How to start a lip balm business: a founder's guide

Starting a lip balm business is a rewarding venture that combines creativity in formulation and branding with business savvy. The global market for lip care products is a multi-billion dollar industry, showing consistent demand for everything from daily moisturizers and sun protection to medicated relief.

This guide will take you through the practical steps of validating your business concept, obtaining necessary licenses, building supplier relationships, and acquiring equipment to help you launch a successful lip balm business in the U.S.

Step 1: Plan your business and validate your idea

Start by researching your target market. Use Google Trends to see what people search for, like "vegan lip balm" versus "SPF lip balm". Also, browse platforms like Etsy and visit local farmers' markets to spot emerging trends and gaps in the market.

A frequent misstep is to create a product you love without first confirming customer demand. Your research should guide your product, not the other way around. This ensures you make something people actually want to buy.

Next, analyze your potential competitors. You can find broad industry reports on databases like Mintel or Statista. For a closer look, study brands on social media and in retail stores. Note their pricing, ingredients, packaging, and marketing claims.

Estimate your startup costs

Your initial investment will likely fall between $1,000 and $2,500. Planning for these costs helps set you up for a smooth launch. This budget covers your first batch of products and foundational business expenses.

Here is a typical breakdown of where that money goes:

• Ingredients & Supplies: $300 - $700 for oils, butters, waxes, tubes, and labels.
• Business Registration & Licensing: $100 - $400, depending on your state's requirements.
• Website & Basic Marketing: $200 - $600 for a simple e-commerce site.
• Product Liability Insurance: $400 - $800 for an annual policy.

Here are 3 immediate steps to take

• Use Google Trends to compare search interest for three different lip balm niches.
• Analyze the pricing and packaging of five successful lip balm brands on Etsy.
• Create a preliminary budget spreadsheet that lists your expected ingredient and licensing costs.

Step 2: Set up your legal structure and get licensed

Most new lip balm businesses form a Limited Liability Company (LLC). This structure protects your personal assets if the business faces debt or lawsuits. It offers a good balance of protection and simplicity, with profits passing through to your personal tax return.

The U.S. Food and Drug Administration (FDA) regulates cosmetics. Your products must comply with the Federal Food, Drug, and Cosmetic Act (FD&C Act) and the Fair Packaging and Labeling Act (FPLA). No pre-market approval is needed, but you are responsible for safety.

State and local requirements

A frequent misstep is incorrect labeling. The FPLA requires you to list ingredients in descending order of weight and state the net quantity. Check the FDA's Cosmetic Labeling Guide to avoid this common error before you print anything.

You will need a state business license and a seller's permit to collect sales tax. These typically cost between $50 and $150. Also, check with your city or county for a local business license, which can range from $25 to $100.

Here are 4 immediate steps to take

• Register your business as an LLC with your state's Secretary of State office.
• Apply for a free Employer Identification Number (EIN) directly from the IRS website.
• Visit your state's Department of Revenue site to apply for a seller's permit.
• Review the FDA's Cosmetic Labeling Guide to create a compliant label template.

Step 3: Secure your insurance and manage risk

Product liability insurance is your top priority. It protects you if a customer has an allergic reaction or other adverse effect from your lip balm. Many new owners think their LLC offers enough protection, but that structure will not shield you from product-related lawsuits.

You should look for a policy with at least $1 million in coverage. The annual premium for this typically runs between $400 and $800 for a small-scale operation. This investment is a safeguard for your business and personal finances.

Find the right insurance provider

Consider providers that specialize in handmade products. The Handcrafted Soap & Cosmetic Guild (HSCG) offers a group insurance plan that is popular with small cosmetic makers. You might also get quotes from insurers like Hiscox or NEXT Insurance, who focus on small businesses.

If you plan to sell at farmers' markets or pop-up events, you will also need general liability insurance. The venue will often require you to show proof of this coverage. Other policies, like commercial property or workers' comp, become relevant once you expand to a dedicated facility or hire employees.

Here are 3 immediate steps to take

• Get a quote for product liability insurance from the Handcrafted Soap & Cosmetic Guild.
• Compare that quote with one from a small business insurer like Hiscox or NEXT Insurance.
• Review your policy options to confirm they specifically cover cosmetic product liability claims.

Step 4: Outfit your production space and source supplies

You can start your lip balm business from home. Designate a clean, dedicated area of at least 50 square feet, separate from your main kitchen. This prevents cross-contamination and helps you follow good manufacturing practices, even on a small scale. No special zoning is typically needed for a home-based operation.

Gather your production gear

Your initial equipment investment is modest. Many new makers are tempted to use their kitchen gear, but dedicated tools are a must for safety and consistency. You can find everything you need for under $150.

• Digital Scale: $20 - $40 for one that measures to 0.01 grams.
• Heat-Safe Pouring Pots: $15 - $30 for a set of two.
• Dedicated Heat Source: $30 - $60 for a reliable hot plate.
• Stick Blender: $25 - $50 to ensure smooth emulsification.

Find your ingredient suppliers

With your space ready, it is time to source ingredients. Suppliers like Bramble Berry and Bulk Apothecary are great for beginners. Their minimum order quantities (MOQs) are low, often just one to four ounces for butters and oils. This lets you buy small test batches first.

Here are 4 immediate steps to take

• Clear and sanitize a 50-square-foot workspace in your home.
• Create a shopping list for a digital scale, pouring pots, and a hot plate.
• Browse Bramble Berry and Bulk Apothecary to compare prices on beeswax and shea butter.
• Add your top three ingredient choices and their costs to your budget spreadsheet.

Step 5: Set up payment processing

You will need a way to accept credit and debit cards, especially for in-person sales at markets and events. Many new sellers get tripped up by high transaction fees, which can eat into your slim margins. Look for a solution with transparent pricing and no monthly charges.

Most payment processors charge between 2.5% and 3.5% per transaction. For a lip balm business that needs to accept payments on-site or on-the-go, JIM offers a streamlined solution. With JIM, you can accept debit, credit, and digital wallets directly through your smartphone.

At just 1.99% per transaction with no hidden costs or extra hardware needed, it is particularly useful for selling at farmers' markets or craft fairs. Your phone becomes your point-of-sale system.

Here is how you can get started with it:

• Get Started: Download the JIM app for iOS.
• Make a Sale: Type the sales amount, hit sell, and ask your customer to tap their card or device on your phone.
• Access Funds: Your money is available right on your JIM card as soon as the sale is done, with no waiting for bank transfers.

Here are 3 immediate steps to take

• Compare the transaction fees of two popular payment solutions with JIM's 1.99% rate.
• Download the JIM app to see how the sales interface works on your phone.
• Decide if you will primarily sell online, in-person, or both to choose the right setup.

Step 6: Fund your business and manage finances

Most lip balm businesses start with personal savings. If you need outside capital, consider an SBA Microloan. These loans range from $500 to $50,000, with interest rates typically between 8% and 13%. They are designed for new businesses with little credit history.

Another option is Kiva, which facilitates 0% interest loans up to $15,000. You will need to get a small group of friends and family to lend to you first to prove your social capital before your loan is listed publicly on their platform.

Plan your working capital

You should budget for at least six months of operating expenses. For a small-scale launch, this often means having $1,500 to $3,000 in cash reserves. This covers ongoing inventory replenishment, marketing costs, and unexpected fees before sales become consistent.

Once you secure funding, open a dedicated business bank account immediately. A frequent misstep is to mix personal and business finances. This complicates bookkeeping, makes it difficult to track profitability, and can cause issues during tax season.

Here are 4 immediate steps to take

• Open a dedicated business checking account to keep finances separate.
• Create a six-month budget to estimate your working capital needs.
• Research the requirements for an SBA Microloan through a local lender.
• Review the Kiva application process to see if it fits your funding strategy.

Step 7: Build your team and streamline operations

You will likely be the sole employee at first, handling everything from production to marketing. As your business grows, your first hire is often a part-time Production Assistant to help with making, labeling, and packing orders. This frees you up to focus on sales and growth.

A Production Assistant typically earns $15 to $20 per hour. While no specific certifications are required, look for someone with great attention to detail. You can provide training on your specific formulas and Good Manufacturing Practices (GMP) to ensure consistency and safety.

Manage your workflow

Once you have help, you need to manage schedules. Many new owners just use text messages, but this gets messy. You might want to look at scheduling apps like Homebase or When I Work. They offer free plans for small teams and simplify communication.

A good rule of thumb is to consider your first part-time hire when you consistently reach $2,000 to $3,000 in monthly revenue. At this point, the cost of an assistant is offset by the new business you can generate with your freed-up time.

Here are 4 immediate steps to take

• Draft a simple job description for a part-time Production Assistant.
• Review the FDA's resources on Good Manufacturing Practices (GMP).
• Explore the free plans for scheduling apps like Homebase or When I Work.
• Set a monthly revenue goal that will be your trigger to start hiring.

Step 8: Market your brand and find customers

Before you post anywhere, define your brand story. What makes your lip balm special? Is it the sustainable packaging, the unique scent profiles, or the locally sourced beeswax? This story is the foundation for all your marketing efforts and helps you stand out.

With your story ready, turn to social media. Platforms like Instagram and TikTok are perfect for a visual product. You can post short videos of your production process or highlight key ingredients. Aim to post 3-5 times per week to build momentum and engage with followers.

Collaborate and sell in person

You might want to partner with micro-influencers in the clean beauty space. Creators with 5,000 to 20,000 followers often have high engagement. A typical collaboration could involve free products for a post, or a paid fee between $100 and $250.

Do not overlook local markets. A table at a farmers' market or craft fair can cost between $50 and $150 per day. This is a direct way to get customer feedback and build a loyal local following. For online sales, a 2-3% conversion rate is a good target.

Here are 4 immediate steps to take

• Write a one-paragraph brand story that defines your unique selling point.
• Identify 10 beauty micro-influencers on Instagram or TikTok to contact.
• Research the application process and table fees for two local craft fairs.
• Set up a business profile on Instagram and plan your first five posts.

Step 9: Price your products for profit

Calculate your cost per tube

First, figure out your Cost of Goods Sold (COGS) for a single tube. Add up the cost of ingredients, the tube, and the label. A frequent oversight is forgetting to include labor, so you might want to add a small amount for your time, perhaps $0.25 per unit.

For example, if your ingredients cost $0.40, the tube is $0.20, and the label is $0.15, your COGS is $0.75. This number is the foundation for any pricing decision you make.

Set your retail price

A simple method is cost-plus pricing. For handmade cosmetics, a 4x to 6x markup is standard. With a $0.75 COGS, this puts your retail price between $3.00 and $4.50. This range helps ensure you cover all costs and make a healthy profit.

You should also look at what competitors charge. Browse Etsy and local shops for lip balms with similar ingredients and branding. If comparable products sell for $5, pricing yours at $4.50 can give you a competitive edge while maintaining a strong margin.

Your target gross profit margin should be 60% to 80%. This gives you enough room to cover marketing, transaction fees, and other business expenses after you subtract your COGS.

Here are 4 immediate steps to take

• Calculate the exact COGS for one tube of your lip balm, including packaging.
• Research the prices of five similar lip balm brands on Etsy.
• Apply a 4x markup to your COGS to determine a starting retail price.
• Calculate your gross profit margin to ensure it falls between 60% and 80%.

Step 10: Implement quality control and scale production

To ensure every lip balm is perfect, you need a system. Many new makers struggle with inconsistent batches. You can avoid this by following Good Manufacturing Practices (GMP). This starts with creating a detailed batch log for every production run you do.

Your log should track the date, ingredient lot numbers, quantities used, and the final number of tubes produced. This record is not just for compliance; it is your key to replicating your most popular products perfectly and tracing any issues back to the source.

Plan your growth milestones

Once you consistently hit $4,000 to $5,000 in monthly revenue, home production may start to limit your growth. This is a good benchmark to begin looking for a small, shared commercial kitchen space. This move professionalizes your operation and increases capacity.

With more space, you can upgrade equipment. You might want to invest in a 10-liter wax melter, which costs around $300 to $500. This allows you to make larger, more consistent batches. Software like Craftybase can also help manage your growing inventory and costs.

Here are 4 immediate steps to take

• Create a batch log template to track your production runs.
• Set a monthly revenue goal that will trigger your search for a commercial space.
• Research the cost of a 10-liter wax melter for future budgeting.
• Explore the features on the Craftybase website to see how it tracks inventory.

You have a complete guide to launch your lip balm business. Remember that consistency, from your formula to your brand story, is what builds trust and creates loyal customers. You have the roadmap; now go bring your brand to life.

As you start selling, you will want payments to be simple. JIM turns your smartphone into a card reader, letting you accept payments for a flat 1.99% fee with no extra hardware. Download JIM to be ready for your first customer.