In part 1 of this series about the costs that go into creating a perfume we looked at the ingredients. In part 2 we looked at packaging and part 3 the marketing campaign. Today I’m going to look at something that may or may not apply to a small fragrance brand but is definitely something that needs to be taken into consideration. That is:
What is distribution and how does it apply to most brands?
Let’s look at the example of mainstream and celebrity fragrances first as distribution is the first thing that is considered rather than the last. Companies who license the names of personalities for fragrance such as Coty actually take on the responsibility for the development process as well as the distribution. It is inbuilt as they have a portfolio of brands and connections with department stores and airports as well as fragrances manufacturers and packaging designers. This is costed in before any development starts.
What About The Niche of Artisan Fragrance Lines?
When you are considering launching a product that is to be sold to retail consumers, whether it is perfume, skincare or anything else you must decide how your customers are going to find out about your product and how they are physically going to purchase it. Are they going to buy it from you in person, from your website or from a perfume shop? Your answer matters because you’ll have to figure this into the costing.
Selling Direct To Customer
Many small brands start out this way, either selling to people they meet at networking events or markets or by setting up an eCommerce store and doing everything themselves from marketing to shipping. There are pros and cons to this route and whilst your margin will be higher per sales you will have far less customer reach than selling in a store. There are still costs you need to look at though that come under the heading of packaging and marketing that you may not have thought of. You will need to consider how you are going to ship your products and the costs involved some of them include:
- Outer packaging for shipping
- Cost of postage
- E commerce setup and ongoing management
- Staff to fulfill orders (once you can no longer do it yourself)
- Transaction fees – Credit card or paypal
- Sales tax or V.A.T (depending on where you are trading)
Selling Via Perfume Shops
For most brands this is the obvious step up from selling direct and many do both. If you are intending to get your product into a shop the 2 important things must be taken into consideration – Retailers Margin and V.A.T. This doesn’t just apply to perfume and should be fairly obvious but having run a retail business myself for many years I’m always amazed that new designers or product makers do not build enough of a margin into their product to make it worthwhile for the shop owner to even consider selling. The mark up that most retailers look for as a minimum is 2 x plus V.A.T This means that you need to start at the retail price and work backwards. So for a retail price of £100, £20 would go to V.A.T and the retail would want to buy for a maximum price of £40 per unit (retailers need to get all of their overheads plus profit from this so will always look for more margin where possible). From that wholesale price of £40 you must build in all of your costs including materials and overheads plus your profit. If you have a relationship with independent fragrance stores then selling to them direct may be an option but the most common route is selling into stores via a distributor who will also want a cut.
Using A Distributor
If you take a look at the list of distributors below you will see that many well known and niche brands go down this route. Distributors have ready made relationships with stores and make getting your product on the shelf a whole lot easier. Because of these carefully cultivated relationships however a distributor will only take on a brand that fits well within its portfolio and has good growth potential. It goes without saying that there has to be a good margin in the product too – it is a business after all. So looking at your wholesale price in the above example of £40 your distributors cut may well be about £20 leaving you with £20 for your costs and profit. The key thing here is the increased reach and volume you are able to sell via a distributor that would be tougher to do on your own.
More mainstream brands
I hope that’s given you some food for thought and as always I’d love to hear your comments below! Next week I’ll be talking about Brand Positioning in the final part of the series.
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