How much to charge
One of the first things that potential customers will want to know about your products or service is the price. It is important to try and get this right at the very beginning.
So where do you start?
By all means, start by having a look at your competition’s prices, but do not try to undercut just for the sake of it.
Make a list of all the items which are likely to be involved in making your product or in producing your service, Make sure that you have not forgotten anything. Very small items, such as salt and pepper or sticky labels tend to get left out, yet the cost of them can mount up over a period of time. Don’t forget to include the cost of fuel and any extra help.
Then take a sample quantity of, say, 25 or 50 products and estimate the cost of each item on the list. Try to be as accurate as possible here. The total of this column will give you an initial cost for the product. However, it does not take into account all the other costs or overheads (such as advertising, stationery, telephone) that you will incur as part of running your business. You must therefore try and estimate the cost of overheads. Divide the monthly overhead figure by the number of products and services you hope to make or provide during a month and add a percentage amount to your initial product cost.
Headings that might appear on your cost calculation sheet are as follows:
Initial costs:
- Ingredients, broken down in as much detail as possible
- Fuel costs, gas and electricity
- Packaging and containers
- Labels
- Wrapping materials
- Delivery costs
- Staff costs
Additional or overhead costs:
- Stationery
- Advertising
- Promotiinal iterature
- Cost of running business premises
- Research material
- Training
- Work clothes
- Provision for replacement costs
Many people stop at this point and use this product cost as the basis for the price by simply adding a 100% or 200% mark-up, depending on what the market will bear. The trouble with this approach is that the mark-up may not cover your own time.
Nor does this method of costing takes into account the cost of capital equipment such as cookers, freezers, small electrical appliances, or stock of crockery and serving dishes.
It is particularly important in the early stages to check your estimated costs against real costs and to adjust your prices as soon as you find any discrepancies.
Financial Controls & Small-Scale Catering
You are in business to make a profit and keeping correct financial records will enable you to measure, control, evaluate and forecast your profitability, your financial needs and your financial viability.
Want to know more about financial controls?
For a very low investment, why not purchase a copy of:
‘How to Cook the Books’ eGuide
and find out how to plan your finances.
