Recently, I enjoyed a couple conversations with entrepreneurs about what to consider when pricing products to sell into foodservice distribution. There are a lot of factors! I’m hoping you’ll add things I don’t mention.
It is a difficult to hit the “just right” or Goldilocks price. If you set your price too high, then you risk hampering sales and success. If you price your product too low, then you leave much needed money on the table. With start ups, you need to manage inventory, storage and interest charges, order fulfillment and your cash flow. Your goal is that just right price that works for the operator, your distributor and you.
Ultimately, with a new product, you are working to solving a problem for your customer better than the next guy. What value are you bringing your customer? Value doesn’t have to mean a hot price. You can bring value with being unique, great marketing, helping the operator with cost control, great menu suggestions, etc.
Understand your operator’s needs, like where your item may fit on the menu, operator margin, staffing limitations, space limitations in the freezer or cooler. In one discussion, I challenged the entrepreneurs to rethink how their product goes to market. I saw their product as superior to what is available from competitors and they could up-scale their market approach and help operators with a new approach!
Understand what your distributor will need to stock an item, starting with the basics, like item information, images, rebates, margin, marketing events, dependable deliveries, sales support, etc. At some point, your distributor will expect you to be selling many cases a week. What is the number of cases and what is your timeline? Ask your distributor how you can work together to get your products properly presented to the right customers.
From your point of view as the product manufacturer, know your costs to produce, market and distribute your product. Have you evaluated your best options? Are you using your best logistical option which will hold down distribution costs and offer best in class customer service?
Know the margin you need to be successful! You can price your product from a cost plus point of view or you can go off what the market will bear. Information is KING when it comes to getting your pricing right.