profit margins?

S

saucy

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!
 
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Justaguy said:
size is not as big an issue.
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That's what she said

Why would you not want to charge 7.00 bucks for a 12oz woozy? That doesn't seem unfair to me. I mean, being a small producer, you will almost never be able to compete with big brand products. I believe this is why a lot of sellers go for a local or specialty market.

It really comes down to knowing your overhead and production costs, projected sales volume and keeping excess stock to a minimum. Once you figure out your total costs and I mean everything (a lot of people fail to take every single cost that goes into making a bottle of sauce into consideration. Even Down to the gas you put in your car.) you can figure out what you are comfortable profiting from your product. Like Redtail said, you really just need to do the research and keep tweaking things through experience. Good luck with your ventures!
 
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3/5 - just speaking in general terms, the 12 oz bottle is not a "standard" size. If you're producing the product yourself and there's no production line to be concerned with the that's fine. But if there's a production line, now you need to calibrate every piece of equipment for that bottle. Filler needles/height, capper, heat tunnel, labeller, etc.

Also consider this: hypothetically lets say a 5 oz woozie of "sauce X" costs $1 to manufacture. 100 gal is going to produce ~1800 5 oz bottles.

If you go to a 12 oz bottle, your bottles will cost more. So will caps, and heat seals. Also labels will be larger, and will cost more. And compounding this instead of 1800 bottles, you'll get ~800 bottles. and yet each one will cost more than $2 to make on increased content alone + materials.

So to answer, selling a 12 oz bottle for $7 instead of a 5 oz for $5 is gonna toast your already meager profits.

To the OP, I'm not going to post my profit, but I can tell you a pretty standard formula:
1. COGM - cost of goods mfgr: you said $2/bottle to make it. I assume that's made, cased, labelled, and transported including all labor? Remember - it costs $ to move pallets of hot sauce from mfgr to storage/distributor. Make sure your COGM is actually $2

2. Distributor margin = 15%. Provided you're doing well & getting into stores, most chain stores want to work with as few distributors as possible. Which also means they mostly prefer to not buy direct. There are exceptions of course & mom & pop grocers/gourmet shoppes will, but for most sizable grocery chains (whole foods, Safeway, etc) you'll need a distributor. They take a cut.

3. Store margin = 30-35%

So....take your cost of goods manufactured, add 15% then add 35% and the difference between that number & your price point is your profit.

If you pay $2/btl & it retails for $5/btl you'll probably be making about $0.45/btl when all's said & done. You can of course charge more, but then you risk out-pricing the market. But pricing is a whole other convo.

Good luck and I hope this helps!
 
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hahah Thanks for the help guys, we're not using woozy's though, trying to do a little something out of the ordinary to set us apart-thus the bottles are a little more expensive unfortunately. I thought 7$ as a price pt was just a little to expensive for the typical person, thanks for the feedback though, maybe we can boost our price.

I'm a finance guy so I have the numbers for our sauce running through my head constantly down to the .01$, in addition to having 10x different pricing variations and margins depending on supplier (bulk vs non), volume, shipping, and even tax on the ingredients we use-which differs per state depending on where we can find the cheapest suppliers.

I know it’s different for everyone, but I was wondering if anyone knew what their margins were so could compare as a business-if that makes any sense.

^ great post Smokin' Hot, thanks for the info.
 
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The margins I posted are considered industry standard in the grocery business. As a finance guy you should be able to use that formula to calculate your profit margins based on various suggested retail price points. Again, I hope it's helpful.

Just a suggestion, but before you produce anything, you may want to have your supply chain lined up. Margins don't do you any good if you have 5 pallets of sauce sitting around with no one to distribute it & nowhere to retail it.
:cheers:
 
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^ Thanks Smokin Hot, always love your advice!!! Luckily distribution and sales are the least of our concern-very very weird I know, I would explain but would be wayyy to long to try and justify the reasoning behind it on here lol.
 
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LD, I realize that using 12oz woozys in place of 5/10 oz wouldn't be cost effective (in most situations) but Saucy had already said what it would cost to produce it and noted the cost in his post and my opinion was strictly based on 12oz of sauce for 7 bucks. Most specialty sauces are 5-7 dollars for a 5oz woozy, so I figure 12oz for 7 dollars was reasonable and not overpriced (depending on the actual product) regardless if it costs more to manufacture or not.

Don't misunderstand me dammit! Lol

Nice info post LD, you are a people person my friend.
 
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no worries - was just trying to a'splain some of the hinderances of using a nonstandard bottle size. I researched that when I considered doing an 8 oz instead of 5. At the end I was like, "oh, so it costs me 60% more per bottle to produce fewer bottles and I only increase the price by 40% - yeah, no."

heh

A people person - reminds me of Office Space. "I take the requirements from the business to the developers!"
:rofl:
 
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By necessity (my sauce is thick and wont pour out a 5oz woozy I produce 12oz bottles that retail for $7.95

I hear very few complaints about price. In fact savvy buyers, who are used to $5 for 5oz, see it as a bargain

If anything my price is $1 too low
 
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I make 'Chilero". Basically a kraut of cabbage, onion, bell peppers, carrot.....all soaked in some strong ass vinegar with some rock and roll heat peppers tossed in . I charge 3500 colones($7) a quart. The cost of a liter of liquor here.There is a $150 deposit due to the Ball canning jars I use.
I grow everything but the vinegar so I guess the profit is around$5 a jar(liter).The girls that work here do all of the cutting and stuff so I don't consider that an extra expense.
 
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Great thread. Always eager to learn about other small business ventures. L Dog just gave me a quick and dirty lesson in the hot sauce biz. Thanks.
The Extreme Business membership here is a worthwhile investment. Regards, Chris

Arenal Botanical Garden said:
I make 'Chilero". Basically a kraut of cabbage, onion, bell peppers, carrot.....all soaked in some strong ass vinegar with some rock and roll heat peppers tossed in . I charge 3500 colones($7) a quart. The cost of a liter of liquor here.There is a $150 deposit due to the Ball canning jars I use.
I grow everything but the vinegar so I guess the profit is around$5 a jar(liter).The girls that work here do all of the cutting and stuff so I don't consider that an extra expense.
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I want your life!
 
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AlphaHydroponics said:
L Dog just gave me a quick and dirty lesson in the hot sauce biz. Thanks.
Click to expand...

y/w. I think the best lesson is that it's all about volume, and on 2 fronts.
1. Profits are slim. I do very well at the FM, where I am the retailer and don't pay the margins. But volume is low. This might pay some bills, but it won't pay the rent.

2. The more stores you're in, the more you sell. The more you sell the more you make. The more you make, the more you benefit from economies of scale. We sauce guys aren't selling BMW 7 series. It takes a hell of a lot of sauce to pay the rent. And if you use quality ingredients as many of us small-ish gourmet caliber folks try to use, the margins can be slim indeed. So you need to be in literally thousands of stores to make it work - I look at it as building a foundation brick by brick. But once you get to a certain # (I'd say 10-15,000 bottle runs) the ingredient costs come way down. Everything from bottles to labels to heat bands to the ingredients themselves can be as much as 20-40% less expensive by virtue of buying in bulk qtys. At that point the business has options - lower retail price to be more competitive in the space, take the difference as greater profit, or a combination of the two.

The number one thing in the hot sauce business, next to making the best tasting, highest quality product you can make, is volume. It's all about volume.

At least in my opinion. :cheers:
 
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Matanzima said:
By necessity (my sauce is thick and wont pour out a 5oz woozy I produce 12oz bottles that retail for $7.95

I hear very few complaints about price. In fact savvy buyers, who are used to $5 for 5oz, see it as a bargain

If anything my price is $1 too low
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Ours is a little too thick for woozy's as well which is why we looked into other options. I like that price too 7.95-if the products there of course which I bet it is.

I can't wait to start playing with margins in the 15k bottle range like you said LD, I have our margins primarily set for small batches under 100 bottles larger cooks under 2400 bottles and margins up to about the 5k mark. Man do bottle prices take a nose dive when you hit 10k though and can use a huge supplier via alibaba or the likes......but I'm getting way ahead of myself here as our FDA info is still awaiting results haha, doesnt hurt to hope though right?
 
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saucy said:
Man do bottle prices take a nose dive when you hit 10k though and can use a huge supplier via alibaba or the likes.....
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That's exactly what I mean. That's just bottles. Labels are the same - I pay about $0.13 per label, as I'm using highest quality digital printing, UV protected and foil label stock (to get the reflective/shiny effect) - if I increased my current label order to a little over double I'd drop down to like $0.10/label. Double that and it's down to $0.08/label

ingredients are the same deal.

But right now I don't have the supply chain in place to move 10,000 bottle runs. Building retailers up slowly, but that's a hell of a lot of sauce to transport, store, and sell.

I'm envious as it sounds like you have no worries at all about sales/distribution, which seems like a luxury that most folks like me don't have.

Good luck and keep us posted!

Ps - what is the FDA doing with your product? CA is all state inspected, (independant + state lab, then compared) but the FDA has nothing to do with it. Just curious...I thought NY was the same.
 
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saucy, are you talking about a process authority? If you are using a co-packer, you shouldn't need anything from the FDA. Unless you intent to file the nutritional labeling exemption....
 
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