7 Essential KPIs for Cosmetics Manufacturers to Drive Growth and Profitability

Being a successful entrepreneur in the cosmetics industry requires keeping a close eye on key performance indicators (KPIs). With so many metrics to track, it can be overwhelming to know which ones truly drive growth and profitability. In this article, we'll explore the top seven KPIs that cosmetics manufacturers need to measure and how to calculate them.

Customer retention rate: This KPI measures the percentage of customers who continue to purchase from a cosmetics manufacturer. A high customer retention rate indicates that customers are satisfied with the products and services offered and are likely to be loyal repeat customers.

• Percentage of repeat customers: This KPI measures the proportion of customers who have made more than one purchase from a cosmetics manufacturer. A high percentage of repeat customers indicates that customers are happy with the products and are willing to return for more.
• Average order value: This KPI measures the average amount spent by each customer per order. A high average order value indicates that customers are willing to spend more on products and are likely to be profitable.
• Number of product customizations per customer: This KPI measures how often customers request custom modifications to products. A high number of product customizations per customer can indicate a strong customer relationship, as well as a willingness to pay extra for personalized products.

These KPIs are just a few of the core metrics that cosmetics manufacturers need to monitor to succeed in a highly competitive industry. Keep reading to learn more about how to track and calculate the remaining KPIs that will help your business thrive.

Customer Retention Rate

If you're a cosmetics manufacturer, customer retention rate is one of the most important KPIs you need to track. This metric measures the percentage of customers who return to your business to make additional purchases over a specific period. Understanding how to calculate this KPI and interpret the results is crucial for improving customer loyalty which will lead to repeat purchases and, ultimately, increased revenue.

Definition

Customer retention rate is a KPI that measures the percentage of customers who return to make a purchase from your business within a specific period of time.

Use Case

Measuring customer retention rate is useful for tracking the effectiveness of your business strategies for keeping customers engaged and satisfied with your products. If your rate is low, it may be time to reassess tactics that are not working.

How To Calculate KPI

Calculation Example

KPI Advantages

• Helps identify loyal customers over time, which allows targeted marketing efforts.
• Lower acquisition costs. Keeping your current customers happy costs much less than attracting new ones.
• Aids in estimating future revenue. Repeat customers' lifetime value is easier to estimate.

KPI Disadvantages

• Doesn’t explain why customers leave. Knowing why a customer doesn't return or churns is just as essential as the retention monitoring itself.
• May not be a good metric for small sample sizes or in product/service industries with a long product lifecycle.

KPI Industry Benchmarks for the KPI: 'Customer retention rate '

Industry bench-marking is essential to gauge how your cosmetics manufacturing business is doing against the wider industry. As per one valuable study, the cosmetics and personal care industry's customer retention rate hovers around 35% – 40%.

Percentage of repeat customers

As a cosmetics manufacturer, it is essential to monitor the percentage of repeat customers. The percentage of repeat customers KPI measures the number of customers who purchase from your brand multiple times. Here is a detailed explanation of this KPI:

Definition

The percentage of repeat customers measures the percentage of customers who have made more than one purchase from your brand.

Use Case

This KPI is crucial in determining customer loyalty and brand retention. High repeat customer rates indicate that customers are satisfied with your products and services.

How To Calculate KPI

Calculation Example

If you have 100 customers, and 20 of them have made more than one purchase, then:

KPI Advantages

• Helps to measure customer loyalty
• Indicates high brand retention
• Indicates product satisfaction

KPI Disadvantages

• Not suitable for new businesses with a small customer base
• Does not take into account the value of purchases made by repeat customers

KPI Industry Benchmarks

The industry benchmark for percentage of repeat customers varies between industries. However, a repeat customer rate of 20% and above is generally considered a good benchmark for cosmetics manufacturers.

Average Order Value

Definition

Average Order Value (AOV) is a key performance indicator (KPI) used to measure the average amount of revenue generated through each order placed by a customer.

Use Case

AOV is a critical KPI for cosmetics manufacturers to gauge the effectiveness of their marketing strategies and upselling techniques. A higher AOV indicates that customers are willing to spend more on products, which in turn means greater revenue and profit for the company.

How To Calculate KPI

Calculation Example

Let's say a cosmetics manufacturer generated $100,000 in revenue from 500 orders in a given period. To calculate the AOV:

Therefore, the AOV is $200.

KPI Advantages

• Helps businesses evaluate their sales and marketing strategies
• Enables businesses to identify and capitalize on high-value customers
• Increases revenue and profit potential

KPI Disadvantages

• Does not account for differences in product pricing and discounts
• May not provide a complete picture of customer behavior and preferences
• May not be suitable for businesses with a wide range of product offerings and prices

KPI Industry Benchmarks

According to a study by RJMetrics, the average AOV for cosmetics and beauty products is $96.

Number of Product Customizations per Customer

As a cosmetics manufacturer, one of the key performance indicators (KPIs) you need to track is the number of product customizations per customer. This metric measures the number of customized cosmetic products that a customer orders from your company.

Definition

The number of product customizations per customer is a KPI that measures the level of personalization your cosmetic company provides to its customers. It is calculated by dividing the total number of customized products by the total number of customers.

Use Case

This KPI is essential for cosmetics manufacturers that offer tailored products. By tracking this metric, the company can understand how frequently customers are ordering customized products, which allows the company to adjust production and inventory levels accordingly. Furthermore, if the number of product customizations per customer is low, the cosmetics manufacturer may want to consider whether they are meeting customer demand for tailored products and whether they need to improve their product customization options.

How To Calculate KPI

To calculate the number of product customizations per customer, use this formula:

Calculation Example

Suppose a cosmetics company has sold a total of 1,000 customized products this quarter to 200 customers. The number of product customizations per customer would be:

Therefore, the company has an average of 5 customized product orders per customer this quarter.

KPI Advantages

• Helps the cosmetics manufacturer to customize its production and inventory levels and strikes a balance between production costs and customer demand.
• Provides insights into whether customers are interested in tailored products or not, and if not, the company can develop strategies to improve their custom product product lines.

KPI Disadvantages

• This KPI does not measure customer satisfaction with customized products. Just because a customer orders more customized products doesn't mean they are satisfied with them. The cosmetics manufacturer should measure customer satisfaction through other metrics, such as Net Promoter Score (NPS) or Customer Efforts Score (CES).

KPI Industry Benchmarks

• The cosmetics industry standard for the number of product customizations per customer varies according to the sub-nick. For example, in the skincare sub-niche, the average is 2 -3 customizations per customer every year. However, it is important for each cosmetics manufacturer to set their own benchmarks that are aligned with their company's strategy, objective, and customer base.

Overall Customer Satisfaction Rating

Definition

The overall customer satisfaction rating is a KPI that measures how satisfied customers are with your cosmetic products and services. It helps measure the success of your business by indicating how happy your customers are, and what you can do to improve their satisfaction levels.

Use Case

This KPI is used to track and improve customer satisfaction levels, thereby enhancing customer loyalty and improving your brand reputation. Having a high overall customer satisfaction rating would mean that your customers are happy with your products and services, which could potentially increase your sales and revenue.

How to Calculate KPI

To calculate the overall customer satisfaction rating, you need to consider feedback from your customers using a survey or feedback form. The feedback should include questions that gauge their overall satisfaction with your products, services, and overall experience with your brand.

Calculation Example

Suppose you survey 100 customers, and 80 of them are satisfied with your products and services. The overall customer satisfaction rating would be:

KPI Advantages

• Helps improve customer satisfaction and brand reputation
• Increases customer loyalty and potential for repeat business
• Allows you to identify areas that need improvement

KPI Disadvantages

• Relies on feedback from customers, which may not always be accurate
• Survey fatigue may impact response rates and validity of results
• May not provide a comprehensive understanding of customer satisfaction levels

KPI Industry Benchmarks

The overall customer satisfaction rating varies by industry and the benchmark depends on the type of cosmetic product or service. However, on average, a satisfaction rating of 80% or higher is considered an excellent rating, while a rating between 60% to 79% is considered an acceptable rating.

Number of Positive Reviews and Recommendations

Definition

In the cosmetics manufacturing industry, the number of positive reviews and recommendations is a Key Performance Indicator (KPI) that measures customer satisfaction and brand loyalty. It reflects the number of customers who have left positive reviews and recommended your products to others. The higher the number, the better the reputation and credibility of your brand.

Use Case

As a cosmetics manufacturer, you need to keep a pulse on customer satisfaction and loyalty to ensure your products are meeting their expectations. By measuring the number of positive reviews and recommendations, you can identify areas for improvement and continue to build a loyal customer base.

How to Calculate KPI

To calculate the number of positive reviews and recommendations, you need to divide the total number of positive reviews and recommendations by the total number of reviews and recommendations.

Calculation Example

Let's say that in a month, your brand received a total of 500 reviews and recommendations. Out of those 500, 250 were positive. To calculate the number of positive reviews and recommendations, you would divide 250 by 500 and then multiply the result by 100 to get a percentage value.

KPI Advantages

• Measures customer satisfaction and loyalty
• Helps identify areas for improvement
• Can boost brand reputation and credibility

KPI Disadvantages

• Does not provide insight into the reasons behind negative reviews and recommendations
• Can be influenced by social media trends and influencer marketing

KPI Industry Benchmarks

The cosmetics manufacturing industry benchmark for the number of positive reviews and recommendations varies depending on the product line and target market. However, a general benchmark is around 75-85% positive reviews and recommendations.

Average time from order to delivery

Definition

Average time from order to delivery is a key performance indicator that measures the average time it takes for a customer to receive their order after it has been placed.

Use Case

This KPI is crucial for cosmetics manufacturers as timely delivery plays a key role in customer satisfaction and retention. Failing to deliver orders on time can result in lost customers and a decrease in revenue.

How To Calculate KPI

Calculation Example

Let's say a cosmetics manufacturer delivered 100 orders in a month and the total time taken to deliver all orders was 500 hours. The calculation for this KPI would be:

KPI Advantages

• Helps in timely delivery of orders and customer satisfaction
• Helps in identifying delivery-related issues and bottlenecks in the supply chain
• Helps in managing and improving shipping and logistics processes

KPI Disadvantages

• Does not take into account the type or size of order
• Can be affected by external factors like weather, traffic, and transport strikes
• May not accurately reflect customer satisfaction as it does not consider other factors like product quality or customer service

KPI Industry Benchmarks

According to industry benchmark data, the average time from order to delivery for cosmetics manufacturers is between 3 to 7 days.