Product Pricing Strategy And Costing Template For Food RecipesPosted by Fitz Villafuerte under Business, Sales and Marketing on July 16, 2009

The food business remains as one of the top industries that entrepreneurs consider highly profitable.

After all, food is a basic necessity; and with that stable market comes good earning potential.

However, the food business is also a very competitive market. Your delicious offerings alone would not be enough to deliver business success.

One needs more than great tasting food, but likewise a good location, sensible marketing and many other factors which also includes reasonable pricing.

If you want to sell food, how do you determine your selling price? What is the right pricing strategy so that you can give your consumers an affordable product with optimum profits?

Again, there are many factors to consider. But the most basic strategy is to come up with the costing template for your recipes. From there, you can easily determine and adjust your retail price that will fit your target market without compromising your income.

So how to you make a costing template for your food recipes? Here’s a five-step product pricing plan.

Step 1Write down your recipe, including all the ingredients and their quantities, as well as the average yield. It helps to convert the quantity to measurable equivalents.

Step 2Determine the price of each ingredient and calculate the cost per recipe. Simply divide the ingredient price by the total volume and multiply it by the equivalent measure in your recipe.

Example:375 ml of cooking oil costs P20. So P20 divided by 375 ml multiplied by 30 ml (from recipe) equals P1.60

Step 3Add up the total cost of the ingredients per recipe to determine the total recipe cost.

In our example, the total food recipe cost would be P17.86

Step 4Divide the total recipe cost by the total yield to get the cost per serving.

Since our recipe example will yield 4 servings, then our cost per serving will be P17.86 divided by 4 which is equal to P4.47

Step 5Now add your mark-up to the cost per serving. If we’ll follow the simple pricing strategy I wrote before, then this would be considered as a make-and-sell item that requires 130% profit margin.

So from our costing template example, one order of scrambled eggs in my food business would cost P10.27 (or I can round it up to

P10.50   ).

What is the basis of the 130% profit margin?

It’s just best practice as told to me by friends who are in the food cart business. They say that the 100% covers for the production cost and the 30% is your product cost mark-up. I believe that there’s really no economic basis for that figure.

And of course, this is just one of the many pricing strategies you can do. After all, there are still other factors and business expenses to consider.

Nevertheless, this very simple pricing strategy can be effective when you’re just starting out – such cases as when you’re simply selling food to your officemates or maybe participating in a food bazaar.

And that concludes our short business tip for today. I hope I was able to help you come up with a good pricing strategy for your food business.

Do make sure you can catch the next business article here by subscribing to Ready To Be Rich .

Advertisement

43 Shares

Share on Facebook

Share on Twitter

Tags: Business, price, pricing strategy, Sales and Marketing

Home » Product Pricing Strategy And Costing Template For Food Recipes

« How To Stop Being Lazy Eight Life Lessons From Running A Marathon »

12 Responses to “Product Pricing Strategy And Costing Template For Food Recipes”

1. Real Estate Investment Software  says:

August 23, 2009 at 9:38 am

I’ve never seen a better breakdown of cost and pricing! Well done!

2. Celine says:

February 6, 2011 at 4:37 pm

Extremely helpful! Thank you 

3. Randall says:

April 16, 2011 at 10:02 am

If we bought an equipment or machine, do we also need to add those in our costing? This is very helpful.. Thank you very much.

4. Fitz  says:

April 17, 2011 at 1:58 am

Hi Randall, ideally you should. But it entails some assumptions.

The usual calculation for that is you divide the cost of the equipment by the number of months it will take for it to fully depreciate. Then divide that amount by the approximate number of product yield per month to compute the additional cost in production.

Let’s say you bought an electronic egg beater for P1,000 which you estimate will take 1 year before it breaks down and needs to be replaced. That will give you P84 per month depreciation cost (P1,000 divided by 12)

Assuming you usually produce 120 servings of scrambled eggs per month, then your total recipe cost will have an additional P0.70 (P84 divided by 120) in it.

I hope my explanation was clear. Thanks.

5. Kat says:

May 21, 2011 at 10:44 am

I would like to ask a question that has been in my mind for such a long time now … How do you compute for LPG cost? I plan of making a

business out of my love for baking and I really find costing for LPG use difficult. I assume that I should include the preheating time in calculating for it, am I right? Thanks a lot!

6. Cris says:

August 12, 2011 at 8:33 am

Regarding the purchase of capital equipment, the egg beater what about if you used it to other menu or product, does the additional cost added to scramble egg can be also used or add with other menu you made like lecheplan, or does the contributing cost to the product price will be more reduce since it also use in other menu or product.Thanks a lot have a great day.

7. angelforangela says:

December 1, 2011 at 10:27 pm

hi just wanted to ask, how can i determine the quantity food to serve? For example in pasta servings, how many servings can a 1kilo pack of pasta make? I’m newbe in this biz so I really need to be educated, I already atended seminars but they seemed not helping on this area,I want to know the particular grams/percent of food per servings. I need help on this pls, thank u so much!

8. Rio says:

January 28, 2012 at 7:59 pm

Thanks for this very helpful explanation!

The egg beater computation (as a fixed expense) is also very helpful. Admittedly, LPG computation is very complex, since a dedicated LPG tank for production must have been fully consumed before we can have a better estimate versus number of goods produced (better if it is just one SKU or item). I assume that the 100% production cost is a good leeway to cover the (yet) immeasurable expenses from the start.

9. Mercky says:

January 11, 2013 at 2:28 am

Thanks for a great article. I’ve a question, though. In such a scheme, how do you cope with fluctuations in the cost of your raw materials? Like LPGs (talking of, any advice on how to go about factoring this into the costing computation – e.g. how exactly to you quantify LPG use per recipe)? I’m assuming that certain accommodations would be factored into the profit portion, but what would be a standard, or safe figure? Say, your example gives 130%, but the prices of eggs are very erratic, and change daily, would a 140% profit margin be ideal for this situation? What’s the standard practice in such a situation?

Thanks much!

10. Fitz  says:

January 13, 2013 at 5:08 am

Hi Mercky, you can use the upper limit of the price for your computation instead of the current price, so when price fluctuates, you won’t have to increase your selling prices.

Doing 140% profit margin is also acceptable, but doing what I said above is better.

Lastly, price of raw materials do increase, which means eventually, your products should too – that’s inflation.

11. angel_abby says:

April 12, 2013 at 12:22 pm

excellent! super thank you for this! 

12. Juztin888 says:

March 31, 2015 at 10:33 am

Great Article Sir!   I am currently running a personal food business at home & expanding it to a restaurant, and I am having a hard time computing for cost with the shrinkage of the raw meat after it’s being cooked. For example: I am cooking a pork belly slab which i bought at P220/Kilo for 5 kilos with bone/ribs. I then strip off the bones (around half kilo) the slab, season and cook as it shrinks about more or less another 1 kilo more. I can get the computation if the weight of the

pork belly I get is at a consistent weight, but of course it has different sizes and weight every time someone orders. So may I ask how to get a

Plan Your Bakery

1. Select the kind of bakery. One of the first decisions you'll have to make is what kind of bakery you want to open. ...

2. Write a business plan. ...

3. Shop for space. ...

4. Price your baked goods. ...

5. Have a defined friends and family policy. ...

6. Find support. ...

7. Be original. ...

8. Be prepared to market your product

ow to Start a Home BakeryStarting a home bakery isn't as easy as it sounds. To successfully

start and run a home-based bakery, you'll have to comply with local

laws and treat the business seriously. Read the following tips to give

you an idea of how to start a bakery at home.

Steps

1.

1Determine the legality of home-based bakeries in your area.

While opening a home-based bakery might seem easy, you should

be aware that there can be limitations involved. For example, in

some states, home-based bakers are prohibited. In others, there are

many permit and insurance requirements that you'll have to meet

before opening your bakery's doors. Check with your state's health

department or food and agriculture agency to determine if starting a

home-based bakery is legal in your area.

Ad

2.

2Look into certifying your kitchen.

3.

3After you've determined that you can open a home-based

bakery, you'll want to modify your home kitchen into a

commercial kitchen area. This will allow you to sell baked goods

to customers. There's a good chance that you'll have to modify your

kitchen somehow before inspectors will certify your kitchen.

Research what modifications you have to make and complete them

before an inspector makes his first visit.

4.

4

Get all your paperwork in order.

Home-based bakeries can require that their owners have food

preparation certificates. In addition, liability insurance and permits

can be required of a home bakery's owner, like they would of any

other business owner.

5.

5Come up with a business plan.

A home-based bakery takes as much planning as a business

located in a downtown shop. Include information about start-up

costs, cost analysis, and the costs of your ongoing business

operations in your plan. Set clear goals for your business and aim to

complete them.

6.

6Research your target market.

You need to know to whom you plan to sell your baked goods so

that you can direct your advertising and marketing efforts

accordingly. Decide who will make good customers and aim to sell

your products to them.

7.

7Make sure you stand out from the crowd.

Offer baked products that are new, different, or special somehow.

This can be something that can get you an edge on competing

bakery businesses.

8.

8Spend money on advertising your products.

There will likely be many bakeries with which you will have to

compete. Don't scrimp on advertising and marketing. Invest in

professional photographers and advertising companies. Your

advertising efforts can have a big effect on how successful your

business will be.

9.

9

Keep your customers satisfied with consistent-quality

products.

10.

10

Experimenting with recipes and offering different batches of

baked goods under the same name will likely hurt your

business. If you must experiment with recipes, make sure to clearly

advertise deviations from the normal recipes. For example, you can

market a cookie with a different icing than you normally put on top of

the cookie as a seasonal cookie.