What is the Advantage and Disadvantage of Beauty Device Manufacturer
May. 06, 2024
Cosmetics OEM – The Pros and Cons
OEM stands for Original Equipment Manufacturer and the term describes a web of relationships among hardware vendors, component makers and channel partners such as resellers and distributors.
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Many cosmetic and health supplement companies, especially startups see an OEM partner relationship a way to grow their business and expand their markets. However, just like any relationship, sometimes it works well and others not realising their goals.
Here is a guide on the Pros and Cons of Cosmetic OEM, and what you should consider before making a deal.
Pros
1.
Cost-Effective Products
You will benefit from the cost as the supplier will be creating bulk amounts of goods to sell. This will lead to a higher profit margin, especially if your private label product will be competing with branded products, which usually cost more.
2.
High-Quality Products
Often you will receive high quality products because the cosmetic manufacturer will test according to their strict testing standards.
3.
Technology
You will benefit from the technology that OEMs provide, especially if you are just starting up, and don’t have the expertise or technology to create cosmetics or dietary supplements. Additionally, it saves you a lot of time and money spent on testing.
4.
Intellectual Property
When you use an Original Equipment Manufacturer, you keep all trademarks and intellectual property rights associated with your design and products. Just make sure you register your private label before start selling.
5.
Professional Service
An OEM company usually provides an efficient and professional service. Why? Because B2B companies can be more demanding than B2C customers. So to keep the customer, offering a good service, a high quality product and a great support is a must.
6.
Control
Since you are the creator, you control the prices and production of the products. You can modify the cosmetic or dietary supplement depending on the needs and requirements of buyers.
7.
Brand Name
Because you are creating your own private label product, your brand name can become valuable over time and bring along good profits.
Cons
Even though there are more advantages than disadvantages, you should consider the following before making a deal with an OEM cosmetic manufacturer.
1.
Lower Price
Many private labelled products can be sold at a lower price, in comparison to branded products. This could be a problem, especially in the initial state, in which you are spending lots of money on private labelling, leaving a lower profit margin.
2.
Hard to Find an OEM Cosmetic Manufacturer
As most OEM Cosmetic Manufacturers only deal with companies that have high demand, it can be hard if you can’t sell enough products. However, there are also OEM manufacturers that offer higher flexibility, such as Ori Bionature
3.
Intellectual Property Rights
You will have to register all your designs and components, to prevent other companies from stealing your creation. This could take a lot of time if you have no idea how to go about it. Talk to your OEM Cosmetic Manufacturer if you need further advice.
4.
Additional Costs
Creating your own logo and packaging for your private label product can incur some additional costs.
When you establish a business relationship with an OEM cosmetic manufacturer, the most important thing is to understand your company and the market you are targeting.
The Pros and Cons of Contract Manufacturing for Skincare ...
So you’ve decided to start a skincare brand. First of all, congratulations! Despite the pandemic, 2020 saw an increase in new skincare startups over 2018 and 2019. Part of the reason for this is the fact that since so many people (primarily women and women of color) found themselves out of work and stuck at home, new hobbies emerged. Hobbies turned to side hustles, and for many, those side hustles turned into legit skincare businesses.
They say that necessity breeds innovation and that’s true…
But you know what else breeds innovation? Boredom. So, many people chose to take time during the pandemic to get creative, learn new skills, and find ways to earn money. If that’s you, I want to tell you that you rock. Seriously. And if you’re someone who’s been thinking about starting a skincare business, but didn’t because you were overwhelmed with thoughts like:
“I heard that you have to order thousands of units of each product just to get started, and I just can’t do that right now…”
or “I live in a small house–I simply do not have the space to store ingredients, bottles, shipping materials, etc….”
or “I want to start a skincare line–but after spending time in Facebook groups and Googling how to start a skincare business, I feel more overwhelmed than ever.”
Then stick with me–because I’ve created a 3-part series that breaks down the three cosmetic manufacturing options for your skincare startup. I’ll share with you the pros and cons of each, and who I think each option is best for. This article is Part 1, which is contract manufacturing.
What is contract manufacturing?
Contract manufacturing is when you hire a manufacturing company (often referred to as a “lab” or “house”) to formulate, source ingredients, test, and manufacture your products for you. Most contract labs have thousands of stock formulae to choose from, or you can work with a formulator (either privately or through the lab) to create custom formulations for you.
This is often a one-stop shop, but sometimes you might have to still outsource things like label design and printing, filling/packing, and fulfillment.
Contract manufacturing pros:
Contract cosmetic manufacturing facilities are a great way to mass produce large quantities of products in a safe, controlled setting. Quality control and safety/sanitation protocols are stringent, and these facilities must follow the FDA’s Good Manufacturing Practices (GMP). They also can help with research and development, and perform testing to ensure that your products are stable and properly preserved.
Nowadays, many contract manufacturers are well equipped to meet the increasing demand for organic, green, clean skincare brands. Their chemists are becoming better versed in plant-based functional ingredients, and many facilities already have USDA organic certification, or can meet those requirements. Several of the labs I work with are also versed in the requirements for certifications like EWG Verified® and Made Safe®, and can meet them.
Contract manufacturing also allows you to own your custom formulations (but do make sure that is specifically outlined in your contract). This is very important, should you decide to switch manufacturers or sell your company at some point.
Contract manufacturing cons:
This is the most expensive way to start your skincare line. There are setup fees, testing fees, and R&D fees involved before you even get to the products themselves. At that point, you will have to meet minimum order quantities (MOQs) for each product you want made. These are high–often upwards of 5000 to 10000 units per SKU, though I have found some labs for my private clients who will manufacturer in quantities less than 5000 per SKU. Even labs that have lower MOQs might still require a minimum opening order as high as $10,000.00.
Aside from the high entry cost and high order minimums, contract manufacturing will also take the longest to get the products ready to sell. Eight to twelve weeks is the average for new orders. Sometimes it is shorter if you only use their stock formulations, but it could be longer with custom formulations. After the initial order, reorders take less time.
Another contract manufacturing con is that anyone can buy the same stock formulations for their brand. It doesn’t matter if the products will be sold at the drug store, the health food store, the spa, a doctor’s office, or online–the products themselves are the same formulations. The only thing that differentiates them in the marketplace is packaging, design, branding, and marketing. This is why the notion that “professional skincare” is more active or concentrated than “OTC skincare” is false–they are often the same formulations, just with different branding.
Ingredient-wise, contract manufacturers will seek to source the lowest cost ingredients possible, and the formulations will also be made with the profit in mind first, over quality–this is why so many mass produced products are mostly water. Not all of them can support brands looking for things like sustainability, ethically harvested, natural/organic, or whole plant ingredients. Some manufacturers will allow you to source your own ingredients, but that will be at an extra cost, and you are responsible for getting the ingredients to the manufacturer (also at an extra cost).
Another con–and an important one–is that many cosmetic chemists do not have a thorough understanding of how to work with botanical ingredients–and many don’t like to. Botanical ingredients are nutrient dense, but preserving them is a challenge since they also have a higher microbial count, contain natural sugars which function as prebiotics, and many are humectants. Green chemistry has come a long way, and many cosmetic chemists have taken it upon themselves to learn more about how to formulate with herbs and oils in a way that keeps the nutrients intact, while still making sure they are safe. However, there is still a lot of resistance to formulating with botanicals, and many “old school” chemists won’t work with them, or will try to convince you that they won’t have a good shelf life.
Herbal skincare formulation is different from standard cosmetic formulation. While green chemistry has come a long way over the past 10-15 years, your shelf life still will be shorter (12-18 months is a reasonable expectation) than a conventional product (3 years is typical). So what that means is that if you go the contract manufacturing route and are warehousing tens of thousands of units of product, you need to be sure that you can sell the products quickly.
Who is contract manufacturing best for?
Contract manufacturing is best for skincare startups who have financial resources–whether the owner is self-funding the business, or there is an investor. It’s also best for people who have a clear brand vision, product filling, packing, storage, and fulfillment facilities and systems in place, and who are committed to this for the long haul.
In order to consistently move thousands of units, you have to have a solid marketing strategy in place, sales pipeline, inventory management, and lots of support in terms of customer service, e-commerce, and security.
You should still understand how to formulate and source ingredients, even if you choose the contract manufacturing route for your skincare startup.
Even if you don’t make your own skincare products, I highly recommend having a strong understanding of skincare ingredients and formulations. If you don’t, then you won’t know what questions to ask, or what answers are actually thorough answers. You won’t have an understanding of why the chemist makes certain decisions in the formulation–you’ll have to just take their word. You also might not be able to answer questions about ingredient quality or sourcing questions that come in from customers, unless you source your own ingredients.
Customers are extremely savvy nowadays, and ask far more specific questions than they might have even 5 years ago. Many manufacturing representatives and even chemists don’t understand that side of the business and don’t understand why you would want that information. I have even had clients tell me that their rep got defensive with them for asking for detailed sourcing analysis, or a certificate of analysis about a particular ingredient in their product.
I can help!
If you want to learn skincare formulation–even if you plan to have your products professionally manufactured–I can teach you that in Create Your Skincare Pro. You will also learn about ingredient selection, ingredient sourcing; as well as how to set your business up for success, market, and sell your products.
If you would prefer a more private learning experience, or you would like my help on a specific project or formulation, or finding the right manufacturer for your skincare brand, I also offer private formulation and brand consulting. Learn more and book your appointment here.
Coming up next in this series…
In Part 2, we’ll delve into the pros and cons of private labeling! Click HERE to read that. In Part 3, we’ll cover the ins and outs of manufacturing your skincare products yourself. Read that HERE.
Do you have questions about cosmetic manufacturing options for your skincare startup?
Go ahead and ask in the comments below, or I invite you to attend a live, virtual Herbal Skincare Tea Time Q&A call on Fridays at 2pm EST. RSVP HERE.
For more Beauty Device Manufacturerinformation, please contact us. We will provide professional answers.
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