space, size, location, and available amenities.

If you are working out of your home and renting, be sure to check out your rental contract first before starting.

Related: Choosing a business location

Step 5: Apply for Business Licenses and Permits

A soap making business owner will need to obtain certain business licenses and permits. These permits and licenses can vary based on the state and town where the business is located.
Soap is a complicated product in the eyes of the FDA.
Depending on its ingredients, it can be considered cosmetic, a drug, or both. The regulations surrounding each type of soap vary, and states and cities may also have additional regulations on soap making.

Additionally, some general local, state, and federal registrations are will be needed such as a business license, sales tax permit, Employer Identification Number, and Occupancy Permit, among others.

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

Step 6: Find Financing

Since this business can be started off very inexpensively, most people start their soap making business without any outside loans or investment. If a small business loan is needed, borrowers (s) will need to have good credit and personally invest 15-25% towards the total start-up costs.

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

Marketing is particularly important for soap making businesses, especially because many of these businesses don’t maintain storefronts where customers can see the products. Instead, soap makers rely on marketing techniques like social media marketing on platforms, online advertising, and even print advertising. Some business owners may network with other local store owners to sell the soaps in the stores. Local farmers’ markets, craft shows, and other events also make for good venues to display your soaps.

Photography is also often a challenge for soap makers. When selling your soaps online, good photography matters. Photos need to be clear and well-lit. Soap makers will either need to hire a photographer or learn how to take quality photos themselves.

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 Canvaa logo maker!

Step 9: Get Business Insurance

There are several types of insurance to consider when starting a soap making business. A few of these include:
– General liability insurance protects the businesses against expenses and lawsuits that could result if a customer is ever injured on the business’ property or by the business’ products.
– Worker’s comp insurance helps cover expenses like medical bills and legal fees if a business employee is ever hurt while working.
– Property insurance – If you are working out of your home, be sure to check out your homeowner’s policy as many won’t cover accidents and damage from business activity.

Insurance costs will vary depending on the business’ size, location, and even the value of its inventory and equipment. Call multiple insurance providers and request quotes to get a sense of what insurance will cost. When evaluating the quotes, consider how the premiums, plan exclusions, coverage limitations, and deductibles compare.

Related: What types of insurance does a soap making business need?

Step 10: Hire Employees

Many soap makers will run their businesses entirely by themselves, but they may choose to hire staff to help as that business grows. ZipRecruiter reports that soap makers earn an average of $47,304 per year, though salaries can range from $17,000 to $110,500.

If a business owner decides to hire an employee, they’ll need to budget not only for salary costs but also other related expenses like workman’s comp insurance, unemployment insurance, and paid time off.

Related: Hiring your first employee

Step 11: Set up an Accounting System

Setting up an accounting system is critical to the long-term success of your business.

Staying on top of taxes not only keeps the business out of trouble with the government, but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.

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 soap making business?

One of the major benefits of starting a soap making business is that it’s one of the most affordable types of businesses you can start. It’s possible to pursue soap making on a small scale on the side, gradually buying more equipment and supplies only as the business grows. Startup costs for a small operation can be as little as $1,000.

Some of the items to buy when starting a soap making business include:
– Soapmaking equipment like stainless steel bowls, plastic jugs, and silicone soap molds
– Inventory of ingredients like lye, oils, fragrances, glycerine base, butters, micas, oxides, etc.
– Camera for product photography
– Packaging and labels

How much can a soap making business owner make?

Soap making businesses can be profitable, but data on those specific profits are hard to come by. The One More Cup of Coffee blog estimates that Etsy store, the Little Flower Soap Co., likely makes about $80,000 per year, based on the store’s sales and average product prices. Remember that expenses need to be factored into that income, too, so exact profits are unknown.

Profits will vary significantly from business to business. Factors like whether the business is run part-time or full-time, how the business sells its soaps, its profit margins, and the number of years the business has been in operation will all affect its profits.

Modern Soap Making notes that it’s particularly important that soap makers not try to compete on price alone. The market is so saturated with soap makers that if you price your products simply so that they’re competitive with the lowest-priced soaps for sale, you won’t be able to make a profit. Instead, focus on delivering quality products and pricing your soaps appropriately.

What skills are needed to run a soap making business?

While starting a soap making business doesn’t require a business degree, certain skills and experiences can increase the chances of that business becoming a success.

Soap making experience. Making soap can be challenging, and getting consistent, quality results batch after batch is even more of a challenge. Previous experience or education in soap making techniques will be helpful and can help to soften the learning curve when starting a soap making business.

Understanding of aesthetics. Soaps need to be visually appealing, so an eye for aesthetics and overall design can help a soap maker to create products that look great on shelves and in photos.

Knowledge of fragrance and color blending. As soap makers get more advanced and creative in their products, knowledge of fragrance and color blending techniques can help them create truly unique soaps that will stand out from the competition.

Attention to detail. Details matter when making soaps, packaging them, and presenting them. An eye for detail is a valuable skill in this business.

Marketing skills. Many soap makers don’t have their own stores, and they often market their products themselves. Some experience with online marketing and in-person networking will be an advantage.

Customer service experience. A soap maker who has previous customer service experience will know how to provide a great customer experience to increase customers’ chances of returning.

Creativity. The soap making industry is highly saturated, so a business owner needs to be creative in designing unique products that will stand out from others.

Are there grants to start a soap making business?

It’s extremely rare to find a grant to start a soap making business. 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 is the NAICS code for a soap making business?

The NAICS code for a soap making business is 325611.

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?

Resources:
Handcrafted Soap & Cosmetic Guild

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