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Lip care
All Containers›Shop by use case›Lip care›Tools and directories›When it pays for itselfShop all lip care →
Tools and directories

When it pays for itself

By Dwight Davis, Founder

Updated

On this page5

Breakeven in this category is dominated by one thing, and it is not equipment.

Two kinds of cost

Fixed: equipment, insurance, registration, label artwork, a display unit design, and the minimum order quantities you were forced to buy.

Variable: the per-tube cost of components, formula and labor.

Contribution per tube is price minus variable cost. Breakeven is fixed cost divided by contribution.

The arithmetic

Suppose fixed costs of 2,000, equipment, insurance, artwork and the first label and tube minimums, and a contribution of 2.00 a tube at direct retail.

That is 1,000 tubes to break even.

At wholesale, with a contribution nearer 0.50, the same fixed cost needs 4,000 tubes. The channel changes the answer by a factor of four, which is the point of doing it per channel rather than once.

What the number usually says

That a market-stall business breaks even in a season and a wholesale business takes considerably longer but scales.

And that a second flavor does not share the fixed cost the way people assume, because each SKU carries its own label minimum.

The packaging problem

The largest fixed cost here is usually not equipment. It is the minimum order on labels and tubes, committed before the first sale and specific to a design you have not yet tested.

Which is the argument for paying a bad unit price on the first small run. It keeps the fixed cost low while the range is uncertain, and it means the inevitable first redesign costs hundreds rather than thousands.

References

No published source. This page is written from practice rather than from published guidance. No extension service or agency publishes on this question for lip care, so nothing here is cited, and it should be weighed as experience and not as a standard.
Written from the federal regulation and FDA guidance named on each page, not from a laboratory or a legal practice. Whether a particular formula and a particular label make a cosmetic or a drug is a determination about your product, and this is not that determination.