Product cost is not only about ingredients. In the overall calculation, the costs of these are not as important as other factors. Let me give several examples.
Company A
Develops unique products with a chemist (either a consultant or employee). Cost of this R&D has to be included in product price. Developing one gel can easily cost $200,000 or more. Creating a new colour adds perhaps $5000 per colour.
A simplified view of their product cost therefore includes:
- some part payback for the R&D
- cost of ingredients and production
- cost of bottle / jar
- cost of labels (design, printing)
So if the manufacturers cost is $7 ($2 is the R&D), they will sell to international distributors for $14, who will sell to NT for $28.
Company B
The manufacturer doesn't develop products, but buys from a factory in the West. So their costs could be:
- cost of ingredients and production
- cost of bottle / jar
- cost of labels (design, printing)
If their cost is $5, they will sell to the international distributors for $10, who will sell to NT for $20.
Company C
This company has no plans to sell internationally, only in their own country. So their prices don't include distributors profits. They also buy from a factory.
- cost of ingredients and production
- cost of bottle / jar
- cost of labels (design, printing)
If their cost is $5, they can sell direct to NT at $10 and make same profit as Company B.
Company D
Like Company C, except they buy products from China.
- cost of ingredients and production
- cost of bottle / jar
- cost of labels (design, printing)
If their cost is $3, they can sell direct to NT at $6.
Company E
This is a factory or reseller in China that sells direct via Amazon, eBay etc.
Their costs are lower because:
- they sell to consumers and NT - bigger market means can produce in higher quantity so cost per product is less
- have access to huge Chinese market - many Western companies refuse to sell in China as it requires animal testing
- cost of chemist, employees, warehouse etc is much less
So their cost may be $1, this means they can sell direct to NT for $2.
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The problem is, that factories in China are focused on low price and not safety, or following the legal requirements in other countries. We have seen products from China that contain ingredients that are illegal in Europe, or contain high allergy risk ingredients is high quantities - 80% rather than the maximum of 5% used by Western factories.
I've spoken to a lot of different Chinese factories at trade shows - and although they claim that they can provide all the documents to register a cosmetic product legally in Europe - when I call them out this, none have been able to supply these documents. It is also not unusual that the quality certificates they claim to own are fake.
It is clear to me that many of the new brands that appeared in recent years are buying from China. Western factories do not produce so many effects gel polishes and gels so China is the only source. Most of these new brands are owned by business people or former NT who have no knowledge of chemistry and often little knowledge of the European cosmetic laws. A flashy website does not make the products legal and safe.
& others that are $2.99 per bottle. Obviously there is a reason for this! Thoughts?
