How to Price for Profit is one of the most common questions asked by cottage food operators. Pricing impacts the type of customer you will attract. It’s easy to ask someone else about what price you place on your product. This removes your responsibility for making the decision. If you don’t make money you can say, “Well she told me to change this or that.”
Before you can consider a price for your product, get real with profits. This is often something we put on the back burner. We all know Sales – Expenses = Profits. The problem with this equation is profits come in dead last.
“We all know sales – expenses = profits. The problem with this equation is profits come in dead last.”
Are you the cheap cake lady? Do you feel the need to offer competitive prices? Who are you competing with?
- A big box store
- A wholesaler
- The local bakery or convenience store?
If your product is special, unique and homemade, you’re not competing with anyone. Specialty food crafters and home-based bakers offer value superior to the status quo. You must price for profit.
Consumers who buy your products expect to pay more. They demand to pay more. There is a deep appreciation for the quality of your product. The value is what you sell. Consumers can taste the time, care and work you put into every product made.
Value motivates repeat purchases and brings customers back. Customers who value your product are sensitive to the price and again, value what you have to offer. This is why profits are not an issue when value is the key player.
Price for Profit
The price you place on your product screams value if and only if the consumer is willing and able to pay the price. Setting a price that is too high or too low will limit business growth. At worst, it could cause serious problems for sales and cash flow. Are you asking customers to prepay? Why not? Click here for the Ultimate Pricing Checklist.
Pricing is tough to get right, but not impossible. Here are a few things to consider:
- Stop trying to be an overnight millionaire. Focus on value and quality.
- Define your target audience. (Everyone is not your customer)
- Price is based on value, worth, time and skill.
- Custom made products demand superior pricing.
- Product type and shelf-life determine the price.
- Flavor, texture and unique ingredients determine quality.
- Boost prices by product popularity.
- Price is based on consumer needs or wants.