profit margins?

Hi Guys & Ladies of course,

Looking to take my product to the next step like many on here I presume: Being from NYC the market doesn’t seem as saturated as most places (south & south west) which is always good-

Now here’s my question, I know a couple of you guys on here are producing on a larger scale and selling a decent volume of sauce/bottles. What are your profit margins if you don’t mind me asking? And then what in your opinion are sustainable profit margins?

Most food products are said to have a minimal margin of 50% to be worth undertaking, I don’t imagine many people on here are obtaining those lines. Of course there’s economics of scale so things will get cheaper over time (you'd hope). But does anyone have their figures, say for when they first started, to the 3000 bottle (I’d have to purchase 2400 bottles from a supplier I’ve been talking to get a workable price) mark and beyond?

I have a 12oz bottle which as of now costs right around 3.50$ (should shrink by at least .95$ when made in larger volumes) to produce out the door, I'd rather not charge 7.00$ + to start.

We also have a 6oz bottle which costs about 2.09$ out the door to produce, what would your opinion be?

Thanks as always!
 
Rushed on the previous post didn’t use proper wording, not using a co packer et by the way. Meant to say we're waiting to hear back from the food lab about shelf life stability, stupidly we didn’t do our nutritional labeling yet-we wanted to see how this place did first prior to spending more money with them.

There undoubtedly are threads on it but do you guys recommend any labs in particular for this, the one we’ve been using seems ok-but always looking for better options.
 

salsalady

Business Member
I use the University of Nebraska Lincoln, food science department for pH testing/process authority letters. It used to be $35 per pH test/letter, but I think they went up...not sure how much, but I don't imagine they'd be over $50.

nutritional labeling-
if you sell less than (20,000???) units a year, you can file for a free FDA nutritional labeling exemption. While you may choose to do NL for your customers....it is not REQUIRED by law if you are under the production level. There are nutritionists and whatnot that you can find on the web that can do a nutrition panel based on your exact recipe. Dunno how much your food lab is charging, but it's worth looking around. From the research I've done, getting a nutrition panel done can run $100 and up per product. If it's not required, save your money for now?

If you're not using a co-packer, make sure you check with your local health people to see if you are required to be FDA registered. There's a lot of confusion around this, and regulations are changing.


edit- if you don't mind sharing, how much did you pay and for what exact services?
 
^Hi salsalady, we were actually using Nutri Data for shelf life stability and out nutritional panel, we called multiple private institutions and settled with them. We thought the price was fair until doing some more research (we researched the original for at least 1.5 months), I spoke to a few colleges who have labs on site-which we are likley going with now. We sent a bottle out but cancelled our order with Nuti Data, so I guess they have a free bottle of sauce, hope they enjoyed it. We were quoted 600$ for the services but they said it would likely approach 1000$ if there were any problems? We though about delaying the panels but we figured for a few 100 bucks we should just get it out of the way, wont hurt that it will make us look that much more professional.

In the last few weeks I’ve been quoted 70$+ for stability testing from some different uni’s. Any sugustions on companies/labs/unis/ to use?

thanks.
 

salsalady

Business Member
University of Nebraska

and google "nutrition label development" for places that provide that service. I just found FedMedCo offering $150 per panel.
 
@salsalady What are the tests you would recommend performing for any small time hot sauce business that is looking to sell online and at farmers markets.

1. pH Test: I have a pH meter and my ranges are from 3.6 - 3.8. Would you still recommend having a univ. test this?

2. Shelf life testing: Is this a common test that most people looking to go commercial order from lab? We honestly have never produced in large enough quantities to have extra sauce sitting around to test shelf life on our own, but we'd want to have piece of mind knowing how long it will last.

3. Anything else that these labs can test for that you would recommend?

I think the Univ. of IL has an "Extensions" dept. that might perform some of the same tests that the Univ of Nebraska does. I will check out the their website.
 

salsalady

Business Member
@salsalady What are the tests you would recommend performing for any small time hot sauce business that is looking to sell online and at farmers markets.

1. pH Test: I have a pH meter and my ranges are from 3.6 - 3.8. Would you still recommend having a univ. test this?

2. Shelf life testing: Is this a common test that most people looking to go commercial order from lab? We honestly have never produced in large enough quantities to have extra sauce sitting around to test shelf life on our own, but we'd want to have piece of mind knowing how long it will last.

3. Anything else that these labs can test for that you would recommend?

I think the Univ. of IL has an "Extensions" dept. that might perform some of the same tests that the Univ of Nebraska does. I will check out the their website.

chi-town, I'm not a process authority or food science specialist, I can only offer what I know based on my experiences with my products. Every product is different.

If you have products in the 3.6-3.8 range, your health inspector/licensing authority/aka the AHJ.... will likely want the products reviewed by a process authority.

shelf life testing???? dunno about that...probably another refernce to pH and shelf STABLE???

It all comes back to your local food licensing department. They are the ones who will dictate what you need. Not likely you will be licensed to work out of your home kitchen, so then it goes to pH and other factors...like are you using a community kitchen or a co-packer?

Don't go out and spend money for nutrition labels and pH testing until you know they are needed. If the sauce is 3.1pH and your AHJ approves your ingredients and processes, the AHJ may say you do not need to register with the FDA or get a PA review.

Have you contacted your local health districts yet? Do you know what they require for a product to be sold at FMs?
 
When I do the production batches (~3600 of ea flavor) for the 1st release the state inspector "clears" the product, and assigns a shelf life based on the pH (and other factors)

The bottom of my cases are stamped with "12/31/2016". That's my shelf life.

I believe that inspection/assignation has to do with the size of batch you're making. So does the nutrition panel.

But as SL says so often, I am not your state's authority, so please check with them prior to doing anything.
 
Thank you Salsalady and LDHS. I will start with the state authorities and let them point me to the types of tests I need. I think i'm getting off track by being exposed to so much info and just need to focus on having someone (AHJ) tell me what i need as opposed to trying to figure it out.
 

salsalady

Business Member
I think i'm getting off track by being exposed to so much info and just need to focus on having someone (AHJ) tell me what i need as opposed to trying to figure it out.

BINGO! That's their job, to help new businesses. And it's so different state-2-state and product-2-product. LDHS has to have a shelf life on his products. For me in WA, I don't have to have an Expry date or shelf life for the shelf stable (non-refrigerated) items. Muddling through all this stuff is part of the "fun" (:rolleyes:) of starting a business.

:lol:
 
Anyone know the best ball-park price breaks per size?

5oz
7oz
8oz
12oz
16oz
20oz
24oz
32oz
64oz
128oz

I gather 5oz/$5 after reading this plus other posts.

But could anyone help give a very crude target final sale price on the larger sizes: 16,32,64,128oz for volume... Would greatly help
 
Impossible to answer that.

You are the one who dictates the final sale price. It's "whatever the market will bear".

How you do it is your business. I'd suggest starting by researching the marketplace. See what similar products to what you produce are selling for. Decide if that's a good price.

If it costs you $3 to make a $5 oz bottle then you can't sell for $5 retail or you're going to lose $ on every sale. So there's no way anyone can tell you the right price.

In a FB chileheads group many folks were just discussing a sauce that was $24/5 oz btl - is it worth it? Will consumers pay that? Who knows. It is what it is. A $24 5 oz bottle of sauce.

What I can help you with are the standard margins in the grocery world...which may e helpful to you in determining your price point:

Distributor = 15%
Retailer/grocer = 30-40%

As a start-up you have no leverage, so plan on worst margins possible.

Play with some retail prices. At $5/5 oz btl, if you take $5 and subtract 55% ($2.75) you get $2.25

Thus $2.25 minus the cost of goods manufactured = profit.

When calculating COGM be sure I account for label costs, shipping costs from mfgr to home, carrying costs associated with storage, etc.

So if your sauce costs $1.75/bottle to make, you'll make $0.50/bottle at a grocery store. If $5.99 is your retail price then you'll make $1.49/bottle. Bit the higher the price, the less competitive you are and you may discourage sales.

Always remember that no matter how good your products are, the consumer will compare you to the $0.99 bottle of Tapatio price-wise.

Hope this helps.
 

SmokenFire

Staff Member
Moderator
Business Member
That's solid info there LDHS. I tend to believe that consistently good quality and excellent customer service will insure success far more than a 'competitive' price point. I wouldn't recommend entering any market with the most expensive offering, but I also would not advise going cheap just to sell. Price your product fairly - not just to consumers - but also to yourself. Your time and effort is valuable ($10 an hour? $20 an hour?) and so that time must be accounted for in the final pricing. Keep that in the forefront of your mind when setting prices.

In an age where people pay $6 for coffee, $5-7 on hot sauce isn't out of the question :)
 
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