Chocolates Shelf Life and a Big Step in My Life

[cheripie]

Let see if I can keep this short. My brain is on overload.

I've finally put myself out there, meaning bringing my chocolates to an upscale chocolate shop (they don't make their own, only sell) to see if they'd be interesting in selling mine. I've been selling to friends, friends of friends, and at small vendor fairs, so this would be a big step for me. I've been doing this for some time (and learning loads from this site as well as books and classes) so I'm stressed...OK this is already too long. Another aside - I'm out of town and don't have access to my Schotts book, Wybauw book, etc. so I appreciate any help.

Now to the questions:

1.How long do you tell a shop to keep chocolates on their shelf. I'm using basic gananches, some with trimoline, but most without. If you sell a number of different fillings, do you go with the one with the shortest shelf life for all? (I assume one with a fruit puree would be the shortest?)

2. How much do I need to worry about how their storage is? The day I was in there, it wasn't as cool as I would have hoped, but it's a small space and the door keeps opening...

3. How do I decide on pricing? I know how much the ingredients cost me, and I know how much I sell them for (mostly based how much the market around here will bear) but what's a reasonable price for me to sell to them. Do you reduce prices for really large volumes?

4. Any other tips?

Well this certainly wasn't short, but I hope you'll be patient. More questions will probably pop into my head as I restlessly try to sleep tonight. It's all good!

[cheripie]

Any ideas on pricing and shelf life?

[Desiderio]

There are several threads in this forum , on chocolate shelf life and pricing.

You can do a little reserch ,I ll see if I can find some.

Here's one

http://forums.egullet.org/index.php?showtopic=96879&hl=

More

http://forums.egullet.org/index.php?showtopic=94070&hl=

http://forums.egullet.org/index.php?showtopic=68017&hl=

http://forums.egullet.org/index.php?showtopic=88240&hl=

http://forums.egullet.org/index.php?showtopic=73382&hl=

Edited June 18, 2007 by Desiderio (log)

[sugarseattle]

Congratulations on having the guts to follow your passion into the world of food. As you've no doubt read for users on this forum, you will lose money and go out of business if you don't price your products correctly. Here are the top three ways to be successful in any business.

- have a great product that will stand out among the rest

- spend as little money as possible (this means you should be able to assess the financial risk of certain business investments such as how pieces of equipment will help you earn more money)

- hire really great people (so you have to be able to assess whether you are up to the challenge)

Pricing your products based on what the market will bear (called market-based pricing) should only be used as a guide to see how your prices stack up to the competition. Yes, you are new, but your business won't last until you get a handle on how much it costs to make your chocolates. Trust me, I've been pricing my products without looking at my costs for 4 years, and you'd be suprised how many little things add up to zero profit.

I recommend categorizing your expenses, and then setting some goals for them. Here's what I plan to use when we re-open:

30% rent, utilities, insurance, etc.

30% ingredients and packaging

30% labor (this means you AND your employees)

10% profit (can be used to re-invest into the business)

Invest in some software to track your costs (we use quick books, but there's other software specifically for recipe costing), and set aside some time at the end of each month to see how you're doing. Also, you might want to start a journal to see how you're spending your time...delivering, etc. Delivery is a huge time sucker, so you might want to consider an order minimum as you move forward.

So, yes, I agree that you are just starting up and while right now you might be willing to do this to just get your name out there, it is really important that you set the stage for future profitability so that when your name is out there, you will be able to STAY in business and continue to follow your passion.

Best of luck, and again, congratulations.

[cheripie]

Great information.

Would you set your prices with 10% profit whether you are selling wholesale or retail?

Thanks for the links; very helpful.

[gfron1]

Ultimately that's your decision. You know your market and competition best. If you can pull off a 10%, then great...who knows though, you may be able to get more, or may end up less. The key is knowing your true cost for every truffle that leaves that shop so you can price from there.

[sugarseattle]

what ends up happening is your overhead for retail ends up being higher because you have to pay somebody twice, once to make the goods and twice to stand there and sell them. Whether that's you or an employee, your overhead is simply higher. Plus with retail you have waste and with wholesale you usually don't have too much waste. also, with wholesale, in theory you're basing your pricing on volume discount, but then you also have the cost of delivery. Pricing can get complicated quick! For example last year I sold my brioche for $1.10 wholesale and $2.50 retail at the Farmer's market. I unfortunatly never analyzed the numbers in depth to see how I was doing.

However complicated it sounds, if you figure your costs for wholesale building in a profit, and then multiply your wholesale price by 2.2, you're probably safe.

[shaloop]

what ends up happening is your overhead for retail ends up being higher because you have to pay somebody twice, once to make the goods and twice to stand there and sell them. Whether that's you or an employee, your overhead is simply higher. Plus with retail you have waste and with wholesale you usually don't have too much waste. also, with wholesale, in theory you're basing your pricing on volume discount, but then you also have the cost of delivery. Pricing can get complicated quick! 

I've only been in business 3 months, but I'm trying to figure out my next move. The space that I share with another business (tamales and storage for sno-cone business) is small and once the tamale business starts serving customers from the building (instead of just delivery, as is now) it will really be too small for both of us and I'm the one that will have to go. Right now I could use another cooler but there's just no room to put it. I'm doing good so far with my wholesale customers and things are picking up. I also have some retail customers and am finding that I don't like delivering. I'm fine with delivering to business/wholesale customers as someone is always there. But for individuals, it's so much hassle scheduling a specific time and delivering to who knows where. But, retail pays better. I make more profit on retail. But, I've considered the overhead of a retail shop, hiring employees, etc. I'm thinking of a retail location that is just basically a kitchen with a small storefront where customers can come in and pick up orders. Although, I know there's still the matters of business hours and someone having to be there those hours. I've learned that a small baking business is harder to pull off than I ever imagined. It's very hard to stay small in a place where rent is so expensive and home-based baking businesses are illegal. No real question, just rambling and adding my agreement.

However complicated it sounds, if you figure your costs for wholesale building in a profit, and then multiply your wholesale price by 2.2, you're probably safe.

This, however, could you explain please?

[Truffle Guy]

Cheripie,

Congrats on taking the big leap, I'm right behind you and will be opening my shop in the next month. I plan on documenting my experience to share with everyone.

My first advice is to be sure to protect yourself. You may already have done this but if not, don't risk everything for a few dollars.

1. Work with a lawyer to clearly draw a line between your business and your personal assets. Incorporate as an LLC, S-Corp etc. you should also work with an accountant to make the best tax choices.

2. Make sure you have adequate insurance. The world is full of people looking to exploit our legal system. Just watch the adds on TV

3. Declare all revenue. If you don't draw a clear line between your business and personal assets, the IRS doesn't have to either.

Now for your questions although I'm sure there are others more qualified than me to respond. I'm facing the same issues so this is my take on the same problems.

1. As far as shelf life, I'd again use caution. Don't let the shops make the choice on when to pull the product? If they don't and you haven't labeled it as made with fresh ingredients/no preservatives, it may be you are the liable party, not the wholeseller. I'd suggest using products with similar shelf lives so you don't have wide variance. Fruit puree's may actually not have the shortest shelf life depending on how they are made (e.g., pate de fruit layered with ganache will have better shelf life compared to the same fruit puree that is just added to a ganache). When in doubt....sugar is a good preservative and invert sugar will help.

2. Storage/Temperature will influence many factors not the least of which will be shelf life, appearance and taste. You are doing yourself more of a disservice by letting someone sell a bad version of your product. We never get a second chance to make first impressions and you don't want poor storage to give you a bad name.

3. Pricing - Always the magic question. I think people sometimes make the mistake of thinking pricing is determined by your costs, it isn't. Pricing is determined by what the market will bear and your place in that market. What I think you need to focus on is not your price but your volumes. HOW MUCH you need to sell to be profitable is the real question, is your business viable?

I'm not a CPA (my brother is) but don't guess on your costs/revenue model. You have 3 major factors to consider.

Revenue/Sales - You have some control over this variable. Your pricing is one component but unless you are selling diamonds (high price/low volumes) you need to manage your volumes as much or more than the cost. Chocolate is low price/high volumes as a business if you want to be profitable. Your marketing/sales ability will play a bigger role in this factor than the actual price.

Variable Costs - Think of this as those costs that fluctate based on other factors (e.g., shipping, ingredients, commissions). You don't always have to pay these costs and they can fluctuate widely based on volumes. When you are busy...these costs can skyrocket and no matter how profitable your price per unit, this can wreak havoc on an undercapitalized or funded business. However, I think this is a critical area that good management/planning can help to improve your profitability.

Fixed Costs - These are death/taxes types of factors. They must be paid whether you sell any products at all (e.g., Rent, Salary, Property taxes, utilities, insurance). When starting your business, I think this is the place you have to look when determining how much you need to sell. If your fixed costs are low then you have more room to work. If your fixed costs are high it can wreak havoc on your funding and you can have a burn rate out of control. Remember these costs typically don't fluctuate with your revenue like the Variable Costs.

Anyway, thats my nutshell approach to pricing. Don't determine your pricing based on your operation needs, base your operation needs on your pricing/volumes.

4. Other Tips - I've got a big mouth so of course I'll put in a few other comments.

** If you are starting an Artisan Chocolate company you shouldn't assume or even target a profit percentage, at best its a guess and at worse it can sink your company. A startup company will rarely be profitable in the first few years (in fact the vast majority will fail and never be profitable). You have to pound away and adapt to be successful. That means your salary and labor costs should be low until the business can support higher wages. If you have investors, they want to see your commitment in sweat and passion, not high salaries. If you can't take a lower salary, startups are not for you as it is very unstable ground and not for the weak of heart or anyone who just isn't in position to take such a big risk.

** Are you addressing waste with your wholeseller? Who is paying the cost of product that becomes outdated or goes bad? You may want to offer to pay the first 2-3 months of waste and tightly control inventory then have the wholeseller be responsible or share the cost. You definetly don't want them selling bad product rather than eating the waste cost so you need to be careful.

** Wholesale/retail - Be careful here as we are talking about 2 completely different business models. Everyone is tempted by the wholesale premise but unless your business model is not specifically designed with this as THE major revenue source you will open yourself up to all sorts of problems. Make a conscious decision on your primary model first; Retail or Wholesale, then build the business around that model. You can always do both but be good in one arena before extending into another. On pricing, make sure your retail price is the retail price everywhere....unless it is complicated enough that it isn't readily obvious there are price differences (e.g., you sell for $1.30 per piece and a wholeseller sells for $55.00 per lb.). Your wholesale price can vary depending on vendor and volumes. Don't forget to account for shipping/waste in your wholesale cost.

** I don't agree with the retail/wholesale assessment that retail is more costly. In an Artisan Chocolate company it is very likely you will be the primary employee and spend much of your mornings/evenings doing production and can easily offset the cost to have someone sitting around waiting on customers. The customers you do get will pay you full price and cut out the middle person. Also, if you are passionate you get an opportunity to not just sell some chocolate but sell yourself and build repeat business and strong word of mouth.

** Find someone who is doing what you want to do and talk to them, they are your best mentor. Everyone has opinions and the challenge is knowing which are accurate for YOUR situation. Advice is rarely wrong in this forum, it is often however not applicable or out of scope for some situations.

** Know what you do well and what you don't do well and accept it as fact. If you are not creative or able to do consistent production, this is not your business. However, if you can do those things then you are the key person in the business. If you don't do accounting well, hire someone to do that. If you don't negotitate well with vendors, find someone who does. If you are not a strong sales/marketing person, give your dreams to a voice others will hear. Pride is very dangerous in the startup world. There is a tendency to think we need to be balanced and learn what we don't do well....it's a dangerous mistake to make. Do what you do best MORE and become better at your strength, mitigate your weaknesses by admitting to yourself where you need help and getting it.

** Look around you and decide if where you are is the right place to start your business. If the area is oversaturated or not a good place for this business, move or find another dream. No matter how hard you try you won't grow palm trees in Minnesota or vanilla beans in Missouri (at least not anything someone will buy). Don't start anything that is either doomed or likely to fail unless you hit a home run, if everything has to fall in place then it is too big a risk. This is a tough fact to face when your heart says you want to do something but be realistic about your chance for success based on your location/area.

Don't know if any of this helped but I wish you the best and I'd love to hear how your adventure turns out. Good Luck!

[beacheschef]

WOW!

Thank you for taking the time to write this, as you bring up so many important points. I'm also working through a business plan to open my own place. You have given me much to think about.

I look forward to reading about your experiences as you open your place up. Best wishes for success.

Mary

[gap]

Truffle Guy,

great points. I am two years into a start-up (unrelated to food) and your points are all valid. Some great & sobering advice for those looking to start-up.

[Desiderio]

Awesome , great advice, I am looking foward to see your documentation on the business ( put some pics in it will ya )

Thank you again .And good luck.

[cheripie]

Well I got the sale yesterday! Thanks in no small part to the preparation I did with the information from egulleters. I feel like I got a good price and was knowledgable discussing the points raised here and it other posts. Now I will be concentrating on pesky items like insurance.

Also, I would highly recommend a class with Andrew Schotts any time you get the chance. He was so giving of his experience and knowledge. I feel that class gave me the tools to take my chocolates to the next level, and I got the benefit of that when the people that owned the shop (who buy Cluizel, Vosges and others), thought my chocolate was worthy.

Truffle Guy, Best of Luckon your venture and thanks so much for taking the time for putting down your thoughts and advice.

Cheri