Margins And Costs| Where Is Your Profit?

Margins And Costs| Where Is Your Profit?

Margins And Costs Where Is Your Profit?

When we are talking about margins and costs relating to the food manufacturing industry, you need to know some basic information. Perhaps the most important information is what portion of the money earned from your product you’ll actually be making!

Unfortunately, you do not get to take home your retail price. Before you see a profit, the grocer’s margin is deducted, the distributor’s margin is deducted and your costs are deducted. The amount that is remaining is your profit.

Grocer’s margins are a percentage of the retail price, which can be up to 40%.

Distributor’s margins are a percentage of the grocer’s cost, sometimes up to 35%

Here’s a Simple Example:

 

Retail Price             $10.00

Grocer Margin        $4.00     40% of Retail Price

Grocer Cost            $6.00

Distributor Margin $2.10      35% of Grocer Cost

Cost to Distributor $3.90      Proceeds to Entrepreneur

Proceeds to Entrepreneur includes cost of manufacture, ingredients, bottles, caps, labels, transportation, marketing, etc. and PROFIT hopefully.

 

Your profit is the difference between ALL of your costs and selling price.

Your costs can include ingredients, packaging, and labor. These are the cost of goods sold. In addition, your costs can also include marketing, insurance, social media promotion, setting up/maintaining your website, product transportation, utilities, and more. Before launching your product, consider all of the factors that will affect your profit and your margins.

Read Next: Who is My Target Market? 

Business Tip: Pretend You Are Bigger Than You Are

Business Tip: Pretend You Are Bigger Than You Are

Business Tip: Pretend You Are Bigger Than You Are

Just like meeting a person for the first time, businesses often make judgments on first impressions. Here’s a business tip that you might want to consider- pretend you’re bigger than you are.

Have all your business formation information ready before contacting any suppliers. Make sure you have your EIN number, LLC documents, prepared W9, website and business email addresses prior to contacting vendors, suppliers, potential clients, or distributors.

Product and ingredient suppliers will often ask for this information prior to giving out bulk pricing for packaging and ingredients.  They often prefer that smaller companies and individuals go through a distributor. However, it is essential for your business planning to know what the bulk direct and distributor pricing will beeven if it’s unlikely that you will order from them for months or years. Make sure you ask the price per pallet, the price per truckload, and what the minimum order is.

The goal in your business planning is to determine if your business and product can be profitable 1 or 5 years from now. To do that you need all of the information, in order to understand where the price breaks are for ingredients, packaging materials, and manufacturing. If a truckload price doesn’t work in your pro forma, then you have a hobby, not a viable business. 

For example if you use sugar, a large company like Wholesome Sweeteners is not going to engage with you if you only want to purchase 50 pounds. Instead, they will direct you to a distributor. But if you say “ I purchase 6 pallets per quarter, what is your MOQ (minimum order quantity)”, then you will get their attention. 

Other businesses can be hesitant to give out information to consumers, so it helps if you can present like you are a larger more established business even if you are just starting out. 

This research will help you determine if your great hobby will also make a great business.






Read Another Business Tip: Where Is Your Profits?