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Soaponomics: Unraveling the Economics of Crafting Natural Soap

A. Introduction

Have you ever considered the expense of producing soap? When asked, most people have minimal knowledge of the primary ingredients used in natural soap production (spoiler alert: oils and butters). This may seem perplexing at first, but natural soap really cleanses from the ingredients it is produced with!

By soap making, we mean natural soaps (a combination of oils, lye water, natural colors, and essential oils), not synthetic detergents derived from petroleum (a.k.a. your old favorite shower gel or €0.89 bar of "soap"). Our transparent pricing policy may be of interest to you as well:

- as a consumer, to grasp the cost of soap adoption; 

- as a fellow soap producer, to compare to your own costing

When we first launched Babassu Soaps, we had no concept about the investment required to sustain a soap-making business because it was just for fun. We had no idea about certificates, insurance expenses, or German bureaucracy. However, we believe that if we had known everything beforehand, we would not have established our firm. But we persisted, and now we're not ready to back down after putting in so much work to make it happen!

B. What needs to be considered when setting the price for your soap ?

The ones proportional to the company size:

1. Raw materials / 2. Equipment / 3. Salary / 4. Rent / 5. Packaging

The rest can be viewed as your primary lever for increasing margins while maintaining quality standards and brand values. They are related to production scaling, with higher output resulting in lower costs per soap:

6. Certification / 7. Insurance / 8. Marketing presence

This division is questionable, but I wanted to limit myself to two categories.

1. Raw Materials

The price here can vary substantially based on the thing you wish to sell. The cost of manufacturing natural soaps utilizing the cold process is broken down below. This argument does not entirely apply if you use a different approach. Glycerin soaps (melt casting), for example, or syndet (solid detergent bars made from petroleum-derived chemicals).

vegetable oils, natural colorants and essentials oils make the most of natural soaps at babassu soaps
vegetable oils, natural colorants and essentials oils make the most of natural soaps at babassu soaps

Main ingredients prices ranges (averages 2022): - 8-30€/kg for quality organic vegetable oils - 250-350€/kg for essential oils - 15-40€/kg for natural colorants - 5€/kg for NaOH - 1€/kg for distilled water in Germany

These rates are based on previous experience with babassu soaps. Of course, if you buy in greater quantities or in different quality, you can discover lower pricing on the market.

After 3 months (exception: 100% olive oil soap: at least 1 year), natural soaps are fully hardened and crystalline, allowing superfluous water to evaporate and the crystalline structure of the soap to form properly. We also removed the rough edges for a more attractive display and a more pleasant experience during the initial applications. We receive soap scraps in this manner, which we then convert into fresh soaps (for personal use only, not for sale online).

2. Equipment

Wired soap cutter, Amélie soap
Wired soap cutter, Amélie soap
  • One time investment, such as a precision scale, various soap molds, hand mixers, laboratory furniture, soap cutters, cooking pots, gloves...

A lasting term should be estimated for each item to comprehend its impact on the price of a batch of soap. Each soap mold, for example, could withstand 200 batches, or a precision scale could last ten years (= x batches)...

  • production supplies such as cleaning and disinfecting products, energies...

Total investments as of today (April 2023) : 1100€ over the past 4 years of service and further 6 others to come. We obtain an average of 0,22€ per soap (500 soaps per year average over 10 years).

3. Salary

It gives us great pleasure to introduce genuine and high-quality natural soaps to the market! It's just a hobby for us, and we'd prefer to maintain it that way. However, preparing, producing, and cleaning the soaps takes time, and the prices are simply too expensive to sustain the operation. We pay ourselves 8€ per hour.

4. Rent

Our laboratory's soap storage area is approximately 1.5m2. The storage time is predicted to be 6 months (3 months of cure and 3-4 months waiting for adoption) and costs approximately 25€ per month in our instance.

Rent for 6 months = 150€ divided by the quantity of soap activity over the period (in this case, 500/2 = 250).

5. Packaging

  • individual paper bag (not charged)

  • cardboard (not charged in transportation costs)

  • personalized ID card for each soap as packaging (ingredients list...)

  • some paper filling

  • branding material (tapes, laser engraving printer...)

Total estimation of 0,34€ per soap. For each order you are also likely to get free sample(s) along. 🤫

6. Testing and certifications

In Europe, every single recipe needs to be approved by a laboratory. Which is different from the approach in the USA, where the insurances takes the full blame in case of issues.​ in EU both are needed :) Testing a recipe costs from 250€ to 400€ depending on the laboratory provider.

7. Insurances

Many insurance companies have for different quotations and coverages. And they surely have their juicy prices. Our activity yearly coverage is 350€ per year. It covers mainly product liabilities, production place hazard.

8. Marketing

Online - having a domain and webshop is 30€ per month. - marketing efforts on Instagram + Facebook are about 10€ monthly. Offline - being physically present at fairs, markets. 2-3 times a year about 200€ fees

C. Costs summary

These summaries were made to assist you understand what we just said. To maintain consistency, everything is first calculated for 1 kilogram of soap manufacture and then split down to a single soap. After curing, a soap loses 10% of its mass, and another 3% is lost during the beveling process (soap scraps are recycled into soap for personal use). The calculation is based on 500 soaps each year and 100g per cured soap. Equipment life expectancy is predicated on ten years (6 more to come!).

Margin = price tag - costing = 6,9 - 6,52 = 0.32€ (or 5,5%)

At our scale, with our ingredient policy / branding, a natural soap costs should be sold at a minimum price of 6,52€ per 100g. The 5% margin is often easily gone with unexpected market fees or wholesales policies.

D. Discussion margin/quality

Our profit margin for the above recipe is roughly 5%, which is just enough for us to keep enjoying our pastime and reinvesting in new equipment as well as replacing worn or broken equipment such as silicone molds, gloves, pipettes, and so on.

You may grasp the following with basic algebra: ​

  • This is why we are hesitant to offer special pricing promotions for Black Friday or Christmas.

  • For a (very) small business, our price/quality ratio is unrivaled.

In soap marketing courses, the golden rule is to impose a profit margin of 100% on all costs and wages. However, we prioritize utilizing the best ingredients, preferably organic, which would cost €11.8 for a 100g bar of soap.

This is too pricey for our target market, which consists of environmentally concerned skin care enthusiasts aged 20-45.

Why can I find natural soap for less than 5€/100g on the market ?

A non-hobbyist would have to really consider how to decrease costs while (hopefully) maintaining as many of the ideals they stand for as feasible. And there are as many strategies as there are soap companies. The following are the most critical leverages:

--> Raw materials

  • having average to poor ingredients qualities. With a 'good' marketing strategy, some companies can hide this fact.

  • Using perfumes instead of essential oils, or not using scent at all.

  • Buying in bulk (bigger company)

--> Equipment Having uncomplicated or no designs (= less time spent in production) --> No insurance A decision in term of risk management --> Salary

Willingness to labor for less or "for free" or simply having a simple / no design (= less time invested in the production process) --> No certification One soap a day keeps the authorities away ? 🍎 --> Rent "Go big or go home", an increase of production reduces overall costs. We clarify this point below chapter --> Marketing / Packaging This part is the favorite one from big corporation to play with. Check our marketing / greenwashing myths.

  • The great power of marketing may convince you to buy a product based just on its packaging.

  • Greenwashing is just a sort of marketing that capitalizes on consumers' ignorance of what is actually sustainable.

E. Projection in time

For the fun of the exercise, we did the same with the following conditions (lot of ifs) to understand how the cost would evolve:

  • we do not to move to get another location (rent remains the same, stacking up storage)

  • the production is increased to 2000 or 5000 soaps

  • no employment

  • no increase in marketing costs

  • keeping same recipes

Starting at 5000 soaps, raw material costs also begin to decrease as you buy in bulk. This provides even more opportunities to increase profit margin while maintaining the usual price with the same quality.

Margin = 6,9 - 4,60 = 2.80€ (or 33,3%)

If we produced 5000 soaps every year, our profit margin would be roughly 33%. With such sales quantities, however, we would be unable to run Babassu Soaps as freelancers making more than €17,500 per year. Instead, we'd have to register as a company and pay 19% VAT in Germany. It is advisable to stay under the threshold by selling between 2000-2500 soaps per year.

F. Conclusion

To remain profitable and give a reasonable price to luxury soap enthusiasts, we must compromise on ingredient quality, which has proven to be the most powerful leverage in our case. But we have a major issue: we aim for quality (certainly a professional deviation from my primary job, which I enjoy) and provide soap-making education. In other words, we will not change!

With our current size in 2023 and the investments made/price policy, we are able to continue producing but not generating significant profits. If you want the most economical high-quality natural soap, go no further than babassu soaps ;) We made the following bet based on projected growth:

  • If our production successfully scales up, we will be able to sell high-quality natural soap for about €2 per soap.

  • Even if our efforts do not provide the expected outcomes, we will have the delight of making soap as a hobby:)

We hope you found this information to be useful!


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