Wholesaling / Consignment / Getting my shizit into stores

"Profit Margin" is different than "mark up".
 
Stores usually run on a 35%-50% profit margin.
 
What that means is-
If a widgit is selling for $1.00, 35-50% of that selling price needs to be profit margin for the store.  So the store would buy the widgit for .50-.65.
 
Selling price- $1.00
wholesale cost to buy the widgit .50-.65 cents (50-65% of the selling price)
profit margin for the store .50-.35 cents (50-35% of the selling price) 
The numbers for Cost% and Margin% equal 100% (selling price of the widgit)
 
If the store needs 35% profit margin, they would buy for .65 and sell for $1.00 keeping .35 profit.  35% is typical of all grocery store prices)
If the store needs 40% profit margin, they would buy for .60 and sell for $1.00 keeping .40 profit.  Most quick-serve deli-type foods are 40-50%.
If the store needs 50% profit margin, they would buy for .50 and sell for $1.00 keeping .50 profit.  This is very typical of high end specialty food store.  
 
 
 
Mark up is adding  % of the price.
Using the same numbers as above-
If the widgit costs .50 to buy it and the store adds a 50% mark up...Take 50% of .50 (.25), add that to the original purchase price and the selling price would be .75.
 
So a 50% mark up will get the store .25 profit, whereas a 50% profit margin will get the store .50 profit.
 
 
 
The same principles apply to you selling your product.  What kind of a mark up or profit margin do you need?
 
If it costs $3.00 to make, bottle, label, shrink band, insurance, shipping etc etc etc...a sauce...that is your starting point. 
If you work on a 35% profit margin, that bottle needs to sell for $4.62 wholesale to a store.  If the store was selling at a 35% profit margin they would sell that bottle at $7.10.  
 
How to find Profit Margin-
The Equation is-
(yourcost divided by .65= x  )
 
the (.65) is the inverse of whatever the profit margin is.  
 
If a 40% profit margin is needed, then the equation would be-
(cost divided by .60=  x   )
 
if it's a 25% profit margin... (cost divided by .75= x  )
 
As long as both the numbers add up to 100%, which is the selling price of the item.
 
 
 
NOW!  add in another layer of distribution....the DISTRIBUTOR!!!  I don't know what they work their number off of, but to keep it consistent, let's say they get 25% profit margin.  
 
So, back to your wholesale price ($3.00 to get the bottle made plus 35% profit for you)....You sell to the distributor at $4.62, they add their 25% profit margin... 
$4.62 / .75 = 6.16.
 
$6.16 is what they sell to their store for.  NOW...the stores add their 35%
 
$6.16 / .65 = $9.48
 
 
$9.48 is what the store would price it as.  Your $3.00 bottle of sauce is now selling at $9.48.
 
 
The more fingers in the pie, the higher the end selling price. The higher the production costs, the higher the selling price.  Cut out the middle man if possible and sell to store directly until production gets big enough to cut per-bottle costs.  
 
Talk to a few of your local stores and ask what their profit margins are, what they need.
 
 
 
NOW- to reverse engineer this... if you want a retail price of $4.99 at the store, their wholesale price from you needs to be $3.24.  Keeping your 35% margin, your production costs need to be $2.10 per bottle.  
 
4.99 x .65 = 3.24
3.24 x .65 = 2.10
 
Hope this helps.
 
 
 
disclaimer- never been to biz school, so if what i understand isn't right, I'm sure someone will speak up.

 
that's a lot of math....lol

is that a mindblown?  
 
 
naw...it's just a headache.......
 
 
same math....same equations....different starting numbers.....we do it every day all day.  Bidnis~ 

SL is spot on (as always) - the formula is sound. 
 
Here's another way to look at it that SL eluded to, but in simple terms: 
 
Think about a "suggested retail price" for your sauce - just pull one out of your ass - for this discussion we'll say $5
 
There are known factors: 
 
The grocery store will take 35% margin (gross) = $1.75  (smaller mom & pop stores often take as much as 40% btw, but we'll say 35% here for discussion's sake) 
 
$5 - $1.75 = $3.25
 
If you use a distributor (which most grocers will prefer other than one-off mom & pops) they'll take 15% margin. 
 
15% of $5 is $0.75
 
$3.25 - $0.75 = $2.50
 
If it costs you money to ship and store your product you need to factor those into the COGS (cost of goods sold) as well. Let's say it's $0.25/bottle to store/ship for discussion's sake. 
 
$2.50 - $0.25 = $2.25
 
If your sauce costs $1.25/bottle to make, you'll make $1/bottle. You might decide that's not enough so you need to sell for $5.49/btl retail or $5.99, or $6.49 or whatever. But the higher your price the less likely the retail consumer will purchase. 
 
Now I just pulled all these numbers out of thin air. Your sauce might be closer to $2 to make once all factors are considered - whatever the case, run these numbers playing with a few retail pricing options.  Also do a little research to see where your pricing is in terms of your competition. You don't have to be the cheapest sauce on the shelf, but damn skippy you don't want to be the most expensive either. 
 
Of course the storage is likely a recurring monthly charge, so the longer it takes to sell, the less $ you'll make per bottle. Carrying costs will get you every time so get out there and sell sell sell! 
 
Good luck! 

GeminiCrow said:

 
that's a lot of math....lol

Click to expand...

you aint joking.  i read HSL'S  post and felt the same way. thanks alot Ann for making me pay attention
 

sicman said:

you aint joking.  i read HSL'S  post and felt the same way. thanks alot Ann for making me pay attention
 

Click to expand...

 
like ya got anything better to do with that giant foot/ankle?  

sorry, guys....  y'all know I like to inflict pain...but this ain't what I had in mind.  Truly. 
 
 
 
 
 
 
 
 
 And we haven't even got to taxes yet....  

I just paid mine. Ugh.


Regarding consignment, I wouldn't recommend it. Tracking the inventory is a pain in the butt and you can bet your bottom dollar that the store(a) will never call you when they sell a bottle, so it's a lot of hand holding & maintenance for onesie/twosie sales.

Much more straightforward to sell straight wholesale/retail.

What kind of return policy am I suppose to offer, if any?

Why would you? I never even approach the subject unless the store does.

Remember though - if the sauce doesn't sell, chances are they won be ordering again. It's up to you to push sales in the stores you're in.

+1 what ^ said.
 
Don't put an expiry date on it unless required by the PA, I don't put an exp or BestBy date on any of the bottled sauces.  Some put a 2 year expiry date on it just to get customers to pitch it and buy more.  Personally, if I haven't used up the sauce in 2 years, I prolly won't be buying it again anyway.    

So, I am starting the brainstorming process of putting together a one-sheet/sales sheet/pamphlet to present to local retail outlets for carrying my sauces...
 
I have been able to look at LDHS for idea's and inspiration....Few random questions...
 
Obviously, it will include: pictures of the sauce and logo's, descriptions and ingredients (maybe even nutritional info), all company info (address, web, social media), bottle size, case size and weight..
 
Do I include wholesale prices and stuff on this? or keep it purely informational and have a separate sheet (that can be altered as needed) to be provided with the info card....I'd prefer to have it all in one....
 
Any other info that I can provide the retail outlet to enhance their interest in carrying my stuff?
 
gratzi

I would recommend against listing pricing on promotional/print materials.

For one, if pricing changes you just added x# of sheets to your recycle bin.

For another, you might offer different wholesale pricing to one store than you would another as an incentive for a larger purchase.

Good luck.

I agree.
 
Was also considering leaving a 'blank' space open next to each line item  (wholsale price per bottle, per case, SRP, etc..) and filling it in by hand, but that doesn't seem too professional to me, and i don't want to sit in front of the tv filling in this info for hours on end...
 
I do have access to bare bottom prices on postcards and such, so i'm basically paying 70% less than retail for my promo items anyway....so doing up some with pricing isn't such a costly option......
 
not too many retail outlets near me anyways, where I'd need more than a fee hundred sheets to blanket the area to start anyways....
 
back to the original question....any other info you feel would be beneficial to retailers?

Some good talinmg points would be:

• fully insured
• local
• all natural
• gluten free
• no preservatives
• vegan
• awards won
• etc.

As for price, I have had a few stores ask for a price sheet.  I haven't made one.  It's really pretty easy for me because I'm dealing w/ stores and resaurants that only buy 3 cases at a time. You can have one wholesale price and a % discount for volume over "x" cases if you get into multiple store locations.  So I don't feel like I need a price sheet to put down a single price.  It's just one number so the price sheet would be pretty empty

but, but, but, I thought Gluten-free was a gimmick word? (sic)
 
I've had the best luck selling cases so far by cold calling small restaurants, pizza joints, bars and such and giving them the 3-pack sample box, a firm handshake and a talking to them about how THEY are doing.  The warm and fuzzy up front.  Then they ask me what it is I have in my hand, in which I directly place the 3-box into theirs.  As they open it I tell them that I'm a local guy with my own recipes that are all natural, gluten free and paleo friendly.  I then go on to say there's absolutely no preservatives, it's very simple and basic whole ingredients like habanero chiles, tomatoes and butternut squash.  I pause after that because I know what's coming next.  "Butternut squash, really?" "Oh yes, it tastes good, has a unique feel and great pour, plus its good for your heart.  Can't go wrong with that, now can you?"
 
"Oh wow, nice color, this looks really good.  You came up with this by yourself?" - etc etc etc.
 
I let them come to the point of asking about pricing and then I tell them how much I plan on selling point of sale, and wholesale.  I let them know it's available by the case and they seem to nod and think.
 
I then let them know again that I'm a startup company looking to get my product out there, and would love to deal with good people with good potential. (Ego stroking).
 
So far my best sale is 10 cases.  I'm about 1/3 of the way to recovering my initial production start-up, and my years as a damn tire salesman helps.  I've also got some really golden advise from a few owners as well as points of contact in larger companies (grocery stores, etc.)
 
I don't bs someone like a car salesman.  I do use sales techniques like placing product in a person's hand, giving them the illusion of control in a conversation where I steer them into asking certain things in a specific order, and trying to connect to THEM rather than see if they will pony up for a new product.  I've had some good luck so far and I'm hoping to get in at a few more restaurants to move volume.

There's nothing gimmicky about saying "gluten-free". To somebody with celiac disease or gluten allergies it is a very real thing.

What I've said in the past is that it could be an "easy win" for companies if you have a gluten-free product. However if you use a gum or a starch as a thickening agent, many are made from wheat, and thus your product would not be gluten-free. Also if you use anything soy based that would be a problem as well.

However, with certain buzzwords there are risks to using them in a grocery store. At my farmers markets in California I can say gluten-free with confidence. But because I am not certified gluten-free, I cannot advertise as such in a grocery store. So it is important to learn what laws there are in your states regarding certain product claims, and where you can use them and where you must go through some sort of paid process to be able to use them.

The Takeaway is, use terms that are important to the consumer, true for your product, and relevant. I don't think saying it is a "fully insured" product is necessary or relevant. Grocery stores don't carry your product if it's not, so for the grocery market no one's going to care if you have that on your signage - and in fact it may cause extra concern, like people thinking "should I be concerned that it's fully insured? am I going to need insurance because this products going to make me sick?"

Product claims are one of the most frequent causes of lawsuits in the food industry from what I understand. Just as certain claims are "easy wins" for your product, they could also be easy wins for somebody looking for an ambulance to chase. If they see soy as an ingredient on your product for example, and you have gluten-free on the label, they will specifically buy it to claim injury.

Kalitarios said:

but, but, but, I thought Gluten-free was a gimmick word? (sic)
 
I've had the best luck selling cases so far by cold calling small restaurants, pizza joints, bars and such and giving them the 3-pack sample box, a firm handshake and a talking to them about how THEY are doing.  The warm and fuzzy up front.  Then they ask me what it is I have in my hand, in which I directly place the 3-box into theirs.  As they open it I tell them that I'm a local guy with my own recipes that are all natural, gluten free and paleo friendly.  I then go on to say there's absolutely no preservatives, it's very simple and basic whole ingredients like habanero chiles, tomatoes and butternut squash.  I pause after that because I know what's coming next.  "Butternut squash, really?" "Oh yes, it tastes good, has a unique feel and great pour, plus its good for your heart.  Can't go wrong with that, now can you?"
 
"Oh wow, nice color, this looks really good.  You came up with this by yourself?" - etc etc etc.
 
I let them come to the point of asking about pricing and then I tell them how much I plan on selling point of sale, and wholesale.  I let them know it's available by the case and they seem to nod and think.
 
I then let them know again that I'm a startup company looking to get my product out there, and would love to deal with good people with good potential. (Ego stroking).
 
So far my best sale is 10 cases.  I'm about 1/3 of the way to recovering my initial production start-up, and my years as a damn tire salesman helps.  I've also got some really golden advise from a few owners as well as points of contact in larger companies (grocery stores, etc.)
 
I don't bs someone like a car salesman.  I do use sales techniques like placing product in a person's hand, giving them the illusion of control in a conversation where I steer them into asking certain things in a specific order, and trying to connect to THEM rather than see if they will pony up for a new product.  I've had some good luck so far and I'm hoping to get in at a few more restaurants to move volume.

Click to expand...

 
I was wondering what your restaurant sales pricing philosophy was, since you have been so successful.  I have only approached a couple restaurants. One said they do too much volume and could not afford to put three bottles on every table.  They would probably be spending $400 a month on my hot sauce, which doesn't make sense for them. The other is having their chef test the hot sauce w/ their menu to make sure the flavors are compatible.
 
My philosophy is to strategically select restaurants near stores that carry my sauce.  I charge restaurants about 15% LESS than the distributor price, so I don't want to load up on low-margin sales and be in 50 restaurants around town. I also figure they can get tabasco for less than I can sell at cost so it's kind of a favor to me as well to even carry my sauces. If I were a restaurant owner, I would consider the return on every purchase I made. For a restaurant it's one thing to say I want to support local and will buy three cases of sauce a quarter.  It's another to thing to commit to three cases a month and $3K-4k/yr.
 
Anyway, does anyone have thoughts on restaurant pricing?  I'm not sure why a restaurant would pay wholesale or retail because it can be such a large cost.  But apparently they do?
 
Ken

This is my third time reading though this thread - I've learned more here than in a semester of business management class! Thanks.