Chocolatiers – setting retail and wholesale prices

[patti_h]

After trying to do some internet research & emailing with some folks, I am posting here in the hopes of getting some guidance for pricing products, both for retail and for wholesale. I feel like I have read so many different things that I don't know where to go with my pricing. I have seen different people recommend 2x cost for wholesale, 3x cost for retail, set your price then work backwards to make sure your costs aren't exceeding what they should be, offer 50% off for wholesale, don't take more than 30% off for wholesale, etc. As you see, what I have found all seems to contradict each other!

I will explain a little about my situation- I am a nurse and have been working as a nurse for 14 years. I am burned out and do not wish to be a nurse for more than a couple more years. I do not have the means to take out a loan so I am bootstrapping this business venture. I am blessed in having a caterer who is extremely supportive of me and allows me to use his commercial kitchen free of charge. When he needs cakes or chocolates, I make them for him and he pays me a mutually agreed upon price. Currently, he will pay .90 each for cheesecake pops or bon bons, cakes we just price out according to size/design etc. When he does weddings, he recommends me to his brides for their cakes. I consult with the bride, do a tasting, and I set the price. I have found wedding cake pricing so much easier than chocolates, but I really prefer working with chocolate.

The caterer and I worked on costing out the chocolate shoes I have made thanks to Chocoera's instruction! The highest cost was labor, and I figured that if I am making one shoe at a time, the time put into it is going to cost too much to make a profit from selling it wholesale. However, by purchasing a few more molds and making several shoes at once, assembly line style, I could cut my labor costs down. That was an easy fix. But when it comes to bon bons, I am really at a loss. I believe .90 to be a fair wholesale price for a handcrafted bon bon, but I don't know where to go with pricing for boxed bon-bons. I believe you should keep the cost of the box at around 15% or lower of total price for the bon bons. But when you come to a 6 piece box, I am finding even the least expensive but not crappy looking boxes are still going to cost more than $1.50. Of course the bigger the box, the lower the percentage of the overall cost it is going to be.

So, I am curious if people would share 1) how did you go about setting your prices, 2) how do you determine what to set your wholesale price at, and also, I am curious how did people choose the venues they sell in ( i.e. selling in a gift shop, farmer's market, online etc.)

Of course I would love to do all retail sales- I would rather profit from my work than to have someone else profit from my work! Living in SC I am very anxious about selling at a farmer's market as they are outdoors and it gets HOT!!! If you do online sales, you need to drive traffic to the shop, and you get into the business of shipping as well.

I am also very open to suggestions on any books that anyone used to help them figure all of this stuff out. I am not so great at all the business part of this, but as my caterer friend tells me, you have to cook with a calculator next to you. He has taught me about figuring out your net cost of a supply i.e. chocolate, you may pay $6 pound, but after figuring out shipping costs and loss percentage, that chocolate is not costing you $6/pound anymore.

How is anyone figuring your overhead into your prices? I have no idea how to figure in my costs for insurance, business license, molds, tempering machine, airbrush, etc.

I am looking forward to any insight anyone can give me. Thank you!

[pastrygirl]

As you can tell from your searching, there is no hard set of rules, just what the market will bear. I'd be happy to share my experience with you.

I've been make chocolates in my spare time using the kitchen of the restaurant where I work for the last year and a half. I then sell bonbons to the restaurant at 90 cents each (well, actually $1.10 minus a generous friends and family discount), and they sell on the dessert menu 2 for $4. This is higher food cost than normal (target food cost is 28%), but they figure it is easy plating. The catering division charges $5 for two chocolates because, well, that's catering. I also sell small bars to another restaurant, retail is $3 and I charge $1.40. Prices are based somewhat on my food cost and labor and somewhat on what seems fair so that both the restaurant and I make enough money for it to be worth doing. My food cost is higher on the bars (40-50%) than on the bon-bons (25-30%? haven't calculated in a while).

Some days are more worth doing than others, but I figure it is all about learning. Lots of molds that come out well = a good day. Having to re-temper or lots of defects = making minimum wage that day. I'm trying to steer away from hand-dipped because they are so tedious and aggravate my carpal tunnel issues more than molded. I think even with polishing and decorating time, molds are faster, and the more molds you can do at once, the better. I'm convinced there is high potential for chocolate to be pretty profitable, you just need to find enough customers to justify doing enough volume, and be efficient about production. Right now most of my profits go to buying more molds and toys, as I can afford them.

So far I don't offer retail boxes, but I know what you mean about how expensive they are. If you are offering the boxes wholesale, I'd just add the cost of the box onto the wholesale cost. The retailer would then adjust their mark-up accordingly. A nice presentation box adds value. Where are you getting your boxes? I just got some pretty nice ones from papermart.com, clear plastic with a frosted edge that were less than a dollar each.

Edited April 23, 2012 by pastrygirl (log)

[patti_h]

I have gotten boxes through Nashville Wraps and Glerup Revere. There are some nice ones at nashville wraps but there are some that I don't really like. The ones at Glerup Revere have all been nice so far. I agree that presentation adds to the perceived value but I don't want it to eat at the bottom line!

[Marmalade]

Here´s some good discussion on this topic http://www.thechocolatelife.com/forum/topics/store-markup-on-chocolate-bars

http://www.thechocolatelife.com/group/startupcentral/forum/topics/wholesaleretail-pricing?commentId=1978963%3AComment%3A20643&groupId=1978963%3AGroup%3A17188

http://www.thechocolatelife.com/group/startupcentral/forum/topics/pricing-thread?commentId=1978963%3AComment%3A50392&groupId=1978963%3AGroup%3A17188

there´s more on the chocolatelife.com but those will definitely get you started. There´s also a good tiered pricing spreadsheet I´m also attaching

[Marmalade]

It's also helpful to know the minimum price you will sell your product at first off. Then figure out all your overhead expenses that are fixed-your labor, rent, equipment, insurance and other business related payments that you must absolutely pay every month to stay in operation. Figure your material costs per unit. Then figure out what is the minimum number of units you have to sell to cover all those costs. Once you know that, you know what your break even point is and each additional unit beyond that number of units increases your margins-economy of scale. The first "x" number of units is going to pay the bills and keep the business running, each additional unit of production is going to have a lower marginal cost. Does that make sense?

[xxchef]

Pricing is a complex subject, as you have already gleaned from your research but there are two general approaches for manufactured goods.

Product-based approach

1. Determine the products you want to make or your customers want you to make
   
2. Figure out what each costs you to make (not just the ingredient costs - don’t forget labor, marketing, packaging and overhead or other fixed costs)
   
3. Add your desired profit (can either be a percent or so much $ per piece/lb). This will be your base retail sales price.
   
4. Calculate wholesale discounts based on the value to you of the various advantages wholesale sales have to offer (bulk packaging, guaranteed sales, large order economies, etc). If none of these apply or have value, you may want to use your original base price as your wholesale price and ADD a surcharge for your retail pricing.
   

Price-based approach

1. Determine the price point or range where you want each item to be
   
2. Determine the profit you want to make on each piece/lb
   
3. Subtract 2 from 1 to get your cost limits
   
4. Design products that fit within your cost limits. Playing with recipe portion size and ingredient quality, and looking at labor factors are the most common ways of tweaking costs to work with desired price points (this is true when talking about either high-dollar, top end price points or economy ones).
   

The cost-based approach used in much of retail (i.e. retail price = 2x cost) does not usually work very well for pricing things like hand-made chocolate because your ingredient cost/labor cost ratio can be so widely different from item to item.

Anyway, as I said, these are general approaches. In the real world things are complicated by messy market factors and the like. Just because you figure you have to charge $6 per truffle to be where you need to be from your product-based analysis, that doesn’t mean anyone will actually buy them at that price. Obviously you need to assess your market, look at your competition, be realistic in your evaluations and fluid in your pricing approach.

Often a hybrid method of the two systems works best. Start with the product-based approach and if the results are unrealistic use the priced-based approach to temper your original findings and bring them in line with reality.

Try to get an honest feel for what factors affect your ability to do a good job while having a good time doing it. If you really HATE making marshmallows but feel you need to keep offering them - then charge enough for them that you can live with it. Worst case is that nobody buys them and you don’t have to make them! On the other hand, if you really like making toffee and find stirring molten sugar cathartic, maybe you can charge a little less than your calculations indicate. Worse case? You corner the market and make a bunch of money doing what you love.

There are other things besides costs and prices to consider when pricing a product line. Sales mix, profit margin vs profit percent, seasonality, production work flow and logistics should all be part of the big picture but I think are way beyond what you are looking for right now.

The basic product-price-profit triangle should be thought of as a dynamic set of interlaced parameters that can be pushed, pulled and prodded until you find the just right mix to ensure your niche in the marketplace is successful.