What's the mark up range for wholesale?

[JeanneCake]

For those among us who sell your pastries and desserts to gourmet shops, restaurants, etc. - what's the mark up they expect to put on your product? I know it will vary by product (minis, whole cakes, individual desserts - and the fact that the shop probably sells whole cakes while a restaurant sells slices so they will have different margins on the stuff) but is there a general rule of thumb - usually around 20% that they expect to get? Just curious....

[JasonTrue]

Unless the cakes are either presold to their customers or bought on consignment, most of my customers target a 35-50% margin (not markup) for purchased cakes and cookies. (I don't sell cakes or cookies, but a couple of my customers are bakeries and a few customers are coffee or tea shops that buy pastries from other bakeries).

Most restaurants target a 20-35% cost of goods for things they make themselves. (Upscale steak houses and seafood places that do the old American style big plates may have a higher cost of goods on some expensive items). Bread bakeries may actually have a lower cost of goods depending on their style.

Restaurants/cafes and so on prefer to have about a 50% cost of goods on items they don't prepare entirely themselves. However, I know a few restaurants that accept up with a 65% cost of goods on some items that only one baker in town makes.

Some coffee shops keystone price cookies and cakes that they buy even if the suggested retail price assumes a 35% margin. It means that a $1.50 croissant at the original bakery, sells for about 98 cents at wholesale,and becomes $1.96 (probably $2) at the coffee shop. Starbucks pioneered the stale $2 lump of bread, so that works reasonably well. On a cake, which at wholesale might be $40/cake and produce 12 slices, they might sell slices at $5-6.50. Whether you can get away with $40/cake, of course, depends on the quality and brand power of your cakes.

Most coffee shops also have to estimate some risk of shrinkage (a piece of cake slides off a plate and drops on the floor before it's served, or it doesn't sell for two or three days and needs to be tossed). So 20% margins are going to be pretty painful for most customers, who probably pay 3% on credict card costs alone, and still have to pay rent and labor.

For those among us who sell your pastries and desserts to gourmet shops, restaurants, etc. - what's the mark up they expect to put on your product?  I know it will vary by product (minis, whole cakes, individual desserts - and the fact that the shop probably sells whole cakes while a restaurant sells slices so they will have different margins on the stuff) but is there a general rule of thumb - usually around 20% that they expect to get? Just curious....

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[LCS]

One place I sell to marks everything up 100% or more. It's ridiculous.

[Beanie]

One place I sell to marks everything up 100% or more.  It's ridiculous.

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I'm not sure if you're referring to mark-up or gross margin. If your customer is doubling his/her cost, this is a 50% gross margin and I don't think it's ridiculous at all. Just look at the economics.

Let's say an item is $1.00 wholesale and resale price is $1.50; the cost of goods is 66% and gross margin is 33%. Gross margin is always calculated as a percentage of sales price, not cost. If the same item is resold for $2.00, cost of goods is 50% and gross margin is 50%.

If I buy 12 items @1.00 wholesale for a total of $12.00 and charge $1.50 retail, I have to sell eight items just to break even. Hopefully, I'll sell the remaining four items and make a profit. But the shrinkage mentioned by JasonTrue is all too common. If one item gets tossed, the gross profit on the whole deal is $4.50. Then there are costs associated with packaging, whether it's a sheet of paper & bag for take-out, a disposable plate, a napkin.... say 5 cents for each sale. That's another .55 off the profit.... and on and on ... So the actual margin is very slim. While I may accept 33% on some items, I would expect a higher gross margin on others. Especially if I wanted to stay in business.

[LCS]

One place I sell to marks everything up 100% or more.  It's ridiculous.

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I'm not sure if you're referring to mark-up or gross margin. If your customer is doubling his/her cost, this is a 50% gross margin and I don't think it's ridiculous at all. Just look at the economics.

Let's say an item is $1.00 wholesale and resale price is $1.50; the cost of goods is 66% and gross margin is 33%. Gross margin is always calculated as a percentage of sales price, not cost. If the same item is resold for $2.00, cost of goods is 50% and gross margin is 50%.

If I buy 12 items @1.00 wholesale for a total of $12.00 and charge $1.50 retail, I have to sell eight items just to break even. Hopefully, I'll sell the remaining four items and make a profit. But the shrinkage mentioned by JasonTrue is all too common. If one item gets tossed, the gross profit on the whole deal is $4.50. Then there are costs associated with packaging, whether it's a sheet of paper & bag for take-out, a disposable plate, a napkin.... say 5 cents for each sale. That's another .55 off the profit.... and on and on ... So the actual margin is very slim. While I may accept 33% on some items, I would expect a higher gross margin on others. Especially if I wanted to stay in business.

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I'm talking mark up. I sell something for $28, they turn around and sell it for $60. I sell something for $33, they sell it for $72.

[JasonTrue]

I don't consider this unreasonable; if you think about it, when you're pricing for retail for your own cakes, you are (probably) targeting about a 20-25% cost of goods (not counting labor), or 300-400% markup.

If you're firing on all cylinders and never throw anything away and have hundreds of customers a day paying full retail, you might not be too worried, but if your business conditions are anything close to typical, you're probably not getting rich even with 300-400% markup. Your labor costs are a high percentage of your total cost of goods sold, and your rent and utility costs are probably fairly significant.

Most of my products have a longer shelf life than most cookies and cakes, but the retailers still have a tough time with a 40% contribution margin (67% markup), partially because many of those items may sit on the shelf for a few weeks or even months before they sell and they still have to keep paying rent. (My wholesale margin is far worse than their 40% though, and I'm not getting rich anytime soon).

The ratio you used looks typical for gift shops or customers paying delivery or per order fees, or doing self-pick up. 2.2 times cost is also not uncommon for bulky items or highly perishable things, especially for companies with liberal return/exchange policies or unusual levels of service. Also, if you're selling whole cakes and they do the slicing, their shrinkage rate can go up due to uneven or cuts or other employee errors, so they might need that extra room.

I'm talking mark up.  I sell something for $28, they turn around and sell it for $60.  I sell something for $33, they sell it for $72.

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[etalanian]

When I had my bakery, I sold wholesale to a lot of retail outlets, and none of them sold the product for less than keystone (doubling the price I charged). It never bothered me. Besides everything Jason mentioned, retailers also have to deal with weather conditions, road construction that unexpectedly cuts off some of their accessibility, power outages, and much more. It might sound like a lot of money, but the margins are easily chipped away by all sorts of things.

I tried to keep my ingredients costs to 20%. And never felt guilty about it. There are too many hidden costs that have to be covered - insurance, workers' comp, utilities, delivery costs, packaging costs, equipment maintenance, and on and on.

Lots of businesses go under simply because they underprice themselves.