Friday, February 8, 2013

Market Research -- Your Cost Per Bottle

(This article is a continuation of the series started in "Conduct Some Market Research")

What will it cost you to produce the fragrance for which they will pay you the amount calculated in
Market Research -- #3 "What Price Will They Pay?"

If you're not aware of all that goes into producing a ttle of perfume, I urge you to (purchase) and study the "Perfume Developer's Checklist."  You might be amazed at the number of decisions to be made and options which exist, all of which influence your cost.

The real issue of cost is that of PROFIT. The point of being in the perfume business is to make money. (And yes, I admire those who create their own fragrances simply for the love of fragrance and for those people "costs" are simply an issue of whether or not they can afford the materials they want to use, with no expectation of ever getting the money back.) But as a business, you have to think profit. And your thinking will start with the proposed retail price for your fragrance. Then it goes like this.

Stores and others who agree to carry your perfume are likely to offer you from 40 to about 60 percent per bottle on your proposed retail price. Thus for your $50 retail bottle you can expect to get only $25 and perhaps a bit less, thanks to the retailer's policies in dealing with vendors.

That $25 now has to cover your costs of producing the ready-to-sell product, your budget for advertising and promoting your perfume, and miscellaneous administrative overhead connected with the project. What's left is your profit.

You now see that it is important to think clearly when producing your perfume. You cannot afford waste. You cannot afford many bells and whistles that routinely go with major brand offerings.

The smaller the quantity you are producing, the more cost savings you will need to achieve as your costs for each component will be considerably higher than what it might be if you were buying in larger quantities.

I've written about these issues in "Creating Your Own Perfume With A 1700 Percent Markup!" and still recommend it as a practical guide if you are planning to make any investment in perfume. What you can do on a $2,000 budget is far more limited than what you can do on a $50,000 budget. To make your perfume profitable you must "design" your perfume around components that are cost effective in your particular volume.

In general, if you expect to make money on your perfume you will probably want to pay no more than about $7.50 per bottle. $3.50 per bottle could give you a better fighting chance.

If you find yourself facing costs of $10 per bottle or more -- perhaps with someone telling you your perfume will sell for $100 or more which it probably will not -- beware!

And above all, where possible, test your marketing concept on a small scale before you get in over your head.

By the way. One cost saving technique -- used by very large marketers -- is to produce the individual elements that go into a perfume in larger, more cost effective quantities, but bottling smaller quantities as required.

Say you are getting your best price by ordering materials in quantities of 10,00. So you only bottle 2,000 bottles. In case sales don't meet your expectations, you have now saved 8,000 bottles worth of alcohol and water, production cost for assembly of those 8,000 bottles, and, while you may have to write off 8,000 unused boxes, your 8,000 bottles and sprays will still fetch something from a liquidator.

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