And a few comments popped up on Facebook here and there about how anyone could make a profit wholesaling their soap. So, I promised a little further look in COGS (cost of goods sold) and pricing handmade soap.
In order to wholesale successfully… Scratch that. In order to run a biz successfully, you have to know your costs so you can price your products properly. If you are guessing, it’s time to pick up the calculator and get it worked out.
Laying out the COGS on our pretend Soothing Lavender Soap…
Let’s say we make soap in 50 lb blocks. We’re going use Brambleberry’s Lots of Lather Quick Mix (for the sake of easy math!), and for this little guide we’re going to work with our Soothing Lavender Soap product (which is completely and totally a figment of my imagination.)
This is a lot of math, feel free to skip over it. If there are errors in my math, I wouldn’t be surprised. It’s just a little illustration for the sake of showing how to hit your COGS. The meat of this post is really the last sections.
35 lbs of Lots of Lather Quick Mix is now listed at $72.80, and would cost us $32.08 shipping, which totals to $104.88. According to Brambleberry’s website, you need 80.6 oz of lye and 185 oz. of water for 35 lbs of Lots of Lather Quick Mix.
If we ordered the lye from Brambleberry, it would cost $30 + $12.73 shipping for six pounds. We only need a little more than five pounds, which ends up giving us $35.61.
Onwards, for our distilled water! We need 185 oz of Distilled Water (there are 128 oz in a gallon). It’s $1.79 per gallon at a local grocer, bringing our water cost to $2.59.
If we ordered lavender 40/42 essential oil from Brambleberry in five-pound quantities, the current cost is $280.00. However, the shipping is an extra $12.50. Bringing the total cost of five pounds of lavender 40/42 to $292.50. With a usage rate of 3%, we’d need 24 oz for a 50 lb batch of soap which would ring in at $87.84.
So, our materials cost on 50 lbs of Soothing Lavender Soap, scented with Lavender 40/42 with no color added is $230.92. We’ll say 50 lbs of soap yields us 150 bars of 4.5 oz soap after curing and trimming. That makes our raw materials bar cost $1.54 each.
You’ll notice that I calculated shipping for each ingredient individually. If you run out of lavender essential oil and need to order it alone, you’ll be eating that shipping cost. It will happen, I promise you. It’s better to be safe than sorry when it comes to COGS.
For packaging costs, we’re going to do a custom printed soap box. My last order from Your Box Solution for Gratitude Soapery totaled out to $0.52 per box after shipping, so we’ll go with that. Bringing our total material + packaged cost to $2.06 per bar.
Now, it’s time to hit labor in the face.
We’ll say it takes an hour to weigh our ingredients, melt the oils, and make the soap from start to finish. And another hour to cut the soap and package it into boxes.
It’s my personal belief that production should never be calculated at less than $20/hour. I would never want a minimum wage worker making my products, and I would never want to pay myself minimum wage. So that makes labor costs on a batch $40, right?
Wrong. Labor costs more than just the amount of money the employee takes home, there are benefits, the cost of doing payroll, and taxes. Depending on the situation, this can add an addition 10 to 20% on the hourly wage. We’ll go with the middle road, and use 15%, bringing our hourly wage cost for production to $23 per hour. Two hours of labor means $46, to produce 150 bars, makes it $0.31 per bar.
Let’s add that to our current costs: $2.06 + $0.31 = $2.37 per bar.
And then there is overhead…
Overhead is the total cost of running our business, from the rent and utilities to advertising and education, and more. There’s a lot that goes into this number. I’m going to take the easy route and use 15% of the product cost, but ideally, you should have every single thing down pat here.
That brings our per bar cost to $2.73 for amazingly luscious best ever Soothing Lavender Soap.
If we retail this soap for $5 per bar, and wholesale keystone at $2.50, we aren’t making money – we are losing money. Even at $6 per bar retail ($3 per bar wholesale), that’s a $0.27 per bar profit. Um, that’s nuts!
Personally, I figure out my total COGS and multiply that times two to hit an idea of the bare minimum price I want to sell for. The bare minimum price is the furthest discount I ever want to give, which is under wholesale so I can offer incentives like opening order discounts and temporary price reductions to new wholesale accounts.
Now, this example is a bit of an exaggeration. Most soap makers have their raw material cost per bar down to around a $1 or less, especially if they are making 50 pound blocks of soap. Plus, there are packaging options out there for less than $0.10 per bar.
To illustrate pricing a bit better, I picked a random soap out of my contract manufacturing history, $0.73 per 4.5 oz bar in raw materials cost. Add in the $0.52 box, $0.31 labor costs, and 15% overhead, that’s $1.79 per bar. Multiply that by two for bare minimum pricing to $3.58 per bar. As I said, I tend to jump up a bit for wholesale so I can offer incentives for my wholesale accounts or have room for distributors or other expenses. We’ll say $4.25 per 4.5 oz bar wholesale, which keystone would make that $8.50 retail. And in the end, that’s not the price that particular bar sold for retail – it retailed for $12.00 a bar!
How you decide to price your products is your choice. My goal here isn’t to tell you how to price your handmade soap, but to show how important it is to really have a handle on your cost of goods sold.
Some quick tips:
- Order in bulk in the largest sizes you can afford and store
- Order as much as possible in a single supply order to limit shipping costs
- Shop around to find the best price for the best quality
- Have a backup plan of suppliers for each ingredient
- Pay yourself a fair wage and remember, taxes!
When it comes to overhead, there are a couple other things, too.
I’ve seen soap makers state that they make soap in their home, so they don’t have rent or utilities. No, no, no, no! You do have rent and utilities, your biz just isn’t paying for them. Figure out how much of your personal costs are being utilized by your biz, and hold your biz accountable.
Do not forget your trade organizations, product liability insurance, market fees, travel costs, website maintenance, donations, advertising, and education.
Another common one-up I hear is that I don’t wholesale now, so it doesn’t matter that my wholesale price wouldn’t make money. Well, okay, but what happens if you decide you want to later? Or grow large enough in retail and want to open a storefront? Or hire a distributor? You won’t be able to afford those things.
I’d rather offer my customers a stable price and not have to jump it around in situations where crops do poorly (olive oil, anyone?), so I subscribe to the APP mantra: always pad pricing. Round the heck up. Tally 20% overhead. Give yourself $30 an hour. Multiply by 3 to reach wholesale. Whatever you want to do.
Soap has killer tight margins. It really does. If olive oil jumps in price by 30%, what will your bottom line look like?
What if the market won’t bear my price?
If you only knew how much of a hot button question that is for me!
Recently, I surveyed a happy chunk of soap makers. I asked them to divulge how much they charge per ounce, and I was completely blown away at the results. 21% surveyed said they charge less than $1.25 per ounce, and another 64% said they charge $1.25 to $1.50 an ounce. That’s 85% of the 300 soapers surveyed.
I haven’t charged less than $1.75 per ounce retail in years. And to add a little fuel to the fire: all the soap makers I know who have employees and count soap as their bread and butter (not a supplemental product)? They charge at least $1.50 per ounce or more at retail. Why is that? COGS, my friend, COGS.
I shared this tidbit with a soapmaker (Hi, Melissa!) who was worried about pricing herself out of the market:
Have you investigated if maybe you are in the wrong market, appealing to the wrong customers, selling in the wrong venues, or can up your game elsewhere (branding, packaging, etc.) to create a perceived value? If a bar of soap is loaded with luxury ingredients, it should cost a premium price and be marketed as such. Don’t short change yourself. Your work, expertise, and exceptional product quality DESERVE a fair price.
If the market won’t bear your price, find a new market, superstar. It’s out there. Otherwise, this soap wouldn’t exist. Neither would this one. And hundreds of others! (Plus, when you sell a product with a higher profit margin in lower quantities, you make more money for less work!)
And yanno what? If you aren’t interested in employees, or huge accounts, or making a living by soap slingin’, that’s completely your prerogative. It’s not for everyone. What it comes down to is this: For the love of YOU and the amazingly talented soapmaker you are, pretty please, don’t sell yourself short.