Decoding the Cost of Making Soap: Everything You Need to Know

When starting a soap-making business, one of the first questions that comes to mind is, “How much does it cost to make soap?”

While many factors go into determining the cost of making soap, this guide will break down the basics and give you a clear understanding of what to expect and how to get the best “bang for your buck”.

From ingredients to packaging, we’ll cover all soap costing aspects so you can start your business with confidence, and aim towards the profit margins you desire.

Why set good prices for your soap products

It’s crucial to consider all factors when calculating soap production costs. The investment goes beyond just the physical ingredients; it includes aspects such as packaging, labor, and overhead costs. It’s tempting to focus solely on the cost of oils, scents, or colorants, but factoring in every cost involved in your process will provide a more accurate picture of your soap’s true production cost.

This holistic approach is not only good accounting practice, but it also gives you insight into areas where you might be able to optimize and cut costs. Remember, a successful soap-making business isn’t just about creating great soap—it’s about managing costs effectively to ensure a reasonable profit margin.

Read more:

• How to choose the perfect name for your soap business
• What to Name your Soap Bar (+ 30 Sample Ideas)

Factors for your soap costs

Cost of Ingredients

The first and foremost factor to consider when calculating the cost of making soap is the cost of ingredients.

The cost of ingredients is, understandably, determined by the quality and quantity of the ingredients you use.

High-quality ingredients will undoubtedly cost more, but they are generally essential in creating a quality product that will perform well and last longer (and receive the online ratings that will propel your business).

Essential oils, fragrance oils, and carrier oils are just a few considerations that can affect the final product.

To get an estimate for the ingredient costs, determine the amount of each ingredient needed for your recipe (pessimistic measurements are always best for costings).

If you have not yet reached the stage where you have soapmaking inventory on hand, and check prices at different shops, online or locally to get a feel for the unit costs.

Cost of Equipment

Another factor to consider is the cost of equipment. While you do not have to invest in expensive dispensing equipment or accessories to make soap, it is essential to have a few basic tools like a thermometer, gloves, safety glasses, and a digital scale.

Remember, you will also need a workspace dedicated to soapmaking. Setting up a workspace may require additional items such as tables, storage options, and shelves, which are an investment in your craft and essential for your soaping space. Factoring these costs into your soap cost as “overheads” is important and will give you a more accurate estimate.

Cost of Packaging

After you have made your soap, the next step is packaging. Packaging a soap in an eco-friendly way, that’s complementary to the environment, can make a difference in how much it costs to sell.

Using a cardboard or plastic-free packaging option helps to lessen the costs in contrast to custom packaging materials like printed boxes featuring your company’s branding.

Packaging options play a role in differentiating your product, but an attractive label or simple plain-paper packaging can also do the trick.

Cost of Your Time Investment

Don’t forget that “time is money.” While making soap is a pleasurable pastime, it is also a time-consuming process. The time spent on preparing ingredients, making the soap bars, packaging, and clean up is time that could be spent doing other things.

This is where you need to calculate your hourly rate, and factor in the time spent making soaps, which is essential to account for. The cost of time and burden also should not be underestimated.

Miscellaneous Costs

Lastly, don’t forget to account for the miscellaneous costs associated with making soaps. These could include things like advertising, marketing, branding, product displays, and workstation overhead like electricity, or online shop hosting fees.

It’s up to you to determine your costs for your soapmaking craft, which may have many unknowns at the outset.

How to calculate the cost of producing a bar of soap

Now that you are familiar with the different factors that impact the cost of making soap, let’s look at how to calculate the cost per soap bar.

To start with this task, compile a list of all materials required for your single batch of soap, along with the quantity and unit cost you have researched in the last step.

This is called your “Bill of Materials” (or BOM for short). Multiply each material’s unit cost by the quantity needed, and add up all costs to get a total.

This is your production cost per batch.

From here, divide this number by the number of bars that you were able to make from that batch. This will give you a cost per bar (also known as your COGM - Cost of Good Manufactured).

Next, consider the overhead costs such as equipment, packaging materials, and time investment. Add these costs to the estimated cost per bar, which will give you a more accurate and comprehensive cost of producing a bar of soap. You might use a fixed amount (i.e. $5) or a percentage added to the top (like an “overheads tax” of 10%).

Experiment with this amount to find the best way to incorporate your hidden costs into each bar until you feel it covers everything effectively.

What does a bar of soap sell for?

From here, the next factor to consider is the market price of your soap. It’s great if you find that a single bar of your gold-encrusted glitter soap costs only $1 to make, however if you sell it for that price, you won’t be making a profit.

Research the market prices of similar products in your area and online to determine what customers are willing to pay for handmade soap. Keep in mind factors like quality, ingredients, packaging, and brand reputation when setting your price.

Pricing Your Soap for Profit

Pricing your soap appropriately is a delicate balance that involves covering your costs, making a profit, and remaining competitive in the market. To find the ideal price for your soap, follow these steps:

1. Calculate the total cost per bar: This includes the cost of ingredients, labor, and overheads as previously discussed. Calculate your desired profit margin: This is the amount you want to earn over and above the cost of production. It could be a fixed amount or a percentage of the cost per bar. For example, if the cost per bar is $2, and you want a 50% profit margin, your profit per bar would be $1.
2. Add the cost per bar and the profit per bar to arrive at the selling price: Following the previous example, the selling price would be $3.

There’s a significant difference between wholesale and retail pricing in soap making business. Wholesale pricing is typically lower than retail pricing because you are selling in larger quantities, often directly to retailers who will then sell the products to the end consumer. The wholesale price needs to cover your costs and desired profit margin but also allows room for retailers to add their markup.

On the other hand, retail pricing is the price at which you sell your soap directly to the end consumer. It’s typically higher than the wholesale price because it includes the retailer’s markup. If you are selling directly to consumers, the retail price needs to cover your costs, desired profit margin, and any additional costs associated with selling directly such as marketing or distribution expenses.

Balancing the need for a profit with the market’s readiness to pay the price you set is not an easy task, but it’s an essential aspect of running a successful soap-making business. Regardless of whether you’re pricing your products for wholesale or retail, always ensure your costs are covered and that you’re earning a profit on each bar sold. Furthermore, check out prices of similar products in the market to ensure your pricing is competitive. Adjust as necessary while making sure your costs are still adequately covered.

Using software to calculate your soap prices

If you are making soap for commercial purposes, it may be beneficial to invest in software that can help calculate the cost of producing a bar of soap. This type of software will allow you to input ingredient costs, overhead costs, and other factors, then generate an accurate price per bar based on your inputs. It can save you time and give you a more precise estimate without the need for manual calculations.

Craftybase: A Handy Tool for Soapmakers

Craftybase is cost effective soap making software, designed for anyone looking to run a success soap business. It provides an array of features that can be incredibly helpful for soap makers looking to streamline their operations and accurately determine their costs and set pricing.

One of the key features of Craftybase is its detailed inventory tracking. It allows soap makers to keep track of all their raw materials such as oils, lye, fragrances, and packaging materials. This ensures that you always have an accurate record of what materials you have on hand and what you need to order. It also tracks the cost of these materials, providing a clear picture of your material costs.

Craftybase also helps with product and recipe costing. You can create individual recipes for each soap type, and the system will calculate the cost of each bar based on the ingredients and quantities used. This feature can be very helpful in pricing your soap bars accurately.

Additionally, Craftybase allows you to track your sales and expenses. This feature can help you determine your profits and losses and understand which of your soap products are most profitable. It also provides reports that can help you analyze your business performance and make informed decisions.

Craftybase is an invaluable tool for soap makers. Its detailed tracking and costing features can help you accurately calculate your costs and set competitive pricing for your products, ultimately leading to a successful and profitable soap-making business. Try us free for 14 days today!

Making adjustments to your soap pricing

If you find that your costs are higher than expected, there are ways to make adjustments without compromising the quality of your soap:

• Consider buying ingredients in bulk to save money
• Find alternative packaging options that are cost-effective.
• Look for ways to streamline your soapmaking process to save time and reduce labor costs.

Tips for minimizing costs and maximizing profits

In the journey of soap-making, it’s not just about crafting beautiful, fragrant bars but also ensuring the venture is financially sustainable.

This part of the guide delves into the essential strategies for minimizing costs and maximizing profits in your soap-making business. Implementing these tips can help you ensure that your passion for soap-making is also financially rewarding

The ingredients make all the difference

The ingredients you use have a significant impact on the cost of making soap. The good news is that most soap ingredients are relatively inexpensive and readily available.

The basic ingredients you will need to make soap are oils, lye, and water. The oils you choose will depend on your preferences and the properties you want in your soap, but typically, olive oil, coconut oil, and palm oil are used. While you can choose high-quality and more expensive oils, you don’t need to spend a lot of money on these basics.

The biggest factor in the cost of making soap is the scent. Essential oils and fragrances are the most costly ingredients you will use in soap making. It is essential to determine the scent oils you need ahead of time so you can budget appropriately.

The equipment plays a part, but not as much as you’d expect

You don’t need a lot of expensive equipment to make soap. A mixing bowl, a spoon, and a mold are the only essential equipment you need to get started. Of course, you can invest in a soap-making kit or a soap cutter, but these are not necessary to start making soap.

Labor costs are minimal (compared to other craft businesses)

The cost of labor is often overlooked when calculating the cost of making soap. However, unless you value your labor at an exceedingly high rate, labor costs are minimal. It takes about one hour to make soap, but each batch can produce several bars, making it a profitable enterprise.

Packaging can add up

While it may seem inconspicuous, packaging can add up if you’re not careful. From cellophane bags to soap labels, these items can be costly if you purchase in bulk. Therefore, if you’re going to sell your soap, it is essential to research prices carefully and budget accordingly.

Buy ingredients in bulk.

This allows you to take advantage of the volume discounts offered. Also, you can explore inexpensive ways of presenting and packaging your soap. Finally, if you are making soap for personal use, don’t go overboard with the scent and additives and stick to the basic ingredients.

Optimize your processes

Efficient soap-making techniques can help reduce waste and save time, ultimately leading to cost savings. Ensuring you are adhering to common GMP processes like soap batch record keeping can also help reduce mistakes and waste.

Ensure you are on top of your inventory and stock management

Staying organized and keeping track of your ingredients, packaging materials, and finished products can help you avoid overstocking or running out of essential items. This will also help in identifying which products are selling well so you can focus on producing more profitable ones.

See more: Soapmakers: Why you need to track your inventory

In conclusion, the cost of making soap goes beyond just the ingredients used. It is essential to consider all factors such as equipment, packaging, time investment, and miscellaneous costs to get an accurate estimate. By calculating the cost per bar, you can make informed decisions and adjustments to ensure your soapmaking business remains profitable while also creating high-quality, environmentally friendly products. So go ahead and start estimating the cost of making soap - your wallet and the environment will thank you! Happy soaping!