Is Your Beauty Brand Actually Profitable? Here’s How to Know.

At Hey Beauty, we work with founders who know how to build a buzz-worthy brand - beautiful packaging, dreamy formulas, and that kind of aesthetic that makes people want to buy. But here’s the truth: none of it matters if your numbers don’t work.

We’ve seen it time and again - founders with strong vision and growing followings, but who quietly admit they don’t fully understand their unit economics. And that gap? It’s what often separates the brands that scale from the ones that stall.

This post breaks down the beauty brand profitability puzzle - in plain English. If you’ve ever wondered why your top-selling product still isn’t making you money, or how to confidently price your offer, this one’s for you.

1. Go Beyond Gross Margin

Most beauty founders know about gross margin - the difference between what you sell your product for and what it costs to make (COGS). You’ll often hear things like “you need 80% gross margin for prestige” or “65% for mass.” But gross margin alone doesn’t tell you the full story.

What really matters is contribution margin - what’s left over from each sale after you subtract the variable costs directly tied to selling that product (like packaging, shipping, and customer acquisition). This is what actually pays your overhead, funds your growth, and eventually becomes profit.

Formula to know:
Contribution Margin per Unit = Selling Price – All Variable Costs

2. Why One $22 Lipstick Might Be Losing You Money

Let’s say you’re selling a $22 lipstick with an 80% gross margin — sounds great, right?

Now add:

• $4 shipping

• $2 for branded packaging

• $21 customer acquisition cost (CAC)

Suddenly, you’re at a loss on every order - even though the product looks “profitable” on paper.

This is why understanding channel-specific contribution margin is so important. What works in-store won’t always work DTC, and vice versa. Don’t assume high gross margin = profitable. Get specific.

3. Don't Obsess Over Margin Percentages Alone

It’s easy to chase “good” margin percentages. But smart founders also focus on absolute dollar contribution - the actual cash each product adds to your bottom line.

Example:

• Lipstick: 80% margin = $12 contribution

• Tinted Moisturiser: 65% margin = $21 contribution

Even though the lipstick has a better margin percentage, the moisturiser makes you nearly 2x more per sale. That matters.

But - what if you sell lipsticks twice as fast? That might change the picture again.

Key takeaway: Smart product portfolios balance margin %, absolute dollars, and sales velocity.

4. Understand Channel Profitability

Where you sell matters just as much as what you sell.

A serum might earn you $90 per sale on your own website, and $60 via a retailer like Mecca or Sephora. But when you factor in $55 of digital ad spend to acquire a DTC customer, suddenly your retail margin looks a lot more attractive.

This is why you can’t afford to generalise. Every brand needs to run the numbers - per product, per channel - and understand what’s truly driving profitability.

5. Prestige vs. Mass: Two Different Games

Prestige beauty usually plays the high-margin, lower volume game. Mass beauty? It’s high volume, lower margin - but when done well, incredibly profitable.

Take e.l.f. Beauty, for example. Their average product sells for under $10, but in 2024, they moved nearly 200 million units. That’s scale. That’s margin leverage. And that’s why they’re a billion-dollar business.

You don’t need to go prestige to win. You need to know your model - and optimise it.

6. Pricing Power Is Everything

Here’s a magic trick most brands overlook: a small price increase can radically improve your profitability - if you’ve earned the trust and positioning to justify it.

Let’s say:

• Your moisturiser sells for $45

• Contribution margin = $11.50
  Raise the price to $50 (just 11% more), and contribution jumps to $16.50 - a 43% improvement in profit per unit.

Pricing power = financial power. Don’t undervalue your product - or your brand equity.

Final Thoughts: Make the Numbers Beautiful Too

It’s not enough to build a brand that looks good. You need one that works - economically, operationally, and strategically. That means:

• Knowing your numbers

• Testing assumptions

• Structuring your product and channel mix to support real growth

The best founders don’t fear the financials. They use them as a compass.

Want help building a brand that’s as profitable as it is pretty? Explore our brand strategy and product development services or dive deeper with our That Beauty Brand™ Method, our soon-to-launch signature launch system designed for beauty and wellness founders who want to do things right from the start.