It’s never been easier to create a beauty brand. But as the marketplace expands with more founders dreaming of success in the beauty industry, some insiders now wish they’d understood a vital part of the process sooner: formulation ownership.
“We’re all talking to private equity … and the first thing they ask is, ‘Do you own your formulas?’ ‘Do you own your IP?’” said celebrity esthetician and skin-care brand founder Angela Caglia. “The motivation for any brand founder to own their formulas is for when they sell. But also, if you want to leave your contract manufacturer and go somewhere else, you need your recipe.”
Caglia has an omnichannel approach for selling her 6-year-old namesake line that includes e-tailers like Revolve, QVC and Dermstore, brick-and-mortar locations like Violet Grey and The Beverly Hills Hotel, and DTC through her own spa and website. She received seed funding in 2022 and completed a funding round in September.
While negotiating for ownership from a manufacturer or chemist seems straightforward, beauty founders say it’s steeped in obstacles and oftentimes prohibitively expensive. However, to gain funding, defend a brand from copycats or secure a lucrative acquisition, it can be crucial.
“We had to backpedal on our first two products because we figured, ‘We’re creating these formulas from scratch, how can they not be ours?” said Jamie Greenberg, a celebrity makeup artist and founder of Jamie Makeup, which sells a line of dual-purpose color cosmetics direct to consumers. “We didn’t play our cards perfectly and now we’re trying to get back into [negotiations]. Our latest [product] is ours because we learned our lesson.”
Lawyer Katherine L. Staba, Esq., a partner at K&L Gates LLP in Chicago, said this is a common issue that all brands must navigate, no matter their size. “Ownership of a formulation, and the related techniques, processes, tooling and know-how, has many benefits, including offering a brand portability and flexibility,” she said. “For example, if a brand has a proprietary formulation, it could be free to move production to more or different manufacturers, iterate on the formulation and introduce variations to the market, and enforce any rights against third parties.”
What’s more, before a brand can determine whether or not its product or formulation is protectable under patent law or as a trade secret, the brand should hold whatever IP rights exist, said Staba.
“We only sign contracts with manufacturers that know it’s going to be full ownership to [us],” said Shontay Lundy, founder and CEO of Black Girl Sunscreen. “But did I always know that? No. … It wasn’t until we started seeing growth at Black Girl Sunscreen that it was like, ‘OK, ownership is very important.’”
Lundy launched BGS in 2016, expanded into 250 Target locations in 2019 and secured $1 million in funding in 2020. Today, the brand also sells its sunscreens DTC and in Ulta Beauty, Kohl’s, and Walmart.
Lundy said she’s lucky that the first product she sought out to make — a hydrating sunscreen that was free of oxybenzone and wouldn’t create a white cast on darker skin tones — didn’t yet exist, so she wasn’t tempted by private labeling.
“You can still execute your dream [through private labeling], but it’s like renting it,” she said. “It’s hard because [many contract manufacturers are] in the business to make the formulas and to sell them to business owners, right? Some will not sign a contract with us because that’s just not their business model, and that’s OK! But [considering] where we are in our journey, everything that we do, we [want to] think of as ours.”
“’Private label arrangements’ typically refers to [a situation where] an unbranded, existing formulation is customized, bottled and branded upon request,” said Staba. “This approach offers some level of customization and is often less resource intensive, both in terms of lead times and economics.”
Private labeling is also a way to bring a product to market incredibly fast, since these formulations should already be tested for safety and stability, compliant with local and international regulations, and proven to be effective, said Megan Cox, owner of Genie Supply, a contract manufacturer in Bedford, Indiana. Genie Supply caters to entrepreneurs and emerging brands doing under $10 million in annual revenue and selling products for an average of $40-$60 at retail.
Cox’s team offers private labeling, full ownership and a variety of other arrangements for product formulas. She said each has their benefits, so founders should consider their long-term goals. She told Glossy that formula ownership through Genie Supply runs around $7,000 per product, plus fees for testing, regulatory obligations and various other things that are easy to forget. At Genie Supply, private labeling is closer to $1,000 out the door, so for some founders, it’s a no-brainer.
“I don’t own [my formulas because it’s] too expensive and people can just reverse engineer them [to copy them],” said Sylwia Wiesenberg, founder and CEO of Bawdy Beauty, which sells its body masks and serums at stores including Saks Fifth Avenue and Revolve.
However, while private labeling lacks the monetary risk of ownership and allows for flexibility in reformulating, it’s riskier for long-term growth, said Staba. “[Private labeling] can mean that a brand is tied to continued manufacturing by that private label manufacturer because the brand does not own the formulation, ingredient lists or sources, or production methodology,” she said. “It also can raise issues with transparency of the supply chain and sourcing.”
In her experience, Caglia said, ownership often starts at $30,000 per formula, which demonstrates the wide range of pricing found across contract manufacturers depending on the product category and ingredients used. Caglia’s final formulations retail for $70-$395. “That can be cost prohibitive; retailers want you to launch [a new product] every four months, so a lot of brands can’t afford the formulator fee to own that recipe or formula.”
Dianna Cohen, founder and CEO of Crown Affair, said that she was careful to own her formulations from the beginning, but due to supply chain issues, she’s in a gray area on a few today.
“You might have an ingredient shortage [that impacts a formula you own] or something happens where you need to change ingredients, which happens all the time in beauty. And then technically, you no longer own that formula,” Cohen said. “So my advice is to prioritize. It’s important to own your formulas, but it’s [more important] that nobody is going to market with the same thing.”
Crown Affair sells prestige hair care at Sephora, Goop, Violet Grey and DTC. The brand has had six rounds of funding, with its most recent round being $2 million in March of this year, according to Pitchbook.
Cohen said she has had each of her formulations created by an independent chemist and uses several contract manufacturers to create them at scale. She said this process has been crucial to prevent copycats.
The spread of copycat products is something Greenberg has seen first-hand, thanks to her extensive knowledge of makeup as a celebrity artist. “A lot of times when I get samples from these labs, I’ll say, ‘Wait, is this so-and-so-famous-product?’ And they’ll reply with, ‘We can’t say,’ with a big smile on their face,” she said. “That’s why so many formulations are so similar. People in the industry joke that a lot of these products are just made in a factory in New Jersey, and a lot of it is true. … If you’re a real makeup maven, you can figure it out.”
To maintain her brand’s uniqueness, Greenberg was able to negotiate a sell-to-own arrangement where she gains ownership after selling through a specific amount of product, often 50,000-100,000 units. “This is great because [the manufacturer] makes their money, then [the formula] is mine,” she said.
Caglia said she’s negotiated similar arrangements with minimums of around 500,000 for her luxury skin care.
However, ownership is part of a larger conversation, Staba said. “I would argue that ownership of a formulation is often not the only IP value-driver of a cosmetics or skin-care brand,” she said. “Other forms of IP ownership, particularly trademarks, including trade dress, and the brand identity may have significant value to an investor or acquirer.”
It’s something Lundy had to consider when adding slogans to Black Girl Sunscreen’s line of mugs, sweatshirts and other merch. They include the brand name, as well as phrases like “women of the sun,” which the BGS team trademarked to protect the brand’s investment. “It’s about protecting what you’re building,” she said. “Ownership is about more than your formulations.”