I am new here and would like to begin by thanking the creator of this wonderful site. I have been checking it out for the past cpl of years and have finally decided to join.
I believe that I have a fairly simple question. I am planning on selling my chocolates at the local indoor farmers market this coming fall. Could anyone give me an idea of how much profit is a realistic expectaion per pound of chocolate sold. And on a side note if anyone has any great ideas for the name of a company feel free to throw that out there too. Thanks.
There is no "realistic" expectation for profit. You have to charge for your product what it costs to make, plus a reasonable profit so you can stay in business.
If you are in a place like the New York Metro area, the prices that customers expect to pay will vary depend on the neighborhood. People expect to pay premium prices in the Union Square Farmer Market and up where I live in Larchmont in Westchester. Not far away is Mt Vernon, which is not as affluent, so prices are lower.
There is a high-end chocolate shop in the building I live in. (Tough, right?) But it's located in Larchmont. About three miles away in the town of Mamaroneck, on the same road, is another chocolate shop. Their price structures are very different - and their customers are different. Despite being in the same business they are not really competitors for each other. If the shop in Mamaroneck tried to sell the products from the shop downstairs at the same prices at the shop downstairs, well, they'd be out of business very quickly.
So - it's important to know who your market is and what they can afford to pay. One way to do that is to work backward from what is the maximum price you can charge and then back into the price of ingredients you can afford to use. Another way is to cost out everything using the ingredients you want to use and then figure out what you have to charge in order to make a decent profit.
One mistake that many people make in their pricing is not figuring in the cost of distribution from the very beginning. You will be selling direct - but at some point you might be selling wholesale. When that happens, your customer expect to be paying the same price at the point of sale ... but now your profit margins are a lot less. How much less? Can you still afford to stay in business? How much more product do you need to make and sell in order to make up the lost income?
Over the past two years I have updating a cost analysis workbook I created. You can download it by clicking on the link below (MS Excel 2001 .xslx file). There are two sheets, one for bars and one for making chocolate from the bean. You can extend the bar worksheet to recipes for making bonbons and other confections pretty easily - it's the concepts that are important, and accounting for ingredients, labor, and packaging.
In the lower-right on the first worksheet is where the various tiers of gross margin and markup are. First lesson is to learn the difference between markup and gross margin if you don't already know the difference. It's important. You should, in my opinion, add in at least one tier of middleman between you and the customer from the very beginning so that you understand just how much distribution affects your profits.
Thanks for the feedback and the link Clay. I can see that the answer to my question was not as simple as I thought or was hoping it would be. No worries though, the more info I have the better off I will be. Thanks again!!
Thanks for the worksheet - taking a bit of a break to analyze every aspect of my business...get so busy 'doing it' that it can (and has) run away from me...oh my!
Profits Matt to the cocoa grower (something way less than their $USD2,200 a tonne of dried beans for international selling price) differs markedly from profits some of us make selling the nicest top-of-the-range chocolate(s) at $USD20/100gm or $USD200,000 a tonne). Do the maths...it's staggering. So, our Samoan cocoa growers wanted more and deserve more profits. We made 5 batches x 70% dark chocolate bars last year using 100% samoan trinitario beans ...beauuuutiful taste/texture....unbeatable. But as we are unable to find a buyer at $USD10,000/tonne of dried beans, we plan to make our own chocolate bars on-island and keep the profits for our growers high enough to expand the industry and share our profits with the cocoa growers more equitably. Our Hillside Cafe (German Chocolatier) just made a $USD50 (1kg) heavy chocolate cake (Breadplate size, one inch high) and is "to-die-for". This was the best birthday cake ever.....ingredients $USD10, production $usd10, others $USD10...leaving $USD20 profit. We now want a chocolate factory as a tourist attraction for visiting cruise ships, etc, so this could become even more profitable. Selling our beans overseas is not profitable for us. Cheers, Steve