Wholesale baked goods pricing

[shaloop]

For those of you that do wholesale, how do you determine pricing? Do you figure a percentage off of retail or do you determine cost for wholesale and then mark up for retail? Do you have a minimum order required to get wholesale pricing? I'm looking into starting a wholesale dessert business and I have baked for a couple of restaurants in the past from my home. But now I'm looking into doing it properly (from a commercial kitchen) and want to make sure I do it right. Any tips or pointers would be appreciated.

[zoe b]

I don't sell perishables, but ideally, wholesale is 2x costs--or another way to figure is 1/2 of retail--but the realistic pricing is what the market will bear, unfortunately--your customers know what they can move the product out for, and will want to pay 1/2 of that.

[etalanian]

That's very good advice. When I had my bakery I maintained my pricing so that my overall FOOD costs were around 20-25%. You don't want to go over that, because you have to remember that you still have rent, insurance, utilities, delivery costs, employee wages and taxes, etc., and on top of all of that you still need to make a profit.

Your wholesale customers know where they need their products to be priced in order to maximize their sales. So pricing is often a ritual involving a discussion with your customers and scrutinizing your own costs and pricing needs.

Find the best prices for your supplies. This sounds silly, but many people will get everything from one supplier because it seems most convenient, but they are paying a premium for this. Often you can find much lower prices on different items from various suppliers, and it can end up bringing your costs down significantly.

Good luck!

Eileen

[gfron1]

Keystoning (2x) is the standard and in fact most people say if you can't exceed keystone, you won't make it. The only other thing I'll add is that in the beginning you should bite the bullet and do an actual price analysis. Since you did this in the pastry thread, I'm assuming you're asking about pastries. So take your recipe and look at the actual material cost to make that muffin. Then calculate your monthly operating expenses. Finally, what percent of your sales are the muffin expecting to be? Then you can do the math to see how much that muffin really cost - .10 cents or $2.00. That should steer you in the right direction for pricing, which as zoe b suggested, then gets guided by the market.

Since my intern starts today, let me offer option #2...have your intern do these calculations as a project.

Owners says

Intern says

[naes]

I don't do wholesale but I am currently in the Culinary Management program at ICE. We are taught is to look at something called Prime Cost. If you only look at Food Cost, you're missing half the picture.

When you look at all of your costs of doing business, the two areas that take the biggest percentage of your sales are your Food (& Beverage) Cost and your Labor (& Benefits) Cost. They also happen to be the two areas that you have the most control over. Rents, utilities, etc. are fairly fixed costs. So it is your Food Cost and your Labor Cost together that you should track most closely. Taken together they are called your Prime Cost.

To be successful, you're Prime Cost should be less than 65% of sales. However, the lower you can get that number, the more profit you'll have in the end. So let's say you estimate your Labor Cost to 35% of sales and you want a target Food Cost of 25%. Your Prime Cost would be 60% of sales. Now that you know your target Food Cost, you have a guideline for pricing your product. First, you need to cost out your recipe. This is accomplished by knowing how much each ingredient costs you and multiplying that cost (per ounce/gram) by the quantity. For example, let's just assume the following --

AP Flour costs $2.99 for a 5 pound bag

16 ounces in a pound

5 pounds x 16 ounces = 80 ounces

$2.99 / 80 = $0.037

AP Flour costs $0.037 per ounce

The recipe calls for 40 ounces of flour

40 x $0.037 = $1.48

You would do this for all of the other ingredients in the recipe. Let's say the total cost of the recipe is $3.50 and you're able to get 35 portions out of the recipe. That means your unit cost is $3.50 / 35 or $0.10 each. If you're target Food Cost is 25% then you take $0.10 / 25% which equals $0.40. So, you're selling price would be 40 cents in order for you to have a 25% Food Cost.

Of course, you then should take into account what you can actually charge for the item. Maybe everyone else who is selling this is getting around 75 cents for it. Then you have to decide if you want to also sell it for 75 cents or if you want to undercut the competition and sell it for less. But then you get into the psychology of pricing - what would a potential customer think if they saw you selling this for 40 cents when everyone else has it for 75? They might think that it must be an inferior product because it's so inexpensive. If you do sell this item for 75 cents then it could possibly make up for some other product that you make that has a higher than target food cost but isn't marketable at a higher price. That's what is called "menu mix."

There's a lot that should go in to your pricing strategy. You need to have a grip on your costs but you also need to have an eye to the marketplace and what it can bear. You need to have a balance of higher cost and lower cost items that ensure you hit your target food cost percentage.

I hope this helps guide you in the right direction!

Sean

Edited January 13, 2007 by naes (log)

[shaloop]

Thanks for everyone's advice so far. Just for more information, I'm looking at doing wholesale stricktly for the low-overhead aspect. If business is good I'd consider moving to a location with a storefront for walk in (retail) customers. When I priced my products in the past I considered my food costs, including packaging, down to the teaspoon of vanilla. I considered what I felt others would be willing to pay. I visited my target clients to see what they charged for a slice of cheesecake, say. Then I multiplied that by 12 (# of slices in a 9" cheesecake) and then divided that by two (assuming clients would like to at least double their cost.) I then subtracted my costs to see if that amount of profit seemed worthwhile to me. (I was doing this from home so there weren't many other costs.) I also considered whether their customers would be willing to pay more for a premium product. Although there were clients willing to pay my prices, it was quite a bit more than they were used to paying for their products. However, there is no other wholesale bakery around here. No dessert shops at all. There is nowhere else to get a premium product. Everyone carries the same products from the same food distributors. In fact, when I tried to quit the business in the past one client called me begging me to continue because her customers didn't like the "super-warehouse" desserts that she would have gone back to using. So how do you convince new potential clients that it's worthwhile to pay twice as much for a premium product?

[bripastryguy]

I've been dealing with this for almost 4 years now. I feel I do have a superior product and I work closely with my wholesale clients to develop new and interesting desserts for them. The major problem with wholesale is that you become a bank, meaning that you have to float these people. Some look for 30 days, some 60 and even 90. You will have bills to pay, ingredients to buy, staff to hire. How do you pay these when your customers take forever to pay you? Do you threathen to cut them off? I dont know your area but I'm in Long Island, NY and its cut throat here. Country Clubs are very demanding and if you arent willing to bend to what they want, there are 3 guys right behind that are willing to.

I price desserts around the same as some of the bigger guys, but in my explanation I let them know that I use top shelf ingredients but they still see it as 50% food cost.....its not easy as everyone makes it seem and even more difficult to collect your money

[shaloop]

In the past my clients always paid on delivery. There is no one else waiting to fill my shoes, so I guess I'm good there. There are the casino bakeries that do large volume and some restaurants buy from them, but as far as quality they're basically the same as your Sam's club. No one makes dessert cakes from scratch around here at all. I think that's going to be my blessing and my curse.

[artisanbaker]

confidence rules as usual-see "business plan thread"

10 to 30% off retail pays the bills usually

after that partner with the best bank around because bripastryguy is right, you become a bank...

[MarkIsCooking]

Hello experienced retail bakers! I have a new cafe/bakery and I'm looking for some help to understand what kinds of markups you are using for your baked goods.

It looks like I'll be doing both retail and some wholesale. Anyone who has some pricing guidance on both would be SO appreciated.

In simple terms, for an item that costs you $1 to make (food cost only), what do you RETAIL that item for? What do you WHOLESALE that item for?

Thanks!!!

-Mark-

[K8memphis]

So why are we not including overhead in our discussion???

You cannot redeem your overhead if you don't charge for it.

If you lowball it now you will be setting up your business on sand.

General rule of thumb is three times your cost including overhead for retail so I guess twice for wholesale. But you gotta cipher/determine your break even point and all that other annoying math.

All that to say Multiplied Congratulations!!!

But I tell yah, we have a lovely lovely bakery here in Memphis, LaBaguette's and they are charging $1.25 each for nice sized tall poofy cookies. Like a chocolate cookie and a snickerdoodle. They have to be making much more than 33% on the snickerdoodles which probably offsets the cost of the chocolate ones, 'cause they are really good fudgey inside mmmm. So there's that too.

They have huge date squares that must be at least 3x3 and those are probably only $1.50 each. They are loaded with nuts too. Glory, you look at it from both sides, from consumer, "Eeghads that costs too much." And from retailer, "Eeghads how can I afford the best ingredients and be able to attract customers at these prices?" And it just boggles the brain. They of course have a thriving lunch counter to prop up the bakery.

I'm very very happy for you. However if you don't factor the hourly wage of employees and the cost of the plastic wrap you will use and the dish detergent to wash the dishes not to mention the fuel for heating hot water and et cetera save yourself the trauma and kiss it good bye now.

Dude, if you are wholesaling you HAVE to cost for transportation. Where's the I want to strangle you smilie face? Now tell me I'm all wrong and you really have all those annoying percentages already figured out. (Lie to me.)

Sounds like a sugar free fat free flavor free business plan?

[MarkIsCooking]

All great points. You absolutely have to understand what you non-food costs are. It's also true that in a major city, we need to be competitive from a retail price point of view. So, I thought that given all places pay somewhat similar prices for ingredients - it would be helpful to have some kind of rule of thumb for relationship between selling price and food cost.

Thanks for the input. I hope others will chime in.

-Mark-

[FlourPower]

When we started up we got some pricing software...I think it was from Resort. You have to enter everything, which is a real pain, but it gives you an idea of how much each cookie costs. Again, add in overhead.

As for retail pricing, it's what the market will bear. If a cake costs you $5 to make but comparable cakes sell for $30, by all means sell yours for the same price.

Broadly speaking, you can compete based on quality, convenience or price. Personally, that would be my preferred order. Competing solely on price is never fun and can eat into profits quickly.

Go around to your competitors and see what they charge. Understand that even if you're making high-end cakes, you're still competing with the local grocery store or whoever sells baked goods in your vicinity. They're still your competitors, but with a lower case 'c.'

As for wholesaling, determine what is and isn't worth your while. If it's great exposure and it'll be a consistent source of income, great. If they're just going to be a pain in the ass don't do it. And be sure to draw up a contract. How long can your items sit in their display case? Will they agree to a fixed amount each week? How much notice will you get for orders? Most importantly, are you gonna get paid? How often? Cash or check? All those are important to consider.

[shaloop]

I'm coming up on a year (March 1st) since I officially opened. (Still commercial kitchen rental only, no storefront.) Business has picked up and I've been trying to get into my own kitchen by March 1st but the Health Dept still has my application (3rd week now) and I'm just beginning to hope it even happens at all. Anyway, what I"ve learned so far...

Fixed costs are VERY important. That determines how busy you have to be to make a profit. Whether you pay $500 rent per month or $1000 rent determines how many cakes you have to make in order to break even. Every time I looked at a potential place to rent I considered how many cakes I'd have to make to pay that (considering about 30% food costs.) Someone (I think Sugarseattle) mentioned targeting 30% food costs, 30% labor costs, 30% fixed costs and 10% profit. At first, I thought that was unreasonable, but now, I think it's right on, for me at least.

You also have to factor in miscellaneous items (or else categorize them). Plastic wrap, cake circles, parchment paper, tape, dish detergent, garbage bags, smallwares, etc. Gasoline and insurance. Website design, yellow page listings, so many things. I'm glad I started small and rented this first year because I'm just now starting to get the hang of what I'm doing. Which is good, because it's going hand in hand with growth.

As far as costs, I agree with above. It's a combination of food costs (and packaging costs included in that), percentage markup the customer is aiming for, what they've been paying and are willing to pay and quality of the product. I bake from scratch and use good quality ingredients and have no direct competition. But, my customers' alternative is foodservice (Sysco or Sams) which are both much cheaper than my products. I've found enough customers to support my business, however, it's not for everyone. I lost one great customer when the owner died and a new owner took over. They weren't willing to pay my prices. Figure out what you need to make to be profitable and find out if there are enough customers willing to support you before you begin. I'm rambling now, but you get the idea.