Anyone who has worked with me will know that I believe that you can’t get to know your food business costs too soon. Suppose you don’t have a clear picture of your costs, margins, profitability and likely RRP (recommended retail price). If that’s the case, you risk creating a product that isn’t viable. If that happens, no matter how good your product is, you might lose money!
Right from the beginning – even if there are gaps in your costing model – you need to create a costing model in as much detail as possible. Break down the costs of ingredients, production, packaging etc., so you understand the unit cost of your product. If you need to talk about how this comes together, the likely margins you’ll need to give retailers and the RRP you could – or should – be targeting, drop me a line.
Checking the commercial viability of your product at the start is an essential part of building a successful food or drink business. It will save you money in the long term and help you make decisions about your product – like where to sell, how to package it, how much to invest in branding and much more.
Food business costs – do you understand your model?
There are lots of things to include when doing your costing model – ingredients, distribution costs, manufacturing costs, marketing costs etc – and I always suggest you include everything you can possibly think of as soon as you can. Whilst I often say that less is more when it comes to food branding, when it comes to costs too much information is better than too little. Surprises are generally unpleasant when it comes to costs!
Retailers, margins and profit
So once you’ve got your product cost, you are then able to look at what margins retailers require, work out what price you think consumers will pay for it (the RRP) and work out if you are making any profit! This is why looking at the costings at the beginning is so important. Your food business cost model might indicate that you wouldn’t make any money at a typical RRP or that you’d need to sell at such a high retail price that hardly any consumers will buy.
If that’s the case, you can revisit the model and look at how you can adjust your product to either sustain a higher RRP or reduce the costs. Maybe you need to look at using different ingredients, pack it differently, find a cheaper manufacturer? There are lots of ways you can optimise your costs.
If you need help with your food business costs and advice on what margins retailers expect and how they work them out, pop over to the Free Webinar section on my website and watch All About Costs and Margins. Or get in touch to arrange a call.