Why Raw Material Sourcing is the Key to Lowering COGS

For private label skincare brands, cost of goods sold (COGS) is one of the most critical factors determining profit margins, scalability, and market competitiveness. While many brands focus on packaging, branding, and marketing, the real cost savings often lie in raw material sourcing.

In fact, our bulk raw material procurement strategy has helped private label brands reduce COGS by up to 27%, without compromising on:
✔ Ingredient quality
✔ Regulatory compliance
✔ Sustainable and ethical sourcing
✔ Production efficiency

This blog will explore:
✔ How bulk raw material sourcing impacts skincare COGS
✔ The hidden markups in traditional ingredient procurement
✔ How strategic sourcing reduces costs at scale
✔ Case study: How a private label brand lowered COGS by 27%
✔ How to optimize your supply chain for maximum savings

By the end of this guide, you’ll understand how to cut costs without sacrificing quality, making your brand more profitable and competitive.

Why Bulk Raw Material Sourcing Matters in Skincare Manufacturing

1. Raw Materials Are the Largest Component of COGS

✔ On average, 50-60% of a private label skincare product's COGS comes from raw materials (active ingredients, bases, extracts, and preservatives).
✔ Packaging and labor make up the remaining 40-50%, meaning optimizing ingredient sourcing provides the biggest cost reduction opportunity.

2. Traditional Ingredient Procurement = High Markups

Many brands unknowingly pay 20-40% more for raw materials due to:
✔ Middlemen distributors adding markups.
✔ Smaller order volumes leading to higher per-unit costs.
✔ Lack of direct manufacturer relationships, causing price fluctuations.

3. Bulk Sourcing Eliminates These Markups

✔ Direct relationships with global raw material suppliers allow for wholesale pricing.
✔ Large-volume purchasing secures lower per-unit costs.
✔ Streamlined logistics and supplier agreements reduce import duties and handling fees.

Where the Hidden 27% in COGS Reduction Comes From

We achieve cost savings through four key sourcing strategies:

1. Direct Supplier Negotiation & Wholesale Bulk Orders

✔ Skincare brands that buy raw ingredients in small quantities pay an average 30-40% markup from distributors.
✔ By bypassing intermediaries and buying directly from manufacturers, we eliminate these markups.

2. Group Buying & Shared Procurement Networks

✔ We pool orders across multiple private label brands, securing bulk pricing on ingredients.
✔ Shared procurement ensures even small brands get wholesale discounts.

3. Supplier Diversification & Region-Specific Sourcing

✔ Different regions have varying pricing for the same ingredients (e.g., Hyaluronic Acid from China vs. Japan).
✔ By diversifying suppliers, we get lower costs while maintaining quality control.

4. Pre-Financing Raw Material Stock to Lock in Pricing

✔ Many ingredient costs fluctuate due to seasonality, supply chain disruptions, and inflation.
✔ We pre-finance raw materials months in advance, locking in low-cost, high-volume pricing before market fluctuations.

Total COGS Savings Breakdown:
✔ Ingredient Cost Reduction: 12-18%
✔ Logistics & Import Cost Savings: 5-7%
✔ Elimination of Distributor Markups: 4-5%
✔ TOTAL SAVINGS: 21-27% COGS REDUCTION

Case Study: How a Private Label Brand Cut Costs by 27%

Brand Profile:

✔ Product: Vitamin C Serum
✔ Initial COGS: $3.80 per unit
✔ Production Volume: 10,000 units per batch

Step 1: Identifying Cost-Saving Opportunities

✔ The brand was sourcing Ascorbic Acid (Vitamin C) at $85/kg from a U.S. distributor.
✔ We secured Ascorbic Acid from a top-tier manufacturer in China at $52/kg, with the same purity level (99.8%).
✔ Switched from small-scale packaging suppliers to bulk FSC-certified glass bottle suppliers, saving $0.20 per unit.

Step 2: Implementing Bulk Sourcing Strategies

✔ Direct import of raw materials reduced ingredient costs by 18%.
✔ Optimized packaging supply chain, cutting costs by 7%.
✔ Negotiated pre-payment discounts with suppliers, lowering per-unit costs further.

Final Results:

✔ COGS reduced from $3.80 → $2.77 per unit.
✔ 27% total cost savings, increasing profit margins by 45%.
✔ Increased order volume without additional capital investment.

How to Optimize Your Private Label Supply Chain for Maximum Savings

If you're a private label brand looking to reduce COGS and scale efficiently, follow these strategies:

1. Work Directly with Raw Material Manufacturers

✔ Eliminate middlemen and buy directly from certified global ingredient suppliers.
✔ Request bulk order pricing and long-term supply agreements.

2. Consolidate Orders with Other Brands

✔ If your brand orders small quantities, consider group purchasing with other brands to secure wholesale pricing.
✔ Many OEMs offer bulk ingredient procurement programs for cost-sharing.

3. Lock in Pricing Before Market Fluctuations

✔ Pre-pay for key raw materials to avoid sudden price increases.
✔ Work with suppliers that allow long-term contracts at fixed rates.

4. Optimize Packaging Costs with Sustainable Alternatives

✔ FSC-certified paper, recycled glass, and aluminum often cost less in bulk than traditional plastic.
✔ Sustainable packaging also attracts eco-conscious consumers, increasing perceived brand value.

Why Raw Material Sourcing is a Game-Changer for Skincare Brands

For private label skincare brands, profitability is directly tied to COGS efficiency. While many brands focus on marketing and branding, hidden ingredient costs can eat into profit margins without a strategic sourcing plan.

By implementing bulk raw material sourcing, brands can:
✔ Lower ingredient costs by 18-27%.
✔ Increase profit margins without raising prices.
✔ Scale faster without excess inventory costs.

If you’re a private label skincare brand looking to reduce COGS, our bulk procurement strategies can help you cut costs, boost margins, and grow sustainably.

Want to learn how? Let’s talk. 🚀