I'm Sari Kimbell, I'm the founder of Sari Kimbell Food Business Consulting and also Food Business Success, an online startup accelerator to help food businesses launch and grow their food business.
I have put together 10 mistakes that I often see food businesses make. These will be shared in individual blog posts. So today we're talking about mistake number two, and that is money and pricing.
We're going to dig in today on the mistakes that food businesses make around not pricing their product correctly from the start and how that can get you in trouble. The first thing we talk about in pricing is knowing our cost of goods sold. If you don't know this term yet, you definitely want to familiarize yourself with it - you'll often hear it as an acronym, COGS. This is everything that it takes to get your product from raw good to ready for sale.
There are four things that go into your cost of goods sold: your ingredients, the packaging, the time it takes to produce the product, and then the packaging time. The number after calculating all those different things is your cost of goods sold and then you'll multiply that number to get your direct to consumer cost, the price for wholesale, etc. And all those numbers might look very different.
Often, there are two mistakes involved in this. Businesses will estimate some costs or the amount they're using and that isn't accurate enough. Everything needs to be accurately accounted for to get a true cost. And the second mistake is actually pricing the product incorrectly because you don't know the goals of your business. If you're selling your product for $6 at a farmer's market and it's being sold for $10 at a grocery store, there are inconsistencies in that pricing model. So you need to know your overall goals to ensure that you're pricing correctly from the beginning.
Obviously this can take some time to estimate correctly and to scale up over the long run, but I have some great tools for that including a profitability worksheet that I take all my clients through as part of the Food Business Success program.
This is mistake number two, not understanding the pricing of your product. Check out my blog for the other mistakes. You can also head to the resource page of the website to find a PDF with all these different mistakes.