How Do You Price Homemade Food?

Posted by Damian Roberti on

How Do You Price Homemade Food?

 

It is a totally different type of pricing concept, different than when you're renting a commercial kitchen and if you're mass producing it and you've got employees. But if you're starting a cottage food business, or creating a food product from home, you're gonna need to understand three specific things on how do you price homemade food? We're gonna get to that right now! All right, so welcome back to Marketing Food Online. It is day Damian Roberti, Founder and CEO of Marketing Food Online. I am a serial food entrepreneur, not exactly the cereal you put in a bowl, but I have multiple e-commerce food businesses with my wife, over the past 13 years, and I've been in the food industry for 30 plus years now. And I've also ran and operated Italian bakeries, delis and sandwich shop. So let's dive right into this. I've got some great, great experience dealing with food products, launching food products, being on Amazon. We've got over 300 items that we sell. 

How Do You Price Homemade Food?

 

And, of course, now I'm gonna give you guys some great information that's actionable, easy to understand and direct to the point. So really quick, if you haven't subscribed, make sure you hit the subscribe button and give us a big thumbs up, because that tells YouTube that our videos are something that you actually want to watch. All right, so what is the first step in understanding how to price a homemade food product? Now, one of the great things about starting a homemade food business is the fact that you don't have a separate rent for a commercial kitchen, which is a huge expense on top of the additional insurance and other business licenses that you would actually need to have. So, number one, how much are your ingredients? So the best way to figure this out is to take your recipe. Now you're gonna take the recipe and you're going to break down the ingredients that you have in it and find out how much does it actually cost to create the recipe?

How Do You Price Homemade Food?

 

Okay, and what I mean by that is, let's say hypothetically, you've got a great cookie idea and you have a chocolate chip cookie and the recipe calls for a certain amount of ingredients and it prepares four dozen cookies, and you're gonna sell two sets of two dozen. So you've got two dozen in one box and two dozen in another. Now that recipe yields four dozen cookies. You're going to calculate, how much does it cost for the flour, the sugar, the egg, all of the ingredients, because you'll be able to figure out those two sets of cookies cost X amount of money to make with ingredients. Next up, the label cost. Now, when you first start a homebased food business, of course, you're probably printing the labels yourself. And by the way, I highly recommend you do that. If you're paying someone else to produce your label for you, you're gonna be paying way too much. As a matter of fact, here in our commercial facility, in our bakery and candy and snack shop, I actually produce and make our own labels here in our facility. And I print them as I need them. So I actually don't pay anybody to print or make any of our labels.

How Do You Price Homemade Food?

 

And our labels cost anywhere from about eight to about 12 cents. If you have someone else print them for you like VistaPrint or any of these online businesses, you're probably in the range of 25 to 34, 35 cents a label. How do I know this? Because I've been in the business for 13 years. And I tried that when I first started, it's very expensive. So you wanna focus on printing the labels yourself, but then you wanna figure out how much does your label cost? So, number one, you've got your ingredient. Number two, you've got the label that's gonna go on your packaging. So that brings me to number three, packaging. So how much does the packaging cost that your product is going to be put into? Okay, and that's each individual. So as for instance, if you're shipping or producing two dozen cookies and you have either a platter or a container, or whatever it is that you're putting it in, how much is that packaging? So you've got packaging cost, label cost, and then the ingredient cost. Now don't count labor just yet, and here's why. Because the majority of you watching this are producing a food product from home, and it's probably just you, or maybe you and your spouse, or maybe you and just a friend, or even you and a family member, who's helping you bring things together, package them, label them, produce them, whatever may be. when you get to the point where you have employees and you're beginning to pay other people, that's when you need to really begin to calculate the cost of your labor. When you first start any type of food business from home, you're probably on a budget as I actually was when I first started out my first business.

How Do You Price Homemade Food?

 

So you want to be watching every penny. You wanna make sure that you're aware of where all the money's going and you probably don't have a heck of a lot of money to invest in it at first. That is okay, as long as you start! The most important thing is just get the wheels going. So don't count the labor cost just yet. You don't wanna pay yourself. You're not gonna be selling a million dollars worth of cookies the first year out of your home, so you don't need to be cutting yourself, some type of check. So don't calculate labor just yet. The next thing up is a commercial kitchen. Now, if you're producing a product from home, as I just mentioned in the introduction, you're not gonna be tapping into or spending more money on a commercial kitchen or some type of other commercial space. That is a huge, huge plus. Now eventually down the road, you'll begin to actually get into a commercial kitchen. That is gonna be something that's ultra important to maintain records on how much is it costing you to rent the kitchen when you're using it?

How Do You Price Homemade Food?

 

Because let's say you go back to the chocolate chip cookie example. So you rent a commercial kitchen and let's say it costs you 50 to a hundred dollars an hour and you rent it for three hours and you just produce dozens and dozens of batches of cookies. Well, guess what? The overall cost for you to price your homemade food is gonna have a big impact based upon how much are you renting that commercial kitchen for? Because all the cookies you just made, you didn't make 'em at home. You're actually now renting a place, renting a facility, and that's costing you more money to produce a final product. If that is the case, then you need to factor that in. So if it happens to be an extra three or $4 per batch of cookies, then that has to be part of your costs in order for you to price a retail price point for your product. So keep that in mind as well. But that's why it's always a good thing to start from home because you don't have much overhead. You don't have the labor cost because you don't have employees and you don't have all of that as well.

How Do You Price Homemade Food?

 

So you wanna maintain all the records for everything that it's costing you to create a finalized product. Well, Damian, that sounds great. Now I know what my costs are, but how do I actually create a retail price point? So this is gonna be the next step. You have to kind of be within the market range for the product that you're making. If you're making a high-end product or a jelly or jam that has all kinds of organic products or other things in it, then that's gonna be a more costly product. It's gonna have a higher price point. If you're going to a local farmer's market, by the way, that's gonna cost you money as well. So you go to a local event, you are gonna have to put out money to actually go there and set up your product. Remember, that also too is part of the expense of producing the finalized product because that event you're gonna have to sell at least a certain amount of product just to cover what it's costing you to be at the event. Now you wanna maintain a certain type of retail price point within the market range. If you're producing two dozen cookies, you're probably not gonna get 50 or $60 for them. Nobody's gonna pay that much.

 

How Do You Price Homemade Food?

So after you've figured out and calculated your actual ingredients and everything we just went over, you want to go and have a multiple, normally around two and a half times to two times, what it costs you to produce the product, because you wanna make back enough to compensate for what you put into it. And then you want to make double on top of that as well. So you don't have a necessarily, an exact type of equation to come up with a price point. You want to kind of figure out what is it in your area? How much can you actually get for that product and what kind of event are you going to? And if there's anyone comparable to it or similar to it, what are they charging? So you wanna keep that in mind. This is for those that are just starting at home. This is not even about e-commerce or anything else, because there's a lot of other fees and factors that come into play. So keep that in mind as well. So next time you wanna figure out how do you price a homemade food product, those are the three specific things you really need to look at when you're starting from home, but you also wanna keep those other two variables in mind as well that there should be. Don't charge for labor just yet. And if you're in a commercial kitchen, that's a totally different ballgame too, and that's a different type of cost to figure out. So if this video gave you a little bit of understanding, definitely give us a big thumbs up! If you've got anybody that you know, in your family who is interested in starting a food business, let 'em know about Marketing Food Online. We are YouTube's premier food entrepreneur channel. We have over 900 videos on this channel and we just started three, that's right, three brand new channels, one dedicated to food truck entrepreneurs.

How Do You Price Homemade Food?

 

Also those dedicated to cottage food law. That's actually the home-based food businesses. We're launching that video channel as well. You'll have all these links down below in the description. Also, we have a podcast for every single one of them as well. We have four podcasts and we also have blogs and other free resources on marketingfoodonline.com. And of course links, as I mentioned for all of these will be down in the description. And as always, please do give us a big thumbs up because as I mentioned in the introduction, YouTube will know that you are enjoying our videos and they're helpful, educational and helping you make money selling your food product! So I will wrap it up and I'll see you guys on our next video!

 

How Do You Price Homemade Food?

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