The Chocolate Life

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Hello,

I was notified via email that Susanna Harris had posted the message below, but now I can't seem to find it. I am also very interested in hearing thoughts on this issue. Was this thread deleted for some reason?

Thanks,
Ben

Susanna's original message:

Since this group is for start ups, I decided to stick my neck out and ask about pricing. How do you figure out a retail price, a wholesale
price, and what is the relation between the two? We haven't even
finished our business plan and a cafe opening in a new market (boutique
stores) found out about us through a friend and has invited us to
supply them with chocolates. I'm not sure what kind of arrangement to
propose. Any suggestions about any of these things, please?

Views: 261

Replies to This Discussion

First of all, you need to know how much it costs to make the candy. This includes not only the ingredients and the packaging, but the overhead, and the time it took to make and package the chocolate.

Now, factor in your minimum profit. That is your wholesale price.

Double that for an approximate retail price. Some retailers only mark up 35% from your wholesale price but others will double the price. You also need to look at not underselling your retailers with your own retail prices. This can cause a problem of people coming to you for retail, but your other outlets aren't selling anything so are not ordering any more from you because your product is not moving. Or, nobody is buying from your shop because they can get it cheaper from someone else. It's a delicate balance.

A less accurate ballpark way to work things is the price of ingredients and packaging, then multiply it by 4 for a retail price. The reason it's less accurate is because you are not certain you are covering your other costs once you cut that to wholesale your product. It's much better to have all the numbers worked out.

Don't cheat yourself on the time spent either. Note how long it takes to make 100 truffles (actual hands on making, not chocolate sitting and setting up, that's covered in your overhead costs). Then take that time and apply an hourly wage to it for costing purposes. Without knowing that, at some point you may find you have to hire help and pay them. Then your costs will go up significantly unless you've already factored that into your product. I realize costs are going up all the time both salaries and ingredients. That can't be helped. But this will at least give you a starting point.

A final note. Make sure about your health laws. Where are you making the chocolate you would be providing to the cafe? For instance, right now I can sell direct to the public, but not wholesale to someone's food establishment. So, I could not provide chocolates to a coffee shop or cafe until I meet the health code to do so.
Thanks Debby! This is very helpful.
Great advice, Debby! We went the ballpark way around when figuring out our pricing and found that, after a year of selling wholesale, we were actually working for free and losing money!

Careful calculation of overheads is essential. However, I'm still struggling with how to factor expenses like insurance, rent, etc into the cost per piece, when the amount of pieces we make/sell in a month fluctuates drastically with the seasons. How would you advise doing that?

-Malena
Since it sounds like you've been doing this a while, you could do an annual accumulation. So, take your insurance, rent, etc for a whole year. Then how much chocolate you put out over that same time period. Simple math will average your costs over the whole. So using nice round fictional numbers, say your overhead for a year is $30,000, and you find out you produce in that same fictional year, 250,000 pieces. Your overhead cost per piece is $0.12. So that is what you charge even tho' your output varies throughout the year. Someone just starting out won't have history to call upon and will have to do some creative guessing. But, just like any part of your business plan, you should take a look at this on at least an annual basis. Costs do change over time. You may find yourself making more pieces in relationship to your overhead. Or, more likely, your overhead will increase. Or possibly both.

Oh, I wanted to add to the discussion. A way to avoid the pitfalls of cutting your own throat selling both wholesale and retail is to sell different products. Whatever you are selling wholesale, do not sell that retail yourself. Make the products you sell retail be unique. That way you aren't competing with yourself.

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