Pricing Your Melt and Pour SoapsOriginally prepared for The Saponifier by Anne-Marie Faiola; published in Volume 2, Issue 1
As a small business owner, you’re faced with all kinds of decisions from what brand of olive oil to use to whether to have a graphic designer design your logo. There are a whole lot of little decisions (name brand labels vs. generic, gel colorants vs. powder pigment) that, taken by themselves, are worth only pennies, or at most, a few dollars. But the cents and dollars add up quickly. This article will put some cold hard financial fact on paper and hopefully, make some of those “tiny” decisions a bit easier for you to make.
If you are like many small scale soapmakers, you work out of your own home or apartment. To get a true overhead cost, your soap company should be paying you rent (but for tax purposes, only if you’ve allocated a room solely for soapmaking). Typically, renting a room will be $150 (Mortgage of $600 divided by 4). Next, you have your phone bill, heating, electric, water, sewer and garbage. (NOTE: When figuring out your own cost analysis, use your OWN numbers). For purposes of example, I’ve inserted some numbers which I believe are average for a month of soapmaking:
There are also some fixed costs, such as postage, pans, spoons, an extra burner, shelves etc… When we initially built our soaproom, we added shelving, cabinets, a range, and bought new equipment. All together, this added up to about $400.00. However, while these are all up-front costs, they still need to be amortized over the life of your business.
Assuming you make no additions or need new equipment, amortizing this out for 1 year is ($400.00/12 = $33.33) $33.33 per month so add this to your overhead. You’re already up to $283.33 before even starting your month! And let’s not forget insurance! This is the one, essential thing you should have before starting any soap business. On average, this will run about $20.00 per month. So, your grand total for all your fixed overhead costs, is $363.33. Now, to cost the materials in your soap. This article will focus on melt and pour soap. Future articles will discuss cold process. For melt and pour, the figures look something like this to make four bars:
Soap Base $2.32 ($100 for 43 pounds delivered)
Fragrance $.55 (.25 oz. at $35 per pound, delivered
Color $.37 (TKB Gel Tones $2.95 colors 8 pounds
TOTAL $3.27 = $0.82 materials for one bar of soap
Now, $.85 cents to make a bar of soap looks pretty good right? Let’s add in molds, using Milky Way Molds, ($7.50/3-4 cavity mold), you’ve got 5 of them, delivered, that’s about $42.50. Amortizing that over the year of your mold, you’ve spent $3.54 a month on your mold. If you make 1000 bars a month, the mold adds $.04 to your cost per bar.
So far, this is all looking quite manageable until you try to pay yourself. Your labor is expensive. How much time did you spend creating and designing your bar? Actually making it? Wrapping it? For creating and designing, let’s add 3 hours at $15 per hour. If your batch size is 24 bars (6 pounds) and you can make 24 bars in an hour, it adds $.63 per bar (15 divided by 24). Wrapping adds another $.31 cents per bar if you wrap and label 48 bars an hour (15 divided by 48).
Wrapping costs can vary, depending on whether you designed your own label (3 hours at $15 per hour) or hired a designer, $100, plus materials. For sake of example, you designed your own labels and print them yourself. So, for 1000 bars, your labels cost $.05 per bar ($45.00/1000 labels) plus materials (wear on your printer, new printer ribbon, paper) are about $.05. So where does this leave us?
Design time $0.05
Production time $0.63
COST PER BAR $1.98
Now, this is actually a great number since you’ve been paying yourself $15.00 (counted into your design, production and wrapping time). But, if you’re wholesaling your soap for $2.00 per bar, that only leaves $.02 per bar to pay your overhead. If you recall, your overhead is $333 per month. If you sell 1000 bars per month, that’s $2.31 per bar to both pay your wages and pay your overhead. So, what do you do to bring your profits up? There are a few things you can do:
Pay yourself $5 per hour which brings your bar price with overhead to:
Design time $0.15
Production time $0.208
COST PER BAR $1.28
Adding that $.33 cents per bar for overhead, you’re only at $1.61 per bar. That’s looking more feasible, but you’ve just paid yourself minimum wage all month. Ouch!
Your second option is to find cheaper suppliers. If you save $5.00 per tub on your melt and pour, $10 per pound on fragrance oils, $.50 on your color and use more cost effective molds (a six cavity mold versus a 3 cavity mold – or buy in bulk to get discounts), you actually can save yourself quite a bit of money.
Let’s see how your materials costs add up now:
Melt and pour $2.21 (1 pound, Delivered, $95 per 43 pounds)
Fragrance $.37 (.25 ounce Delivered, $24 per pound)
Color $.04 (food color, 4 drops per pound)
Mold $.02 (using 6 cavity, rather than 3)
COST PER BAR $.68 cents
By seeking out the most cost effective suppliers, you’ve just saved yourself $.20 per bar, almost enough to pay yourself that $15.00 per hour!
Your third option is to make bigger batches. If you make 48 bars in an hour, you’ve just cut your labor in half (remember, you were making only 24 bars any hour). If you take your labor to $.31 per bar, instead of $.62 per bar (wrapping time remains the same), your total cost is only $1.67 per bar leaving that magical $.33 cents for overhead!
However, if you combine options two and three and double your batch sizes and source out cheaper raw materials, look what happens to your numbers:
Materials $0.68 per bar
Production $0.31 per bar
COST PER BAR $1.78
Congratulations! By sourcing out the most cost effective materials and doubling your batch size, you just made a bar of soap for $1.78!