Business Idea: Makeup e-commerce
The makeup is one of the best-selling items according to Alibaba Website.
Among other different characteristics, Makeup products:
- Don’t expire.
- Their demand is very stable during the year.
- The price does not vary too much, making it a secure “asset”.
- There are cheap options due to China’s boom in manufacturing cosmetic products.
- Their geographical demand is homogeneous.
Being said that, let’s analyze how could you start your own e-commerce Business by buying and selling Makeup products.
Business Opportunity: An e-commerce Market Niche
If you check Alibaba’s website, you’ll realize how many makeup products are there.
- We’ve chosen Alibaba since there, you can buy big batches at reduced wholesale prices.
As we mentioned before, these products have a stable demand all over the world during the year, as you can appreciate in the next picture:
As you can see, the interest in Makeup products is vey stable during the year Worldwide, with the 31st October exception (can you guess why?).
If you pick one “popular” Alibaba makeup product, you’ll notice that its price varies depending on the amount purchased:
Let’s assume you buy a Pack of 108 of this particular item (12 x 9 = 108):
- The price per product would be $1.65 each (check the prices).
Shipping costs are $21.5 for a standard single 12-units pack.
- If you buy a pack of 108 (9 packs) this cost would vary since you bough a larger amount of products and would affect your final cost per product:
So, by buying 108 pieces the cost per product you’d have would be $315.47/108 = $2.92 per product.
At this price, it seems that you should have lots of opportunities to get profits with this product.
- Moreover, it is a non-perishable homogeneous product.
But if you decide to sell it retail (not selling 10 units batches but one by one), which prices are there?
- There is where the economic profit is.
Let’s look for a “similar” product on Amazon:
This particular one is being sold at $7 a piece.
And what about its price variation during the year?
If you use Keepa (a nice Chrome extension for tracking Amazon’s prducts’ prices) you’ll notice that the price variation is not very high:
The lowest price experienced by this product was $5.
Everything seems to indicate that there is a good Business opportunity in the makeup e-commerce sector.
Now, let’s analyze whether you could start your own Business out of it, or not.
Goal: To start a profitable Business
The Goal we are purchasing is to have a profitable Business based on purchasing and selling Makeup products Online.
We don’t limit our options to just selling them Online, since you could obtain juicy margins by selling some these products with local-business applications like “Craiglist”.
1. Learn about Makeup sector
If you are not passionate about Makeup products, try at least learning everything you can so you understand this particular niche-sector.
2. Test the product/s you'll Trade with
Once you are informed about what people like, what they don’t…
It is time for you to test the products .
You can Buy different Makeup products like the one we showed to you before, so you can test whether or not they meet the requirements needed.
This step is very important since by doing this, you’ll be able to decide which product you’ll finally trade with.
Consider this, a little Initial Investment: some of these products won’t be good enough for you to sell them.
- However, if you find the perfect product you’re looking for, this Initial Investment will worth it.
3. Develop a Market Segmentation
In our “Market Segmentation” page, you’ll find everything you need to know about it.
With a proper Market Segmentation, you’ll be able to decide how to tackle the Makeup sector and your customers:
- Are young people more interested about it?
- How should you “promote” your product?
- Is there any unattended Niche?
- etc, etc.
Aspects you should Ensure
Ensure an acceptable Quality/Price ratio.
- Last thing you want is being 24/7 attending Claims.
The product manufacturer is reliable.
- Check the product we’ve just mentioned:
You should ensure a professional reliable supplier you could contact with:
- The more transparent and professional your supplier is, the better.
- Last thing you want is your client to start having allergic reactions.
You should never forget shipping costs (and other associated costs).
- You may find the best product, but if shipping costs are disproportionate, the final price may rise considerably.
- Each country has different laws, taxes and regulations.
- Some countries let you trade to a certain point not being necessary to declare your earnings until you reach a determined amount of money (in Europe is something like that).
- However, since each country is different, please, before start buying and selling anything; make sure you are doing it properly according to your country trading laws.
- You should have no problem; at least at initial stages.
Structure Needed for an e-commerce Business
In order to start this Business, you just need:
- A Computer.
- An empty room with some sort of shelves so you can easily classify all your products.
- Also important, a place to store boxes, papers, etc…
- A printer so you can print bar codes, directions…
- A bar code machine could be helpful so you can classify all your products, what you’ve already sold and what is in your stock.
Of course, if you scaled it drastically, you could need a Warehouse, workers, etc…
Here we’re just talking about starting it.
Assuming you already have a Computer, you would need:
A Barcode machine (not really necessary for your first steps):
A Printer (you could ask for a second hand one in the beginning):
First Trial Orders:
For the product we found, 12 pieces at $1.95 = $23.4
Shipping costs = $21.5 for a single pack.
Total Cost per Trial Order = $44.55
Let’s assume that each “trial order” would cost $50.
You decide to Try 5 different products at this same price (it would vary, of course, but we’ll assume that on average, that would be the cost).
- Initial Trial Orders investment: $250.
Now, if you decided to start your own website, you should estimate the hosting price, a premium e-commerce Plug-in, a nice Theme, etc…
- We’ll assume an additional $150.
Total Investment required for starting this Business:
- $500 approximately.
What would you need for earning $1.000 a month
We’ll Assume that:
- The product we found on Alibaba meets all the requirements after the Trial Order.
- You order 9-[12 pack units] batches with the price we showed you before: $315.47 = $2.92 per product.
- We assume a selling price of $6 per product.
- Remember, on Amazon we found similar product for $7, so $6 seems a fair assumption.
- You sell some products by using local apps like Craiglist since it eases the packing, and transportation process.
1 order means 108 units (9 x 12)
Let’s assume that you sell 70% of those units (76) online at a price of $6.
- 76 x $6 = $456 Online Revenues.
You sell other 25% of the units (26), by using local Apps at a price of $6.5 (no shipping costs, so you decide to increase a little bit the price since you’ll have to move physically).
- 27 x $6.5 = $175.5 of Local-based Revenues.
Finally, we’ll assume that 5 units per order are damaged or received a customer Claim so you give his/her money back (what you politely do).
What Margin did we have?
Revenues = $456 + $175.5 = $631.5
Cost = $315.47
Gross Margin per Order (108 units) = $316.03
Assuming that you could improve these numbers a little bit (selling some more products at $6.5, for example) you would need to triple this operation in order to earn $.1000.
- You then would be selling approximately $2.000 per month with a Variable Cost of $946.41.
Since each country has different taxes, regulations… we are not taking into account tax costs. These are all gross margins.
Time required for earning $1.000 per month
One very important thing to consider is the time that this Business requires.
It is not the same selling one or two expensive products per month that lots of very cheap ones.
So, in order to earn $1.000 a month by buying and selling makeup, you would have to:
- Sell Online: 228 Makeup units per month.
- Sell with local Applications: 81 units per month.
As you can appreciate, you would have to sell:
- 9 products Online per day (assuming you would rest on Sunday).
- 3 products per day by using local apps.
These are not crazy numbers, but you would have to dedicate exclusively to this activity if you wanted to earn a salary out of it.
Verdict: Is makeup e-commerce a viable Business Idea?
Even with the conservative numbers we employed you can appreciate that there is enough margin for you to give it a try.
The Investment required is reduced, and since makeup products are pretty standard everywhere, you would have little risk of ending up with lots of expired products.
- If you need money urgently, you could sell them at cost price.
As we mentioned: There may be some things we missed, of course; we are not makeup e-commerce experts.
Here we just focus on the numbers and whether or not these Business Ideas could be profitable or not according to our analysis.
- If we see lot of interest in one particular Business Idea, we would get deeper into it.
The best advice we can give to you is:
- If we analyze some Business Idea you like and finally you decide to start it, do it slowly, testing it and not getting crazy about it.
Prudence is key not to make any terrible mistake.