So I have been working on my business plan. I am looking into renting a shared commercial kitchen and becoming legal.
I am trying to calculate my true cost per serving for all that I offer. I have my ingredients, time, overhead, etc, in the calculations. When it comes to profits, do I want to earn a percentage of the cost per serving including all of the above categories or do I want a percentage of the cost with just materials and time (no overhead)? Is there an industry standard or is this just like anything else, it all depends on you?
good question. going through something like this and wondering what the response of our fellow ccers is.
When I calculate pricing for a specific product, I add up the ingredient costs (including packaging), labor costs (I include hourly charges for kitchen usage in here), and overhead on a per-order basis (e.g. if I have $5000 in annual overhead and 100 orders/year, the overhead cost for each order is $50), then add 20-30% of the total for my profit margin.
This is just your starting point for pricing, you'll need to make course corrections based on what your competitors are doing and local market conditions. For example, if you have a lot of idle time because competitors are undercutting you, you may want to consider lowering your prices, and if you are constantly turning away business you can probably afford to raise prices.
jason_kraft is right...you want to stay within 20%-30% profit margin
Thanks OP for asking, and Jason Kraft for the useful info. Now can someone tell a technically challenged newbie if there is another way to mark this post other than me just commenting in it?
Silversprinkle, right below the last post on a page on the left hand side there is a "watch this topic for replies" button. Click that and the thread is saved!
Jason_kraft, Thanks for the info, I'm currently in a similar situation and starting my business plan so your info is very helpful!
Thanks, everyone. I think what Jason described is exactly what I have done but on a per serving basis.
It sort of looks like this (based on what I know about baking a 10 in. sq which equals 50 servings):
Ingredients - 11.72
Icing - 8.72
Packaging - 4.17
Hourly - 90 (my time and kitchen rental)
Overhead - 55.70
20%profit - 35.06
Total - 210.4
per serving (50 servings)- 4.20
Here is my problem. I have to project how many servings I will sell in a month/year to truly determine how much overhead to charge per serving. I have ABSOLUTELY NO CLUE how to guesstimate that number. I will be part time, except during summer months when I can do this full time (yes, teacher here). I based my overhead costs on an average of 236 servings sold a month. I have no idea if I will go over or even come close.
Predicting sales volume is difficult, so it's better to underestimate volume (thus overestimating the overhead cost component of each order). That way, if you sell more than your conservative estimate, the worst that will happen is that you'll see a little extra profit. See how the figures work with an estimate of 200 servings sold a month, and compare that with the going rate in your area to see if your price is still competitive.