PerfumesHow much does that fancy $100-a-bottle department store perfume you wear really cost to make? The answer is one of the retail industry's dirty little secrets -- with good reason. If shoppers got a whiff of the how little is spent on making "the juice," it would be like Toto pulling back the curtain in The Wizard of Oz.

Here's the lowdown: Despite all the flamboyant marketing-speak behind prestige fragrances -- all that talk of floral formulas and gourmand notes -- the value of the actual liquid is roughly equivalent to a large cup of regular coffee. Yep, not even a cappuccino.

And perfume is no outlier in the cosmetics department: When it comes to a host of beauty products, "There's an enormous disparity between the cost of the product and the cost to the consumer, more so than anything else," a former department store CEO told DailyFinance.

"If you bought a laptop that costs $1,000, the laptop might cost $600 to $700 to manufacture, but if you bought a lipstick for $25, it might cost 25 cents to manufacture," he said. "The same holds true for fragrances."

Scent Sells

Fragrances are a big -- and growing -- business.

From January to March alone, department store fragrances generated $501.2 million in sales, up 7% from 2011, with nearly 8.0 million units sold, according to market research firm the NPD Group.

The ex-retail CEO offered DailyFinance a rare glimpse into the breakdown of the costs built into department store prestige fragrances, using an average $100, 3.5 ounce bottle of a "celebrity" perfume as an example. As the cost breakdown is a closely-guarded trade secret (rather like Colonel Sanders' fried chicken recipe), he would only speak on the condition of anonymity.

PerfumeThe Breakdown

Bottle: $6

The perfume bottle itself is a meaningful contributor to the cost of the fragrance, especially as some bottles are veritable sculptures, expensively designed by commissioned artists, the CEO said. Indeed, perfume bottles have a noble history as objets d'art -- to the point that they have been the subject of museum exhibitions.

Packaging: $4

Typically, this includes the bottle's package, as well as collateral material for the department store counter, such as testers and displays "that are all part of an integrated presentation scheme," said the CEO.

Marketing: $8

All the legerdemain that goes into creating a perfume's mystique, particularly for a celebrity-backed fragrance, carries a heavy price tag. The marketing-magic machine includes everything from department store marketing at the point of sale to the media blitz: "scent strips in magazines, outdoor ads on billboards and bus shelters, and TV advertising," the CEO said.

While the retailer and supplier typically split the cost of TV spots, all the other marketing costs are usually paid by the manufacturer.

But when marketing a fragrance -- as opposed to fashion or accessories -- seeing isn't always believing, Karen Grant, vice president and senior global industry analyst for the NPD Group, tells DailyFinance.

A shopper might instantly respond to the aesthetics of a handbag she sees in the store or in an ad, for example, which can prompt a sale. But before they'll be convinced to make a perfume purchase, consumers must "encounter the scent" via promotional ploys like testers or scent strips in magazines. And all those things jack up marketing costs, she said.

Sales Commission: $6

The sales people at department store beauty counters work on commission, which also figures into the price of the fragrances they sell. Typically, they are paid by the beauty supplier, as opposed to the retailer.

Licensing Fee: $4

When a perfume is a celebrity label, and so many of them are these days, the star gets a royalty for the use of their name, likeness and participation in promoting the product.

IFFManufacturer's Overhead: $15

A big chunk of the perfume price goes toward the manufacturer's corporate overhead -- everything from the salary of the brand's CEO to corporate office expenses. And of course, paying for the chemists who produce the scent is factored in as well, the CEO said.

In the case of a celebrity fragrance, the star or product development gurus articulate their concept. Then companies like International Flavor and Fragrances and Givaudan, often working on contract for the fragrance manufacturer, produce scents based on that input, which then go through a selection process.

The journey from concept to final fragrance is not unlike how a food manufacturer settles on "a recipe for chicken soup," the CEO said.

Manufacturer Profit: $15

This figure is an estimate of what the retailer profits from the fragrance. (Not bad.)

Retailer's Corporate Overhead: $25

This is the same as the manufacturer's corporate overhead, excluding the cost of the chemist.

Retailer's Profit: $15

The is the profit the store generates from the perfume after corporate expenses. (Also not bad.)

And Finally ... The Juice: $2

The actual liquid concentrate, which includes a mixture of distilled water, alcohol and flavorants, is the least valuable part of that bottle of celebrity perfume.

And while the mixture of exotic flavorants can be expensive, "it's introduced in very small concentrations by the brewmeister who created the scent," the CEO said.

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Barbara this is another grat blog from you. Like it and love you.

June 12 2012 at 4:54 AM Report abuse rate up rate down Reply
Connie Pitts DON'T use perfume -- it's deleterious to human health

May 31 2012 at 3:18 PM Report abuse rate up rate down Reply
Connie Pitts

Perfumes contain many harmful chemicals, capable of causing asthma, cancers, neurological diseases, and heart disease. It's big money for the industry, so celebrities are paid a lot of money to use their name.

May 31 2012 at 3:17 PM Report abuse rate up rate down Reply
Connie Pitts

Perfumes are falsely advertised poisonous gasses. Please read

May 31 2012 at 3:16 PM Report abuse rate up rate down Reply
Raymond Matts

Barbara, you have generalized and sensationalized with many inaccuracies. Your costs are off by a long shot in many circumstances! We also do a lot more than " Like Toto Pulling Back The Curtain".
What I don't understand is some of the comments thinking that Natural is better than Synthetic. In perfumery we need both to create beauty. All natural is not safer, better or always more expensive.
If anything this article confirms that as an industry there is a lack of understanding and education. When you have a signature fragrance that smells like nothing else. I can tell you that a tremendous amount of craft, expertise, blood, sweat and guts went into doing.
I know, I live it everyday!
Secondly, this is no different that any product on the market.... do you know how much the cotton is for your $200 pair of jeans, what the cost of a LV bag is too make, how much a pair of Tod's shoes cost to make. I think everyone would be surprised.
Intellectual creativity is not cheap nor should it be, now if you think celebrity scents are over priced and the substance lacking... then there is a simple solution... don't buy!
I will admit Americans are lacking in an understanding of what is quality when it comes to their taste in fragrances at times.

May 29 2012 at 4:45 PM Report abuse rate up rate down Reply

What America has always been about is getting the boops to buy crap they don't need and go into debt doing it........................They get rich the boops are broke and always will be...........................

May 23 2012 at 9:18 PM Report abuse rate up rate down Reply

Yet another short-sighted story by an author that is only an outsider looking in. Regardless of the cost of manufacture, there is a price for time, effort and expertise that gets you to the point where it can be actually packaged and marketed to the heard. A visual artist sells a painting for thousands to an appreciative and excited buyer - does the buyer think about the production costs? No. Not that all perfumes or art falls into the example, but there is a great deal of thought, creativity and craft that goes into it...and if the buyer is considering the retail mark-up relative to production costs, then they should stick to Ivory soap and a pencil drawing.

May 23 2012 at 3:59 PM Report abuse +1 rate up rate down Reply
1 reply to Reet's comment

EVERY bit of what you're talking about is in the article.

May 24 2012 at 9:05 AM Report abuse rate up rate down Reply
2 replies to Dirk's comment

While this is a fascinating look into the fragrance industry, tarring all fragrances with the same brush seems very shortsighted indeed. I have a very hard time believing that the liquid in a bottle of Serge Lutens, for instance, is worth the same amount as the liquid in a bottle of CK, Diesel, or whatever "celebrity" fragrance is currently the rage (I'm sure all this "fresh" and "aquatic" crap that's so popular nowadays is especially cheap compared to real perfume).

May 29 2012 at 4:47 PM Report abuse +1 rate up rate down
Raymond Matts

Really Dirk... where? I didn't see anything about mentioning our craft as an art!
As for this CEO... he wouldn't know unless he was involved in the process.

May 29 2012 at 4:48 PM Report abuse rate up rate down

I stopped buying perfumes in department stores after I discovered the fragrances made in Hawaii using real oils from real flowers and not the fake chemical stuff that sort of smells like something.

A bottle of Edward Bell's oil-based perfumes like Hawaiian Nights, Maui Rain, Kona Rain, and others are well worth their price. They are real perfumes whose scents last until you shower it off. A couple of drops go a long long way. The bottles that hold the perfume protect the oils from being degraded by light. They are real perfumes.

Royal Hawaiian's spray on colognes of plumeria, white ginger, and pikake (jasmine) sell for about $20 in the islands - more online if one includes shipping. It's plumeria fragrance sells out on Oahu every Mother's Day. It is the main flower used in making leis.

The only celebrity perfume that is carried is an Edward Bell perfume called Love Me Tender and it is named in honor of Elvis Presley and how he held a charity concert that helped bring in more money for the schools in Hawaii. It is just as wonderful as the rest of the Edward Bell perfume line.

Once you have bought and worn Hawaiian perfumes and colognes, the celebrity colognes made and sold on the mainland 48 are like splashing booze on yourself before going out.

May 23 2012 at 3:19 PM Report abuse rate up rate down Reply
1 reply to mesager42's comment
Raymond Matts

To wear a straight oil is very unsafe! Alcohol is merely a carrier for the oil as the alcohol evaporates. Given the perfumers ability, the proper percentage allows the beauty of the notes to perform properly. Something that a straight oil can not do. Alcohol enables a fragrance to breath and a lower concentration does not diminish the value. Part of the value is in the structure of the fragrance!
If you enjoy Edward Bells fragrances, then this is great that you have found something for you. However, fragrances are subjective and you should not assume that fragrances in department stores are not using real oils. I can tell you that in many instances they are using a higher quality than Edward is. As a small perfumer he would not have access to the best ingredients. It is unfortunate but true.... There are many different grades of the same note.
If he was using the highest of quality, you would not be able to afford his work. This is the untold truth!
Now I will be the first to agree there is a lack of quality and creativity in department stores at the moment. However, it is going to allow people like myself to introduce quality once again with modernity!

May 29 2012 at 5:12 PM Report abuse rate up rate down Reply
1 reply to Raymond Matts's comment

"To wear a straight oil is very unsafe" is BS. Tell that to the millions of people who do so everyday. As someone who says they are "from the industry", this seems very uneducated. There are many, many companies who sell mukhallats and attars that are worn without dilution!

I prefer to wear all-natural pure oils. You can stick with your synthetic aromachemicals, that is fine, but to disparage and lie about naturals is ridiculous. It is true some people will be allergic to some naturals, but aromachemicals can cause far greater issues, such as chemical sensitivities and many other health issues. There are a lot of people who cannot tolerate aromachemicals in general, such as rwilliamhoward below... naturals don't cause these kinds of issues.

June 01 2012 at 11:52 AM Report abuse rate up rate down

I'd as soon smell a bad case of BO than most perfumes. They give me a sore throat or plug up my nose.

May 23 2012 at 3:19 PM Report abuse +1 rate up rate down Reply

just another ripoff -----why dont the feds clamp down on these crooks,but really all it would take is that consumers refrain from buying for a month or so --and you will see the price drop a bunch --be like me ''DONT BUT THEM-- but please make sure your ;HYGENE'' IS DONE DAILY --

May 23 2012 at 2:34 PM Report abuse -1 rate up rate down Reply