The price list from three years ago
The wholesale price list and the prices quoted to brand clients were set from a costing spreadsheet built when each product launched. Since then, several key ingredients have gone up, one supplier changed pack sizes, jar prices increased, and freight became more expensive. Nobody has redone the costings, because doing it means updating every formula line by hand.
The accounts show the gross margin shrinking. Nobody can say which products are responsible.
Costing is a one-off, prices are not
Costing a cosmetic product is straightforward in principle: the cost of each ingredient at its percentage, plus packaging, plus labour and overheads. The trouble is keeping it current across a range, when each price change affects many products.
- Costings live in separate spreadsheets per product.
- Ingredient prices in the costings are from when the product launched.
- Formula changes are not carried into the costing.
- Packaging and freight are estimated rather than taken from invoices.
- Labour and filling time per product are guessed.
What stale costings cost
Products quietly become less profitable, and some may be sold below cost to brand clients on long-running agreements. Quotes for new work start from old assumptions. Price rises are applied across the board because nobody knows which products need them most. And when a supplier offers an alternative ingredient at a different price, nobody can see quickly what that does to each product.
Small ingredients hide surprises too. An active used at a low percentage can still be the most expensive line in a formula if its price per kilo has jumped, and in a spreadsheet costed years ago that change is invisible. The same goes for fragrance and specialist preservatives, which are often bought in small quantities at high prices.
Formula costing kept current
- Each product's cost is built from its approved formula version, its packaging bill of materials, and your labour and overhead allowances for making and filling it.
- Current raw material and packaging prices are taken from purchase invoices in Xero or QuickBooks, or from your stock system, with the pack size converted to a price per kilo or per unit.
- Cost per unit is recalculated whenever a price or formula changes, with the previous figure kept for comparison.
- A margin view compares cost per unit with your wholesale, retail and brand client prices, and highlights products where the margin has dropped below the level you set.
- A what-if option shows the effect of an ingredient price change, or of switching to an alternative supplier, on every product that uses it.
- Quotes for new brand client work can start from current costs of stock formulas or similar products.
| Cost element | In old spreadsheets | In formula costing |
|---|---|---|
| Ingredients | Launch prices | Latest invoice prices |
| Formula | Launch version | Current approved version |
| Packaging | Estimate | From invoices and the packaging list |
| Margins | Unknown per product | Shown per product and channel |
Pricing with current numbers
When an ingredient goes up, you see which products it affects and by how much, and can decide where to adjust prices. Brand client agreements can be reviewed with evidence. New quotes start from real costs. And the question "which products are dragging the margin down" gets an answer.
The figures come from your own invoices and formulas, so they are your numbers. We only do the arithmetic consistently.
Are these familiar?
- Product costings have not been updated since launch.
- Gross margin is falling and you do not know why.
- Price rises are applied to everything at once.
- Formula changes are not reflected in costings.
- Quotes for new work start from old numbers.