Tuesday, January 19, 2010

The Soap Business - Running the Numbers

So this is the post that I really wanted to do for last Saturday, but I hope you enjoyed the back story.

A Great Opportunity

While we were preparing to make lots of soap, we went by Scentsations, a local store that has tons of things that smell good. As we were smelling all the fragrance blends they had on hand, the owners heard we were making our own soap and wanted to know more about it. Turns out, their soaps are very expensive French bars that are a real pain to import. Over the course of discussion they said it would be great to have a local company supplying them since their clientèle are the type to go gaga over locally made artisan souvenirs.

That got our entrepreneurial minds rolling! Surely there's enough profit margin to make a fabulous living off of mixing hazardous chemicals in your own kitchen.

Preliminary Research

Our first stop was an Etsy search for handmade soaps. This told us that a bar of soap is, on average:

  • $5.50 on the retail market
  • 150 grams

From searching various soap making hobby sites, a very popular recipe is composed of:

  • 40% olive oil
  • 40% coconut oil
  • 20% palm oil

We used mostly lard in our recipe, but the artisan soaps tend to shy away from animal fats because labeling their product as "vegan" is a nice buzz-word that helps establish why you're paying an extra quarter for your morning shower.

Run the Numbers

Once we had a bar size and a recipe we could reverse-engineer how much of each kind of oil is used in a bar, and therefore the cost of raw materials. After shopping around industrial suppliers online, we found that we could average $0.74 per bar. Selling them wholesale to Scentsations or another retailer, the bar would go for $2.63.

$2.63 (wholesale) - $0.74 (materials) = $1.88 per bar

We set an income goal of $1,000 per month, which is a nice cushion in the budget if it's coming from a hobby business. In order to reach that goal, it would take 531 bars of soap every month. Each batch we made would yield 30 bars,so even pumping out a batch of soap every other day, we'd still be making less than our goal!

But you forgot...

Remember that this is still looking at just the cost of materials. To do a real analysis you would also include:

  • labor
  • warehousing space
  • equipment
  • energy costs
  • labor
  • packaging
  • office overhead (phone, envelopes, computer time)
  • shrinkage (bad batch of soap, loss, theft by your own bathrooms)
  • advertising
  • labor
  • etc.

Now do you see why hand-crafted soap is most often sold at farmers markets? The profit per bar jumps up to $4.51 and the bars sold per month drops to 222.

It's still an unholy amount of soap for one person to sell in a month.


These numbers are very much the "arm-chair quarterback" estimates coming from wild guesses. I'd love to hear from somebody who's actually in the soap making business to confirm or deny.

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