eCommerce Tip! – Pricing Your Food Product for Profit
Estimate Production Costs
It is virtually impossible for small food businesses to compete in the lower price range of the commodity market. Because of this, it’s critical to know how to price your products for profit.
Research suggests that you should start by setting your production costs at 40% of the retail price. This means your ingredients, labor, package and label must price out at 40% of what your product will sell for on the shelf.
The other 60% of the retail price will typically be used to get your product through the supply chain and on to the shelf.
Estimate Profit Margin for a Manufacturer
Once you determine your product production cost, you’ll need to determine what price you’ll then sell that product for to the supply chain to make a profit.
The usual percentage of a return, or profit margin, for a manufacturer is 30-35 percent.
Estimate Sale to the Supply Chain
Beyond your sale to the supply chain, your product will most likely go through other links in the supply chain that add mark-ups that lead to the shelf price. Although you may not use each of the links below, the industry standards for the mark-up ranges of the links in the supply chain are as follows:
> Broker: 5-15%
> Distributor: 25-30%
> Wholesaler: 10-20%
> Retailer: 30-50%