How to Start an Essential Oils Business
Essential oils are becoming more and more popular, particularly in aromatherapy and skin applications. If you have ever tried to make your own oils, why not turn it into a business? You could make a living, be your own boss, and be creative.
An essential oils business makes and sells essential oils in a shop, to retailers, or online. Some essential oils shops also offer aromatherapy services.
Essential Oils Industry Summary
According to Grandview Research, the essential oils market demand was 247.08 kilotons in 2020, and its popularity is expected to grow 7.5% per year through 2027. According to Statista, the global market size was $17 billion in 2017 and is projected to grow to $27 billion by 2022.
The trend to use essential oils for aromatherapy, skincare, and alternative healing is expected to continue. Some research has shown that they have medical benefits, so increasing positive study results will increase demand. The lack of side effects is another factor that will increase demand.
Your target market will be people seeking the health and skincare benefits of essential oils.
Skills, Experience, and Education Useful in Running an Essential Oils Business
There are several specific skills that you will need to open an essential oils business.
- Experience. Experience making your own oils would be extremely valuable.
- Education. You will need to educate yourself on various types of oils and how to make them.
- Business knowledge and experience. You will need to have at least some basic knowledge of marketing, finance/accounting, and human resources.
- People skills. You’ll need to be able to build rapport with your customers so that you retain them as customers and keep them coming back.
Checklist for Starting an Essential Oils Business
If you’re thinking about starting an essential oils business, it’s important to do your research first. Here is a checklist to help you get started.
Step 1: Write a Business Plan
After coming up with the idea, the next step in starting your essential oil business should be to write a business plan. The business plan will make you focus on some important aspects of the business, such as who your customers are, how you plan to reach them, projecting sales and expenses, your value proposition to use for marketing, and more. You’ll also need to do some research to calculate exactly what your startup expenses will be and your ongoing expenses.
Not only will a bank require you to have a business plan if you need financing, but multiple studies have shown that having a good business plan increases the odds of starting a successful business. Writing the plan helps you think through all the aspects of the business and then serves as a guide as you begin.
Related: How to write a business plan
Step 2: Name the Business
Finding the perfect essential oils business name can be challenging. Not only does the name have to reflect what you do and be appealing to customers, but it also has to be available to use. You can check your state’s website to see if the name is available and register your name. Your name should make you stand out, reflect your brand, and tell potential customers exactly what you do.
Step 3: Form a Business Entity
A business entity refers to how a business is legally organized to operate. There are four primary business entities 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 an essential oils 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 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 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: Select your Location
Most essential oil businesses are sold via MLM (multi-level marketing or also referred to as network marketing), where the owner sells directly to friends, family, and word of mouth. Additionally, a high-traffic location could be used for visibility, such as a kiosk in a mall.
Related: Choosing a business location
Step 5: Apply for Business Licenses and Permits
You may 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.
Some common local, state, and federal registrations an essential oils company need include a sales tax permit and an Employer Identification Number.
Step 6: Find a Supplier / Manufacturer
Finding a quality supplier that uses quality ingredients is important in order to keep customers reordering from you. Several suppliers will drop ship your orders, which keeps the need to invest in inventory lower than having to always have stock on hand.
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
An essential oils business will need to set aside a budget to cover marketing costs on a continuous basis. Common marketing techniques for an essential oils business include social media marketing and online advertising. Developing a website can be a significant expense, but it can also give your essential oils business greater visibility online.
Step 9: Get Insurance
There are several types of insurance to consider when starting an essential oils business. A few of these include:
– General liability insurance can help protect you from third-party claims of bodily injury and property damage.
– Professional liability insurance protects you from claims of professional errors or negligence that result in a financial loss.
– Worker’s compensation insurance covers expenses like medical bills and legal fees that a business might face if an employee were ever hurt while working.
The cost to insure an essential oils business will vary based on a number of factors. To get the most accurate idea of what to budget for insurance, request quotes from multiple providers. When comparing the quotes, consider not only the premiums but also how the plan exclusions, coverage limitations, and deductibles compare.
Step 10: Hire Employees
If you need employees to help grow your essential oil business make sure that you select people with appropriate experience and training.
In addition to salary costs, your budget will also need to include other employee-related expenses. Workman’s comp insurance, unemployment insurance, and paid time off are common expenses that a business will need to cover when hiring staff.
Related: Hiring your first employee
Step 11: Set up an Accounting System
Setting up an accounting system for your essential oils business 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.
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 an essential oil business?
Here are the typical costs you will face when you open an essential oils business.
– Starter kit – which includes 12 oils, a diffuser, and other items – $200
– Initial marketing such as Facebook ads or search engine optimization for your website $500 -$1,000
How much money can you make with an essential oils business?
The price for a small bottle of essential oils is between $10 – $30, but they are often sold in sets. If you sell sets of 6 at $120 and sell 10 sets per day, you will make $438,000 in annual revenue.
Are there grants to start an essential oils business?
It’s extremely rare to find a grant to start an essential oil 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 an essential oils business?
The NAICS code for an essential oils business is 311811.
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.