It’s tempting to try and be everything to everyone — especially when it comes to pricing. But remember, for this to be a viable business, you also need to be able to live off the money you earn! To price correctly, you need a strong understanding of your ingredient costs, the average time it takes from start to finish to make and pack your products, and how many pieces of product you can make in one batch. To do this I would follow these steps (all based on one batch size of product):
- Weigh out your ingredients in grams (even the liquid ones).
- Calculate the cost per gram of each ingredient.
- Determine the batch size you’ll be making your product in and gather how many grams of each product are needed per batch.
- Each time you make a batch, time yourself from start to finish including the time it takes to gather the ingredients, bake everything, pack everything, and clean up.
- Count how many pieces of product you can make per batch.
- Figure out the cost per piece of packaging material including stickers, ribbons, etc. you use to package each item.
- Then, to calculate the cost it takes to produce each piece of product per batch, use this formula:
- cost of ingredients of the whole batch + cost of packaging of the whole batch + the rate you’ve determined per hour of your time to make the whole batch = total costs per batch / number of pieces you made per batch. This will give you the cost of making each individual piece.
- To then determine the price you’ll sell your products for to customers, it’s important to consider what others are selling similar products for. You can compare a wide range of products from different sources, but remember that your products will be more expensive than grocery store prices because it’s likely that on top of using high quality ingredients, your labor cost will be very high since everything is handmade. Also consider how many items you’ll need to sell to pay your expenses, yourself, and how many products you can reasonably make and sell within a week, month, or year.
You can find a great margin calculator here that calculates your pricing based on cuts taken by distributors and wholesalers. All credit for the calculator goes to Sandra Velasquez (IG: @officialslv), the founder of Nopalera.