Cost & Pricing Strategy

Before you launch your food product, a crucial aspect that rookie entrepreneurs commonly overlook is product pricing. Frankly speaking, they are the ones that do not last long in business, especially where competitors have a better food pricing strategy.

The Costs To Create A Product

To set the cost of creating a food product, copying competitor’s prices may seem like a safe option but actually, it isn’t. Because it needs thorough research of the best pricing models that work best in the food industry you’re in.

Once you have a clear vision and strategy for a fixed price of your food product, deciding on discounts, promotional prices and member prices will be a piece of cake.
So, get your calculator and notepad out and jot down these tactics.

What Are the Costs to Create a Product?

Besides creating a food product, you need to know how to set the product cost after considering all the elements involved.

So before you even start thinking about experimenting with the price of your product, consider the fundamental expenses first.

Product Cost

Making your food product needs supplies, machinery, and labor among other things. So, the cost of manufacturing must be reflected in the actual price of your product. This is so your basic expenses are covered for long-term production.

  • Manufacturing
    Raw materials or components that are used specifically to make your product.
  • Direct Labor
    Wages, benefits, and insurance for your workers involved in the production.
  • Manufacturing Overhead
    Indirect costs for machinery and operations (glue, tape, supervisors, etc).
  • Packaging
    Packaging materials, printing costs, and anything related to the food packaging.

Period Cost

Also known as non-manufacturing costs that need to be covered to make your product but are not linked to the actual product itself.

  • Rent
  • Personal Income
  • Professional Fees, Licenses, or Permits
  • Taxes
  • Facilities
  • Utilities
  • Logistics
  • Wastage
  • Marketing
  • Website Maintenance

How To Price Your Food Product?

Cost-based Pricing

Market-based Food Pricing

–  Above market: Branding yourself as a higher quality product
–  Equal market: A fair competition to maximize profits
–  Below market: Luring customers with a comparably lower price

Time-based Pricing

Quite literally, time-based pricing is setting flexible prices based on current market demands to match customers’ purchasing habits.

Discount Pricing

Initially set a higher price of your product. Then, offer a sale at a reduced price within a limited time to boost sales but keep your profit margins close to RM0 or slightly positive.

Anchor Pricing

Basically, a manipulative strategy where you display a high price for your product. Then, visibly lowering the price drastically to the actual price so consumers feel they are getting an unbelievable deal.

Raised Pricing

Once you’ve realized your products are selling quickly, grab this opportunity to raise your price. But make sure you pair it with a deal that can convince your customers such as free shipping and a second item at a discounted price.

Seasonal Pricing

Besides increasing your regular revenue, seasonal pricing can also attract new customers to your brand. So, take advantage of Hari Raya, Merdeka and other celebrations to offer an attractive incentive to drive up your purchase volume.

 


To know more food start up business tips, head over to Yong Mama: How They Grew Their Business

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