Pricing Handmade Chocolates

[InfinityCandies]

Ok. Other question I have— if doing this out of my home, how do I begin to calculate things such as overhead (what does that exclusively include?—- and how do I put a number on such things?), marketing (divide out that expense quarterly/ annually?) and cost of sales (what does that mean exactly? Does that mean what it costs me to get my goods to that store?)

 

Another business person who sells bars in stores broke it down and explained very well why you don’t just markup your item 25% to hope to cover the overhead after calculating COG’s.  His example was a difference of $.32 more by correctly calculating overhead and said it can be the difference that makes or breaks a business that sells to distributors or stores. 
So maybe if I can can some help in proper calculating, I can finally get a clear picture of my pricing and where and with whom I can sell.  😁😁 
 

[pastrygirl]

@InfinityCandies Where are you in the world?

 

Speaking from the US, check with your local department of Agriculture for cottage food laws.  They will tell you what is allowed in a home kitchen.  They would also license your food production facility if you decided to, say, turn your garage into a dedicated kitchen.  Parts of your home used only for your business are a tax expense/deduction.

 

I think for most of us chocolate is very seasonal and you have to look at it annually.  Q4 might be 40% of my annual sales, Q1 30%, Q2 20%, Q3 10%.  If I'm spending a lot in Q3 to get ready for Q4, margins that quarter are going to suck or be negative.

 

How much $ do you want to make, and how much do you want to work for it?  If you want to keep $10k, say you need to sell $30k.  Would you rather sell 10k pieces at $3 each or 15k pieces at $2 each?  7500 at $4 each starts to sound good ...

 

 

[AlaMoi]

there's many factors that go into "pricing"

 

first and foremost:  cost to make - materials, labor, overhead (rent, utilities, taxes, licenses, etc etc etc)

 

many go with 'what the market will bear' - uhmmm, okay - but competing against a large automated giant ala Hershey.... not gonna' win that one.

 

on a recent trip to a small high quality vendor, who was struggling on the financial side . . .

he stated "the people around here are too d*mn cheap to buy good stuff"

 

so that leaves "pricing" in a dilemma - either it covers the sum of costs and makes a profit to support your life, or it does not.

if the price needed to cover those costs+ is not "saleable" - mega.problem . . .

if the number of people who are willing to pay for top quality is limited - and your volume does cannot survive on that volume . . .

you're doomed.  

unless you're in it for the 'hobby' aspect.  doesn't pay, makes for fun but not eating . . .

 

we have a local chocolate shop - they do lots of stuff including "special orders" - when I'm in 'hunt the choco' mode, I go there.  I am fully aware the prices are above 'average' - but I want that candy shop to be there next time I need to order a really big milk chocolate bunny at Easter for DW

(Because,,, as a child she only got 'little' bunnies . . . and after 50+years, I'm happy/willing to give her a really biggie bunny . . . )

[InfinityCandies]

On 10/24/2023 at 12:49 PM, pastrygirl said:

@InfinityCandies Where are you in the world?

 

Speaking from the US, check with your local department of Agriculture for cottage food laws.  They will tell you what is allowed in a home kitchen.  They would also license your food production facility if you decided to, say, turn your garage into a dedicated kitchen.  Parts of your home used only for your business are a tax expense/deduction.

 

I think for most of us chocolate is very seasonal and you have to look at it annually.  Q4 might be 40% of my annual sales, Q1 30%, Q2 20%, Q3 10%.  If I'm spending a lot in Q3 to get ready for Q4, margins that quarter are going to suck or be negative.

 

How much $ do you want to make, and how much do you want to work for it?  If you want to keep $10k, say you need to sell $30k.  Would you rather sell 10k pieces at $3 each or 15k pieces at $2 each?  7500 at $4 each starts to sound good ...

 

 

I’m in Cincinnati.

[pastrygirl]

On 10/24/2023 at 4:48 AM, InfinityCandies said:

if doing this out of my home, how do I begin to calculate things such as overhead

 

You don't have rent expense but there are still taxes, licenses, cell phone, office supplies, kitchen equipment, uniforms, cleaning gear, insurance, repairs, business cards, event fees, signs.  You could estimate operating expenses as equal to COGS as a starting point.  COGS x2 + a piece for you = wholesale price, double that for retail.