Creator to Consumer – Selling Price Episode
Season 2 Episode 2 –
30 years and still learning - Having spent most of my career post leaving the Royal Navy working in consumer goods, primarily in the perishable food sector. I find it fascinating that I still learn every day, sometimes it’s a reminder of what I have forgot but for the most part, I learn something new every day… Today’s episode is about Selling Price.
Which Selling Price?
In most consumer goods markets, there is at least 2 selling prices, 1, you to your customer/retailer and 2, to the ultimate consumer of the product. With the more traditional supply chain in the US there are 3, in between you and the retailer or foodservice operator there is usually a distributor, distributors will be discussed in more detail in another episode, this is not so common in the UK and Europe.
Which Selling Price should I be concerned with?
All of them, why? Because if anyone one of them effects the attraction or feasibility of being bought by the consumer, then you are screwed.
1 - The selling price to the first receiver.
You need to be selling your product to the first receiver, so you are making enough margin for your business to be profitable, sustainable and above all able to invest in marketing, future market and product development. Whatever that price is, it should be yielding a minimum of 45% in the early days of its life to be able to contribute to the growth and sustainability of your business.
2 - The selling price from the first receiver to the retailer of foodservice operator.
This like the next phase the retailer to consumer is out of your hands, however, in your evaluation you should consider a margin of roughly 20-25% for the distributor, which will create the price to the Retailer or Foodservice Operator.
3 - The ultimate selling price to the consumer.
This again will be dictated by the Retailers category margins, currently on average you are looking at around 40-45%.
For Foodservice Operators it’s a little more complicated because invariably the product is sold as an ingredient and added to other food costs, meaning your item is usually portioned out to the correct amount to suit the dish, the food cost is then controlled and evaluated by each operator, they all have varying food costs to manage. In many eyes the consumer in Foodservice is the Operator rather than the final restaurant visitor.
4 - Retailer Selling Price – Consumer Buying Price
This is very important for a few reasons: The 2 key reasons being:
1, If the price is too high or even to low it won’t sell.
2, And a relatively new one in the mix, the direct to consumer selling price on regular sale, not promotionally discounted, needs to be comparable and preferably slightly higher than the mainstream retailers selling price, so you are not directly competing with your own customers.
Why you say?
Easy, no retailer wants to or will compete with you on your direct sales and lose out, they will just not buy your product. So comparable pricing is key, if your Direct to consumer price is $8.99 per unit this will need to be achievable by your trade customer and preferably yours should be slightly more than the retailer price, either online or bricks and mortar. A good guide using the $8.99 direct to consumer price is, the retailer should be able to sell it ongoing at $8.49 or $7.99 per unit every day, plus promotional discounts throughout the year. There are many costs involved in direct to consumer sales, in addition to the extra packaging and shipping costs, your time for packing and shipping, which most entrepreneurs forget to value in the early days, all part of that higher direct sale value.
How does this help you?
Firstly, it helps keep your retailers competitive and able to sell your product showing a saving over the market price, set by you on your website, secondly, through your trade customers you are going to have far greater volumes which in turn “should” reduce your cost of production delivering improved margins and increased brand awareness. By sticking to this rule, you are going to make a healthier margin from direct sales which will enhance your ability to invest in your business and brand.
Now it’s all clear as mud, need more, please ask.
In our next episode, we will be talking about COG and COG’s, thanks for reading and continuing your journey from Creator to Consumer.
Interested in reading or finding out more about selling your passion or our Creator to Consumer series please visit our Chatter page at www.beachcitysales.com/blog and click on Creator to Consumer 1 & 2 or our general site at www.beachcitysales.com, for more direct interaction please e mail us at info@beachcitysales.com
Remember, whatever you know “good luck keeping up”