How to price cottage food products can be a real challenge. All too often the price is discussed before addressing the cost. It’s easier to slap a price on a product and ask others if the price sounds good. What is a good price? Pulling a number out of the air does not guarantee you’ll make money. You may not even breakeven and it’s definitely not a good price.
The fact is pricing is HARD. The more complex the product, the more difficult it is. Quite often it’s easy to feel lost in the woods with pricing. Cottage food operators are tempted to stroll over to a social media group and ask for advice. Seeking help from people who may not live in your state or country is not effective. You might as well look up to the sky and ask for a price to drop from the clouds.
How to price cottage food products involves:
- Calculating the cost
- Avoid underpricing
- Avoid overpricing
- Research your target audience
- Assess the complexity of your product
- Understand that pricing is not finite
It’s so easy to under-price. All you have to do is edge under the competition enough and siphon their customers. Undercutting the competition rarely works. For most customers, it’s all about value, quality and not price. The truth is pricing is a sub-component of value. Price alone will never drive sales. There are entirely too many other variables you need to consider.
Underpricing your product can be disastrous, even when a recession sets in, because if down the line you realize you have under-priced, it’s extremely hard to get away with raising prices without turning away your customers. When first selling pies at a farmers market, there was a competitor selling pies for $15. The pies I sold were $28-$30.
Working the numbers revealed that there was no way the other vendor could be making a profit. It was impossible at that price point. The interesting thing was no one complained about my prices.
On the flip side of the coin you have overpricing, or pricing your product above market value. Slapping on a price so high customers won’t pay it. This can be disastrous. All customers have a certain amount they’re willing to pay, no matter what. Insisting that they cross that threshold is pointless. Don’t just look at what your competitors are pricing their products at; look at how they are marketing and selling them. See where your own marketing and sales efforts align.
What are the highest prices offered by your competitor? What are the customers getting for their money? Look at why the highest-priced product sells and how that product is sold. Put yourself in your customer’s shoes and ask: based on this messaging, packaging, etc., would I buy this product over that one if it’s priced more?
3. Know your target audience
Who’s your customer? It’s common for food entrepreneurs to make the mistake of not knowing who will buy their product. The assumption that everyone will want what you have to offer is a myth. Examine your potential price points. Do they support the volume of product you can produce? It may be necessary to offer contrast pricing to meet a variety of customer needs.
It’s a tricky balancing act. A mid-range price could potentially kill the product. High-end customers will think it’s too inexpensive.
Priced too low-value and mid-level customers will question the quality of the product.
It’s best to conduct your own research via in-depth interviews or surveys. This is the best way to confirm the proper value and corresponding price point for your product. It doesn’t hurt to host a popup and get personal with your customers.
4. Product complexity
5. Pricing tools work
There is nothing wrong with using pricing tools or creating your own. Review any YouTube video on pricing cakes, pies, and other food products. You’ll find a multitude of ways to price for profit.
Whether it’s product complexity, underpricing, overpricing, or researching your target market. There are far too many ways of pricing to make it impossible to calculate a profitable price. The key is to start with finding the cost, then take it from there.
Register now for Pricing for Profit a free webinar.