Is Cosmetic Business Profitable
From my analysis of 108 cosmetics companies, on average, cosmetic businesses are not profitable.
The cosmetics industry is highly competitive, so without the brand presence to be able to mark up their products or services, one would expect the margins to be very low, and indeed, that is what we see.
Now, “cosmetics” can refer to a lot of things. In general, “cosmetics,” otherwise known as the “beauty” industry, encompasses skincare, face/make-up, haircare, nails, and more.
In this analysis, I screened for beauty care product and service companies in the US, Canada, and the UK, and I removed companies with no data or outliers.
In summary, looking at all of the 108 companies, the average gross margin is 51%, the average EBITDA margin is 8%, and the average net profit margin is 1%.
With an average net profit margin of 1%, one can deduce that a cosmetic business is not very profitable; they just break even.
This data reasonably excludes the outliers, because the median gross margin, EBITDA, and net profit margin are in similar ranges to the averages.
Key observations are that as the size of the cosmetic businesses get larger, the margins all trend in the increasing direction.
Let’s delve a little deeper into the different types of cosmetic sub-industries to see if the profitability trends similarly.
Profit Margin in Cosmetic Industry
To determine the profit margin in the cosmetic industry, I grouped the companies into different cohorts as follows:
- Cosmetic businesses that sell products vs. that provide services
- Skincare cosmetic businesses
- Makeup cosmetic businesses
- Hair care cosmetic businesses
- Nail cosmetic businesses
- Perfume / fragrance cosmetic businesses
*Note that some businesses are involved in more than one sub-group. In those instances, they appear in more than one sub-groups. For example, Jo Malone appears in the skincare, haircare, and perfume analyses.
To reiterate, for all 108 companies, the average profit margin is 1%.
Profit Margin in Cosmetic Industry: Products
By products, I mean cosmetic businesses that manufacture and/or sell physical products, such as moisturizers, shampoo, perfume, make-up, etc.
And by services, I mean cosmetic businesses that provide a service such as nail salons, hair salons, dermatological spas, etc.
In the analysis of 108 cosmetic businesses with available financial data, most of them were product companies.
For 92 cosmetics product companies, the average gross margin is 50%, the average EBITDA margin is 9% and the average net profit margin is 2% (table below).
The average margins for product companies only are not very different from all the companies since the majority of them are product companies.
Profit Margin in Cosmetic Industry: Services
Next, for the 16 beauty services businesses in the data set, the average gross margin was higher at 55% but the average EBITDA margin is lower at 5% and the average net profit margin is lower as well at -2%.
It’s challenging to make inferences based on this analysis because 16 companies are too few in the sample size.
However, if we were to make some reasoning based on what we see, the lower EBITDA and net profit margins can be due to higher overhead at service-based businesses.
Another interesting takeaway is that there are no service businesses that are making more than $500 million.
In fact, the largest is the Regis Corporation that makes $260 million in revenue. The second largest is the European Wax Center with $199 million in revenue. And the third largest is Milan Laser that makes $142 million in revenue.
Below these top 3 largest cosmetics services businesses, the remaining service businesses have revenues lower than $25 million per year.
This makes sense since scaling a service-based business is not as common as a product-based business.
Profit Margin in Cosmetic Industry: Skincare
For the 74 skincare companies, the average gross margin is 53%, the average EBITDA margin is 7%, and the average net profit margin is 0%.
Compared to the total cosmetic industry, the profit margin is lower at 0%.
Companies are evenly spread across the different sizes ranging from less than $20 million in revenue to over $50 million per year.
The small businesses with revenues less than $20 million are not profitable. They have -2% EBITDA margin and -7% net profit margin.
Profit Margin in Cosmetic Industry: Makeup
For 22 makeup companies, the EBITDA margin is higher than the total cosmetic industry at 10% and the net profit margin is also higher at 5%.
An interesting observation is that even for small make-up businesses with revenue less than $20 million, they have a positive net profit margin.
Although these companies are just breaking even, boutique make-up businesses are still profitable.
Profit Margin in Cosmetic Industry: Hair Care
For 52 hair care companies, the EBITDA margin is also higher than the total cosmetic industry at 11% and the net profit margin is 2%.
Profit Margin in Cosmetic Industry: Nail Care
For 12 nail care cosmetic businesses, the average gross margin is 52%, the average EBITDA margin is 4% and the average net profit margin is -1%.
When you look at the margins for each company in the data set, they are all over the place. The average of these businesses is not conclusive.
Profit Margin in Cosmetic Industry: Perfume / Fragrances
For 29 companies that sell perfume / fragrances, the average gross margin is 54%, the average EBITDA margin is 12%, and the average net profit margin is 4%.
Cosmetic Industry Valuation Multiples
In addition to the profit margin in the cosmetic industry, the valuation multiples for the cosmetic industry is as follows.
For all 32 public companies with available data, the average revenue multiple is 1.9x, the average EBITDA multiple is 7.8x and the average earnings multiple is 8.7x.
Although outliers were removed from the data set, there is still a wide range of valuation multiples data, which suggests that there isn’t a trend in how businesses in the cosmetic industry is valued.
Most of the companies in this data set are product-based businesses.
Download Data Set
To download the 108 cosmetic businesses data set in this analysis, enter your email address below to sign-up for the mailing list and the data set will be sent to your email directly.
Thanks for reading and hope you found it useful!