Profit Vs Commission

Business By KuyaRomeo Updated 10 Oct 2011 , 8:50pm by jason_kraft

KuyaRomeo Posted 10 Oct 2011 , 7:53pm
post #1 of 2

Me again icon_smile.gif

I have my formula to cost out my ingredients, utilities, rent, labor, plus profit so that I can price some of my products (we open October 25). And with the help from a lot of members here, I feel we are very much on track, finally.

My new question is this:

We made a deal to work inside a gourmet chocolate shoppe that is already established and has a good following, as well as 5 star write ups. They don't utilize their baking area, so it is a good way to share space, rent, etc.

We will be placing our items inside her glass cooled display cases, and on her retail shelves. Her staff will handle all of our packing up, bagging, pick ups, and product questions (which is a HUGE benefit to me, being so small).

In return for all of the above, we provide our own product containers (boxes, etc) and she provides the retail space, counter girl help, customer service, shopping bags, etc . . for a 22% commission. May seem a little high, but I am very happy to have our product on the shelf on Day 1, and have the counter girls be able to handle all of our customer interactions and ringing out. If I owned my own bakery, this 22% commission would be low compared to what it would cost me to have this. She charges another 3% for credit card processing. I am very ok with that.

In a nutshell, If a product is in her store front, I pay her 25%.
If the product is a special order, and pick up at the store, I pay her 3%. I do a large special order business so this plays out pretty fair.

Here is where I struggle:

My calculation for cost of products includes a 20% profit margin. When I cost out my products, is it normal to add in her 25% AND my 20% profit margin? Or do I simply take the cut and not add in my 20% ??

In theory, I think I need to always add in my 20% no matter what, because her 25% will cover my own brick & mortar, and counter girls, when I move to my own location . . down the road . .

Your thoughts?

1 reply
jason_kraft Posted 10 Oct 2011 , 8:50pm
post #2 of 2

The 25% cut (which translates into a 33% markup, pretty reasonable in my experience) is one of your costs, so you need to build that into your price. It might help to look at the situation as if you were selling your product wholesale at price X, with the shop selling the product at retail at X + 33%. The goal would be to make your 20% profit margin on the wholesale price X while ensuring the X + 33% price is within what the market will bear.

Personally I would prefer just selling the product to the shop at the wholesale price instead of taking a cut of each sale, since the shop eats the cost of the product if it doesn't sell.

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