Have you set your food business pricing strategically or emotionally?
Many specialty food businesses in Los Angeles and beyond set their prices emotionally, not strategically. As a result, producers often focus on basic ingredients when calculating food manufacturing costs while overlooking overhead. Ultimately, this approach to product pricing doesn’t just hurt your profits – it threatens your entire business.
Understanding True Food Manufacturing Costs
Sadly, most specialty food producers severely underestimate their true costs. Specifically, beyond ingredients and packaging, every wholesale food business has hidden expenses: commercial kitchen rental, storage, delivery fuel, market fees, insurance, equipment maintenance, not to mention countless hours spent on admin work. Turns out, when you underprice, you’re effectively paying customers to buy your products.
Setting Strategic Wholesale Food Prices
On the bright side, successful food businesses use data-driven pricing strategies. First, start by calculating the cost of goods sold (COGS) in your commercial kitchen operation. Next, track every expense for one month – from paper towels to sampling spoons. Plus, include your time at a real hourly rate, not minimum wage. Interestingly, many Los Angeles food producers are shocked to discover their $12 product actually costs $9 to make and deliver.
Building profitable food business margins
Once you’ve done this, research your position in the specialty food industry. Naturally, premium products command premium prices. So, if you’re using high-quality ingredients and small-batch processes, it stands to reason that your wholesale food pricing should reflect that value. Just remember, study similar products in your category, but don’t simply match their prices – they might be underpricing too.
Understanding Specialty Food Markup
In reality, the standard retail markup for specialty food products is 2.5 to 3 times your COGS. This isn’t greed – it’s math. This margin covers business growth, equipment repairs, seasonal fluctuations, and building a safety net. Without adequate margins, one broken freezer or lost account can sink your company.
At Crafted Kitchen, Los Angeles’ premier commercial kitchen space, we’ve built our facility specifically to help food businesses thrive, not just survive. We see firsthand how proper pricing transforms struggling brands into growing companies. For a deeper dive into food business pricing strategy, download our free pricing guide at craftedkitchenla.com.
Implementing Strategic Price Changes
While raising prices takes courage, and YES, some customers will complain, in fact, price increases often improve sales by positioning your product as premium. Surprisingly, many specialty food producers report stronger sales after raising prices by 20% or more.
Growing a sustainable food business
Above all, your pricing strategy impacts every aspect of your business. For instance, low prices mean no marketing budget, hired help, and room for growth. Fair prices give you resources to improve quality, expand distribution, and build a sustainable business that has served your community for years.
The strategy of food business pricing is for the business you want to build, not the one you’re running today.
At Crafted Kitchen, we’ve built our facility specifically to help food businesses thrive, not just survive. In practice, we see firsthand how proper pricing transforms struggling brands into growing companies.
Want help with pricing? For more insight, download our free eBook, “Pricing Fundamentals for Foodpreneurs,”
Crafted Kitchen is an incubator-style shared-use kitchen in the Arts District of Los Angeles. We provide small food businesses with the space, access, tools, and resources they need to transform their businesses from side hustles to success stories. Let’s talk.
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