The 4 Cs• Cost•Understand your cost, then set pricing to achieve gross margin in the 30-40%range- shoot for 50-60% if you can.•Consumer•Strengthen marketing and sales capabilities to find consumers that will paythe price you need to make it, as a small scale food producer•Maximize profit, based on your understanding of consumer price elasticity ofdemand•Leverage direct-to-consumer options (eCommerce, farmers’markets)•Competition•Don’t compete with larger scale producers on price•Understand the pricing environment and motivation of retailers who carryyour product•Capacity•Capacity constraints and additions will create “pockets of profitability”foryou at various stages of growth”–understand them and adjust your pricingaccordingly
(1) CostUnderstand your cost, then set pricingto achieve gross margin in the 50-60%rangeThe 4 Cs of PricingIt is risky to “overdesign” a product.
Profitability Benchmarks byType of CompanySource: Robert Morris Associates, Annual Statement Studies, 2004-2005, all other misc food *55 companies, averaging $133 million revenue
(2) Consumer•Leverage direct-to-consumeroptions (eCommerce, pop-upstores, own retail,farmers’markets)The 4 Cs of Pricing
(3) Competition• Don’t compete on price with larger scaleproducers• You can’t match their scale economics or purchasingclout• They may be able to lower price in just the local market inwhich you compete• Understand the pricing environment andmotivation of retailers who carry your product
(4) CapacityCapacity constraints and additions will create“pockets of profitability” for you at variousstages of growth–understand them and adjustyour pricing accordinglyThe 4 Cs
Pricing - CapacityPockets of Profitability$UnitsRevenueCostPocket of Proﬁtability• Businesses run more profitably at 80 –90%utilization of plant capacity• Adding new capacity can push a profitablebusiness back into the red• Try to find the “pocket of profitability”for thestage you are at right now
The 4 CsConclusions• Appropriate Pricing Strategy will be a function of:• Aggressive cost containment• Consumer Demand• Competitive Products• Uptimum capacity utilization• If your product has some unique and valuedcharacteristics, it may give you more pricing latitudethan you realize• Set a price that gives you the best chance to beprofitable at your current stage of development• Look for the channels / customers that allow you tokeep more of your pricing, and avoid those where youwill get squeezed due to retailers’need to compete onprice