How to start a skincare business from the ground up

Starting a skincare business is an exciting venture that combines a passion for formulation with sharp business savvy. The global skincare market is a multi-billion dollar industry, with steady demand for products that address everything from daily hydration and sun protection to anti-aging and acne treatment.

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

Step 1: Plan and validate your business idea

Define your niche and research the market

First, pinpoint your target audience. Are you making products for teens with acne, or adults who want anti-aging solutions? Use market reports from firms like Mintel or Statista to understand trends. You can also survey potential customers on social media to validate your product ideas.

A frequent misstep is creating a product you love without confirming market demand. Your passion is important, but data ensures people will buy what you are selling. This initial research prevents costly pivots later on.

Analyze your competition

With your market research in hand, look at what other brands are doing. Use a database like SPATE to see what skincare concerns are trending. Do not just study the giants; analyze successful indie brands on Instagram and TikTok to understand their marketing and community building.

Budget for your startup costs

Startup costs can range from $15,000 to over $50,000. A custom formulation might cost $5,000-$15,000 per product for development and stability testing. An initial inventory of 500-1,000 units can add another $5,000-$20,000.

Also, set aside funds for branding ($2,000+), an e-commerce website ($1,000+), and legal fees ($500+). A detailed budget helps you plan your funding strategy and manage cash flow from day one.

Here are three immediate steps to take:

• Define your specific target customer and one key problem your product solves.
• Analyze two direct competitors, noting their pricing, marketing, and customer reviews.
• Create a preliminary startup budget with low and high estimates for formulation and inventory.

Step 2: Set up your legal and regulatory framework

You might want to consider forming a Limited Liability Company (LLC). It protects your personal assets and offers pass-through taxation, which simplifies your filings. An S-Corp can offer tax advantages once you are profitable, but it involves more complex administrative work.

Secure your licenses and permits

The Food and Drug Administration (FDA) regulates skincare under the Federal Food, Drug, and Cosmetic Act (FD&C Act). While cosmetics do not need pre-market approval, your labels must be truthful. Avoid making medical claims like "treats rosacea," which would classify your product as a drug.

You will need a federal Employer Identification Number (EIN), which is free from the IRS and takes minutes to get online. Next, register your business with your state, which can cost between $50 and $200. Processing times vary from a few days to several weeks.

Here are three immediate steps to take:

• Decide on your business structure and file the formation documents with your Secretary of State.
• Apply for a free Employer Identification Number (EIN) directly from the IRS website.
• Review the FDA’s cosmetic labeling guide to ensure your packaging claims are compliant.

Step 3: Secure your business insurance

Understand your insurance needs

Protecting your business is non-negotiable. You will need General Liability and Product Liability insurance. These often come bundled and cover claims from property damage or customer injuries, like an allergic reaction. This is a frequent risk in skincare, so do not skip this coverage.

Expect to pay between $500 and $2,000 annually for a policy with at least $1 million in coverage. If you have a physical office or inventory, you should also get Commercial Property insurance. And if you hire anyone, Workers' Compensation is legally required in most states.

When you look for providers, consider companies like Hiscox, The Hartford, or Veracity Insurance Solutions. They have experience with e-commerce and beauty brands. A general agent might not fully grasp the specific risks involved with cosmetic formulations and product claims.

Here are three immediate steps to take:

• Request quotes for a combined general and product liability policy with at least $1 million in coverage.
• Research insurance providers that specialize in the beauty industry, such as Hiscox or Veracity.
• Check your state’s requirements for workers' compensation if you plan to hire employees.

Step 4: Set up your workspace and source materials

Many skincare brands start in a dedicated home workspace. You will need a separate room of at least 100-200 square feet. The FDA requires your production area to be clean and separate from personal activities to prevent contamination. If you lease, look for a small commercial space zoned for light industrial use.

When you negotiate a commercial lease, try to secure a 1-2 year term instead of the standard 3-5 years. This provides flexibility. A frequent misstep is to lock into a long lease for a space you might quickly outgrow or find unsuitable.

Find your equipment

Your initial setup can be simple. You will need a digital scale that measures to 0.01g ($30-$100), a pH meter ($50-$150), and a set of glass beakers. For emulsification, a high-shear stick blender works well for small batches. You can delay the purchase of a lab homogenizer, which costs $500-$3,000.

Build your supplier list

Begin with suppliers who cater to small businesses. Companies like MakingCosmetics and Lotioncrafter sell high-quality ingredients in small quantities, sometimes as little as one ounce. This allows you to perfect formulations without a large upfront cost.

Larger distributors often have minimum order quantities (MOQs) of 25kg or more per ingredient. Avoid these until you have consistent sales volume. Starting small prevents you from holding thousands of dollars in expiring inventory.

Here are three immediate steps to take:

• Research your city’s zoning laws for home-based cosmetic manufacturing.
• Price out a starter equipment kit with a digital scale, pH meter, and beakers.
• Request samples and pricing from two raw material suppliers like Lotioncrafter or MakingCosmetics.

Step 5: Set up your payment processing

Choose your online payment processors

For your e-commerce store, you will want a processor like Shopify Payments or Stripe. They integrate directly with your website and typically charge around 2.9% + 30¢ per transaction. This is the standard rate for most online sales.

If you plan to offer product subscriptions, look for platforms that support recurring billing. Many e-commerce sites have apps like Recharge that manage this automatically. This helps build a predictable revenue stream from your most loyal customers.

Accept payments on the go

When you sell at markets or pop-ups, you need a mobile solution. This is where JIM offers a streamlined option. With JIM, you accept debit, credit, and digital wallets directly on your smartphone. Just tap and you are done.

At just 1.99% per transaction with no hidden costs or extra hardware, it is a cost-effective choice. Many other mobile payment solutions charge rates closer to 2.7%, so the savings add up. It is particularly useful for selling sample sizes at a local craft fair.

Here is how it works:

• 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 on your JIM card as soon as the sale is done, with no waiting for bank transfers.

Here are three immediate steps to take:

• Compare transaction fees for Shopify Payments and Stripe for your online store.
• Research subscription apps like Recharge if you plan to offer recurring orders.
• Download the JIM app to prepare for in-person sales.

Step 6: Fund your business and manage finances

Explore funding options

The SBA Microloan program is a solid starting point. It offers loans up to $50,000, with interest rates typically between 8-13%. These are designed for new businesses that may not qualify for traditional bank loans.

You should also look into grants. Platforms like IFundWomen and the Amber Grant specifically support female entrepreneurs. While competitive, these awards provide capital that you do not have to repay. A strong brand story and clear business plan are key to a successful application.

A frequent misstep is to underestimate your total startup costs. This forces founders to seek more expensive funding later. Before you apply for any loan, create a detailed budget and add a 15-20% contingency fund for unexpected expenses.

Plan your working capital

Your working capital is the cash you need for day-to-day operations. For a skincare brand, this covers inventory reorders, marketing ads, and shipping supplies. This is separate from your one-time startup costs like formulation and branding.

For the first six months, aim to have $15,000 to $30,000 in working capital. This buffer lets you operate smoothly and reinvest in growth before your sales become fully self-sustaining. It prevents cash flow gaps that can stall a new business.

Here are three immediate steps to take:

• Research the SBA Microloan program to see if you qualify.
• Find one grant on a platform like IFundWomen and review its application requirements.
• Calculate your estimated working capital needs for the first six months.

Step 7: Build your team and streamline operations

Your first hires

You will likely handle most tasks yourself at first. Your first hire should take over repetitive work. A part-time Production Assistant, at $15-$25 per hour, can manage bottling, labeling, and packing orders. This frees you to focus on growth.

As sales increase, you might bring on a freelance Social Media Manager. Rates are typically $50-$100 per hour. This person can handle content creation and community engagement, which are time-intensive tasks. A full-time hire can wait until revenue is more predictable.

Establish your operational workflow

From the start, document every production process. This is a core principle of Good Manufacturing Practices (GMP) and ensures every batch is consistent. It also makes training new staff much simpler down the road.

Many new founders hire too quickly, which strains cash flow. A solid goal is to target $150,000-$200,000 in annual revenue per full-time employee. This helps keep your operations lean and profitable as you scale.

For managing inventory, your e-commerce platform's native system is a good start. Once you have multiple products, you might want to look at dedicated software like Katana or Cin7 for better tracking.

Here are three immediate steps to take:

• Draft a job description for a part-time Production Assistant.
• Research the FDA’s Good Manufacturing Practices (GMP) guidelines.
• Compare the features of two inventory management apps like Katana and Cin7.

Step 8: Launch your marketing and find customers

Focus on content and community

Start with content that educates. Write blog posts or create TikTok videos that explain the science behind your key ingredients. Brands like The Ordinary built a following on transparency, not hype. This approach builds trust and attracts informed customers who value quality over flashy ads.

Use Instagram and TikTok to showcase your products visually. You can encourage user-generated content by offering a small discount to customers who post a photo with your product. This provides social proof and organic marketing that money cannot buy. It is a powerful way to build a community.

Also, build an email list from day one. You can offer a 10% discount on a first purchase in exchange for an email address. Your email list is a direct line to your customers that you control, independent of social media algorithms.

Track your performance

Once you start to sell, you need to watch your numbers. A typical e-commerce conversion rate is between 1-3%. You should also track your Customer Acquisition Cost (CAC). Many new founders spend too much on ads too soon, which drives up their CAC without a clear return.

A better approach is to first build an audience with organic content. Once you see what resonates, you can use paid ads to amplify your most successful posts. This keeps your marketing spend efficient and your business profitable from the start.

Here are three immediate steps to take:

• Set up an Instagram and TikTok account and plan your first five content pieces.
• Create a 10% discount pop-up on your website to start building your email list.
• Install Google Analytics to track your website’s conversion rate.

Step 9: Set your pricing strategy

First, calculate your Cost of Goods Sold (COGS). This includes every expense to create one unit: raw ingredients, packaging, and direct labor. For example, if a 30ml serum costs $3 in materials and $1 in labor, your COGS is $4.

A common model is cost-plus pricing. Skincare brands often apply a 4x to 6x markup on COGS to set the wholesale price. With a $4 COGS, your wholesale price would be $16 to $24. This yields a healthy gross margin of 75-82%.

Your direct-to-consumer (DTC) price should align with the eventual retail price. Retailers like Sephora or Credo Beauty typically double the wholesale price. So, your $16 wholesale product would be priced at $32 or more on your website and in stores.

Many new founders price their products too low, which leaves no budget for marketing or wholesale partnerships. Your price must cover all business costs, not just the product itself. It is the engine for your growth.

Here are three immediate steps to take:

• Calculate the full Cost of Goods Sold (COGS) for your main product.
• Research the retail prices of three direct competitors for a similar item.
• Set a preliminary DTC price for your product using a 4x to 6x markup on your COGS.

Step 10: Implement quality control and scale production

Establish your quality standards

Consistency is your brand's reputation. You should follow Good Manufacturing Practices (GMP), specifically the ISO 22716 standard for cosmetics. Create a detailed batch record for every production run. This document tracks ingredient lot numbers, weights, and process steps to ensure every product is identical.

For each batch, you need to perform quality checks. Test the pH to ensure it is within a narrow range, like +/- 0.2 from your master sample. Also, perform sensory checks for color, scent, and viscosity. Any deviation means the batch should be investigated, not sold.

Plan your scaling strategy

Many founders struggle with knowing when to expand. A good trigger is when you consistently sell over 1,000 units per month or when production consumes more than 20 hours per week. At that point, you can explore leasing a small commercial space or hiring a co-packer.

A frequent mistake is assuming a formula will work the same at a larger volume. When you scale from a 1kg batch to a 50kg batch, the heating and cooling times change. Always produce a small pilot batch with the new equipment before committing to a large production run.

As you grow, your website's basic inventory system will not be enough. You might want to look at software like Katana or Fishbowl to manage raw materials, batch numbers, and finished goods. This helps prevent stockouts and track product expiry dates.

Here are three immediate steps to take:

• Create a batch record template for your main product that includes fields for ingredient lots and pH readings.
• Research pricing for microbial testing from a third-party lab like Micro Quality Labs.
• Set a monthly sales volume (e.g., 1,000 units) that will trigger your search for a co-packer.

Building a skincare brand is a journey of precision and passion. Remember that consistency in your product and message is what earns customer loyalty. You have a clear path forward, so trust your formula and begin.

And when you are ready to sell at markets, remember JIM. It lets you accept payments directly on your smartphone with no extra hardware, all for a simple 1.99% fee. Download JIM and make your first sale.