What Makes The Business of Beautiful Scents Profitable?

    Do you love scent? Do you love perfume? Have you ever considered the economics of perfume? Have you ever asked yourself, "Who pays for all this?" How is it that we can have a world full of beautiful scents?

    I think fragranced products have become more importance to use today as many of us live in a world without a lot of exposure to natural scents.

    Flower gardens are wonderful but if you live in the north, you'd better have your own greenhouse if you want your own natural flower scents year round.

    And anyone living in a city? Trips to the flower shop can get expensive and most urban-surviving house plants aren't fragrant.

    So many of us today get our favorite scents from the commercial world -- perfumes and colognes at the mall or elsewhere, aromatherapy oils from gift boutiques and health food stores, scented candles and room sprays, diffusers, whatever, all provided by companies that exist to make money and can only continue to exist if they continue to make money. "Synthetic," "green," "holistic," "earth-friendly" are all dependent on SALES. Profitable sales.

What makes a fragrance profitable?

    A fragrance -- from any vendor -- can be profitable only when enough people want it, are willing and able to pay its price, and are motivated enough to go out and buy it, now. (If they love it but wait too long the vendor may go out of business. Small vendors are particularly vulnerable.)

    But what are the qualities that make people want a particular scent or scented product? Candle shops with their multitude of scented candles have become a massive presence at the malls. This has probably been a help for artisinal candle and soap makers who cater to customers who want a little more sophistication or green and definitely hand made.

    The problem for these artisinal producers is a very thin profit margin. The larger companies can buy on scale, keeping their manufacturing costs down. Then, in selling they can achieve volume, taking a small profit on each sale but making many small sales and thus an acceptable profit.

    The artisinal crafter has a requirement of using higher quality raw materials than the mass marketer but can only buy them in small quantities. Thus their production costs are high.

    With high production costs you would think that artisinal soap and candles would command relatively high prices. But, for the most part, they do not. On the one hand, they must compete with the big stores and not let their prices become too extravagant. On the other hand, they must compete with their fellow artisinal producers.

    Due to the low entry cost for this business, many have jumped in. Who survives? Those, for the most part, with the best marketing sense and business management.

Perfume -- why not?

    Perfume as a fragrance presents a different picture than soap and candles. Everybody knows that perfume carries a high markup. You can put together a bottle of perfume for a few dollars, expecting it to sell for $35, $55, or even more. So isn't this a profitable business? What can go wrong?

    Anyone who has worked on the sales side of perfume -- including all those independent perfumers marketing their own perfume and some that just jump in to it in the hopes of outsized profit -- know exactly what can go wrong. No sales.

    To be in the perfume business you need sales. The large fragrance marketers totally understand this and thus strive for good relationships (and good contracts) with designers and celebrities whose names can sell perfume. When they sign a celebrity to release the celebrity's so-called "signature fragrance," they are banking on the presumption that many fans will buy. It is the same strategy used by French couturiers from about 1910 and on -- you can't afford the dress? No matter. You can afford our perfume. And today perfumes from the celebrities are more affordable than their concert tickets, and more widely available.

    But here's the catch. The investment to produce a perfume on a small scale -- while highly affordable -- can still be considerably greater than the investment to produce a soap or candle. And with soap and candles it's almost axiomatic that you produce half a dozen scents, but very few incremental dollars are required to expand into a "line" as opposed to offering candles or soap in a single scent. Not so with perfume.

    Each new perfume scent you produce requires a certain minimum production run and while these runs may be small, their cost is not insignificant.

    So while just about anyone can produce at least a single perfume, the game begins when you go to sell it.

    So you have a market? Do you have followers? Will they buy a perfume from you? Will they buy the particular scent you have hit on?

    The most common killer of independent perfume projects is lack of market.

    The most common error of independent perfumers and perfume entrepreneurs is to invest ALL of their capital in producing a fragrance BEFORE they have explored and developed a market for it.

    It doesn't mater how good the fragrance might be. If nobody knows about it, if nobody has ever smelled it, if nobody is impressed by you and your fragrance, you make no sales.

    That's why the successful vendors, be they the big, commercial perfume marketers or the folks that sell their aromatherapy oils through health food stores have, at the beginning, carved out markets for themselves. Markets in which they can make sales.