Chapter 3

Marketing Economics

Yatsen's marketing spend is the line the breakeven case is most sensitive to. At its 2020 IPO the company sold a data-driven, direct-to-consumer platform with rising repeat-purchase rates as its edge. Five years on it no longer discloses those cohort metrics, and selling and marketing still runs about two-thirds of revenue — with its two most platform-dependent cost lines growing faster than sales. A profitable domestic peer, Proya, runs far leaner. The evidence points to rented demand more than a durable moat.

Figures are stated in Renminbi (¥), the currency in which Yatsen reports. The company's own US-dollar convenience translations are given alongside where its filings provide them.

The edge Yatsen sold at IPO

The listing document made a specific claim: that Yatsen was not just another brand buying attention, but a technology-enabled platform whose customers came back on their own. It quantified the point with cohort data. Of the customers who first bought a Yatsen product in the third quarter of 2017, 8.1% made a repeat purchase within a year; for the third-quarter 2018 cohort that figure reached 38.9%, and for the third-quarter 2019 cohort 41.5% — a repeat rate the company said exceeded its peers, powered by a database of customer insights and an in-house team of over 200 engineers [1]. Perfect Diary had become the No. 1 color-cosmetics brand by GMV on Tmall within 13 months of launch, and the pitch was that this playbook — data, KOL marketing, omni-channel scale — would repeat across brands [2].

The market backdrop was, and remains, genuinely large. At IPO the company cited third-party research putting China's beauty market on a path to US$68.7 billion by 2024, growing at a 10.0% compound rate — roughly three times the pace of the United States — with domestic brands taking share from multinationals among Gen-Z and millennial buyers [2]. That tailwind is real and is the reason a sub-scale, loss-making company can still grow 27% in a year. But a rising-tide market is available to every competitor in it; the question this chapter examines is whether Yatsen captures that demand cheaply enough to keep, or has to re-buy it each period.

Marketing intensity has not moved in six years

The cleanest test is the simplest: selling and marketing as a share of revenue. Through the 2021 boom, the 2022–2023 collapse, the wind-down of hundreds of offline stores, the pivot from color cosmetics to skincare, and the 2025 recovery, that ratio has never left a narrow band between roughly 63% and 69%.

Sources: FY2022 20-F [3] for 2020–2022; FY2025 20-F [4] for 2023–2025.

The company incurred ¥3.41 billion, ¥4.01 billion and ¥2.33 billion of selling and marketing expense in 2020, 2021 and 2022 — 65.2%, 68.6% and 62.9% of revenue [5], then ¥2.23 billion, ¥2.27 billion and ¥2.85 billion (US$407.9 million) in 2023, 2024 and 2025 — 65.3%, 66.9% and 66.3% [6]. The one visible dip, to 62.9% in 2022, came not from customers getting cheaper to reach but from Yatsen actively cutting — closing underperforming stores and trimming marketing events as revenue fell [7]. A repeat-purchase moat of the kind the IPO described would show up here as a falling ratio over time, as an installed base of loyal buyers carried more of each year's sales. That is not what the record shows. Notably, the cohort repeat-purchase disclosures that anchored the IPO story no longer appear in the annual report — the metric that would most directly prove or disprove the moat has gone dark.

The platform tax is rising, not falling

Inside the 2025 marketing line, the two components most tied to third-party platforms grew faster than revenue did. Advertising, marketing and brand-promotion costs rose from ¥1.37 billion to ¥1.83 billion (US$261.6 million), which the company attributes partly to "higher traffic acquisition costs amid intensified competition." Platform commissions — the cut paid to Tmall, Douyin, JD and the rest — rose from ¥357.1 million to ¥512.6 million (US$73.3 million) [8]. Against revenue growth of 26.7%, advertising and promotion grew 33.6% and platform commissions grew 43.6%.

Source: FY2025 20-F, growth computed from reported amounts [9].

The advertising and promotion sub-line is the largest single call on Yatsen's revenue after cost of goods: ¥1.26 billion, ¥1.37 billion and ¥1.83 billion across 2023–2025 [10]. At ¥1.83 billion it equals roughly 43% of all revenue and more than half the gross profit the business generates. Because commissions scale mechanically with sales and traffic must be re-bid against rising competition, operating leverage on marketing has not appeared even as revenue recovered — the pattern a rented, rather than owned, demand base would produce.

A profitable peer runs the same market for far less

The most useful benchmark in the corpus is Proya Cosmetics, the largest listed domestic Chinese beauty group and a digital-first, mass-to-premium operator selling to the same consumers on the same platforms. Proya is what a working version of Yatsen's model looks like. On a nearly identical gross margin, it spends roughly 46% of revenue on selling and administration combined and earns an 18% operating margin — where Yatsen spends about 73% on the same two lines and loses money at the operating level.

Sources: Yatsen FY2025 20-F [11]; Proya Cosmetics FY2025 financials, as reported. Yatsen "selling + admin" combines its 66.3% selling and marketing and 7.1% general and administrative ratios; Proya's figure is its reported selling-plus-administrative expense.

Sources: Yatsen FY2025 20-F [12]; Proya Cosmetics FY2025 financials, as reported.

The comparison is deliberately blunt: Yatsen's gross margin is actually five points higher than Proya's, so nothing about its products or pricing explains the loss. The entire gap — and more — sits in operating spend, and the marketing line dominates it. This is the strongest evidence that 66% is not an industry floor but a company-specific outcome. Proya does compete for the same shoppers and pays the same platforms, yet converts that competition into an 18% margin. Two caveats keep this honest: Proya reports under Chinese accounting standards and lumps selling with administrative expense differently, and it is a larger, older business with more scale to amortize brand-building over. The direction of the gap, however, is too wide to be a definitional artifact.

What could still bend the curve: premiumization

There is a credible path by which the marketing ratio falls, and Yatsen is walking it. The company has rebuilt itself around skincare, which in 2025 became the larger segment for the first time — ¥2,277.3 million against ¥2,005.9 million for color cosmetics, versus a ¥1,973.7 million-to-¥1,383.6 million split the other way in 2023 [13]. Skincare, led by the acquired clinical and premium brands Galénic, DR.WU and Eve Lom, is the kind of efficacy-driven category that can earn repeat demand on results rather than on paid reach. The offline footprint is being reshaped to match: experience stores fell to 77 at the end of 2025 from 88 a year earlier and 114 in 2023, as Perfect Diary locations closed and the Galénic network expanded [14]. Rising gross margin — 78.2% in 2025 [15] — is consistent with a genuinely richer mix.

Two facts temper it. First, the premiumization is already several years old and the marketing ratio has not yet responded — 2025's mix was the most skincare-weighted ever, and selling and marketing still landed at 66.3%. Second, the premium brands were bought, not built, and they have not yet earned their price: Yatsen wrote off ¥354.0 million of goodwill in 2023 and a further ¥403.1 million in 2024 — roughly ¥757 million in cumulative impairment against those acquisitions [16]. The company's own explanation for rising 2024 marketing was structural, not cyclical: a shift of sales onto Douyin, whose channel-traffic costs are higher [17]. And it competes against multinationals — L'Oréal and Estée Lauder among them — with far deeper marketing budgets, which is the force keeping traffic prices high [18].

The read, and what would change it

On the evidence, Yatsen still has to buy most of its demand each period rather than inherit it: after six years, a full category pivot, and a marketing ratio stuck near two-thirds of revenue while a comparable domestic peer runs at less than half, the burden of proof that a durable customer franchise exists has not been met. That is the mechanism behind the through-line — it is why the net-cash cushion described in After the Crash is being spent down and why the operating recovery in Path to Breakeven is not yet self-funding: the marketing line consumes the gross profit before it reaches the bottom.

The read is falsifiable, and cheaply. The signals that would move it: selling and marketing falling decisively out of the low-60s toward Proya's range while revenue still grows; the premium skincare brands sustaining growth with a visibly lower promotion load than legacy Perfect Diary; or a resumption of the cohort repeat-purchase disclosure the company was proud to publish when the numbers flattered it. Absent those, the most likely case is that growth continues to require proportional marketing, and profitability stays a seasonal, below-the-line event rather than a structural one.