WHAT DO I CHARGE FOR MY GOURMET FOOD PRODUCT?

Finding Profits in Pricing is a Gut Wrenching Process That Requires a Rational Approach

Mar 25, 2025

A half dozen of the same questions seem to come up in my Cottage Food Business Facebook Group every week… often several times a week.

One of these is “How much do you charge for…” - usually a baked goodie, with photo.

Lots of nuances determine the price you ultimately choose, and should choose. But you will get all kinds of folks who state that a particular tactic or tool is the only way to go.

And of course, it is always how they learned to do it. And most of this info is quite good.

But there is really no “one-way fits all” pricing system, which can vary by products and circumstance.

As you know, there is a tradeoff between sales volume in units, dollar sales volume, price per unit, and profits.

Maximizing profit margins per product often prices you out of the game, and you end up eating or discounting your left-overs.

On the other hand, competing on price leads to very lean margins, and ultimately burn-out as you work your fingers to the bone, without really getting ahead financially.

NOTE THAT THERE IS NO BUSINESS FUTURE IN TRYING TO BE THE LOWEST COST PROVIDER of a cookie, a custom cake, or a jar of jam. Due to volume, bigger companies can SELL their products for less than you can buy the ingredients.

Of course, if this is just a hobby, breaking even can be fun. However, remember you are hurting the folks trying to make a living in this industry, if you discount your pricing.

Of course, as a small food enterprise, you are competing on quality… but there are limits to what people will pay. And lots of ornery shoppers believe since you enjoy little overhead, your goodies should be cheaper. Jerks.

(But that is a problem for another day…)

Let’s start this pricing discussion broadly, then narrow it down.

Basically, there are two main pricing models for any small business selling tangible products, at least starting out.

Cost Plus
Market Cap Analysis

COST PLUS PRICING DISCUSSION

COST PLUS is just what it sounds like. You determine the direct costs of making, say, cinnamon rolls (e.g. ingredients, packaging, labels) and then add a margin or multiplier to cover indirect overhead (your time, equipment, utensils, cleaning supplies, etc.); plus something for return on your investment in the business.

For example, a common rule-of-thumb I often hear is that retail price should be 4x the cost of ingredients or 3x the cost of ingredients and packaging/labeling. Not sure how this works out, since packaging/labeling “can” cost more than the ingredients, but…it gives you a relevant range on where to start your analysis. Not bad.

A watered-down, but deliciously simple, version of this application is often found in the cookie category: Price at $1 per ounce!

Again, a close approximation for starting. But with recent explosions in the cost of eggs and chocolate, this one should get a closer look.

One problem with COST PLUS, is that your ingredient and packaging costs (when starting) are usually not competitive. Due to low volume, you are paying the highest price available per ounce, pound, or unit.

You can’t just pass that along and keep industry-standard profitable margins, due to natural price resistance. If you stay with the formula, you may suffer from over-priced products and dismal sales… or profit margins so low you give up and start a dog walking business instead. We don’t want that!!!

One tip is to eyeball your ideal sales and business volume (for when your business hits equilibrium), and research better prices for bulk ingredients and packaging. Use those figures COST PLUS formula for your ideal business size.

Again, this this results in a lower profit margin, temporarily. BUT, your customers will appreciate your consistent pricing as you grow. And at least the numbers are based on reality, and sustainable.

During our sales rep days, Sandy and I would often try to educate a potential wholesale vendor client whose pricing (due to not understanding wholesale pricing, or high direct starting costs) was too far out of whack with MARKET CAP (competition pricing).

The typical uneducated response: “When we sell out, we will get bulk ingredients and packaging, and pass along the savings!”

REALLY? IF the products are selling at that much-higher price, why would you EVER lower the price? Invariably, there was never another production run, and often no one never hears from them again.

Note there are several pricing tools out there, to help with this side of the equation.

MARKET CAP ANALYSIS PRICING DISCUSSION

So, you worked through COST PLUS, with or without a pricing app, and came up with the retail pricing you think will support your financial future in cottage foods or other small CPG (consumer packaged good) enterprise.

Now, let’s roll to the other side of things, so we can compare.

Start a list or even a database of foodie companies selling in your product category. Whether you are (or not) a cottage foodie who must sell face to face, attend farmers markets and community events, and do a competition analysis on relevant food booths you find. You might also look up websites, and social media. Especially important if you sell statewide, or are beyond cottage food geographic restrictions

Find out what the other gals and guys are doing with pricing and product design and attractiveness. Take notes. Look at merchandising and “offers”, which I talked about in a previous newsletter.

Pay special attention to those who are most successful.

Your strategy is similar to a Competition Analysis you would do for a Business Plan, when seeking funding. Any bank or investor will want to know how large and how successful the competitive market is, before handing you money.

For most of us, we are our own funder…but maybe we should bring the same critical eye to the kitchen? We do want a financially successful business, right?

After checking out those competing directly with YOUR goodies, compare this MARKET CAP pricing with COST PLUS.

If Market pricing is higher than your Costing analysis, you are home free.

I recommend you adapt to the higher prices, maybe differentiate a bit, and make more money per sale. There is little success is accepting below market margins. That might be a self-worth issue.

Now, if your Cost Pricing model is higher, especially if it is much higher, you need to pull out your pencil (figuratively speaking) and get to work.

If you just sell in a tough, low-income market, you may need to rely on your good looks and personality. For some of us, that is a non-starter. Just keep at it, find your niche, be reliable, build people up, and grow slowly. You will get there.

If a bad local economy and demographics are not your circumstance, here are three ways to address the market gap issue (plus combinations):

Accept it, keep the higher prices, and rely on your marketing to sell perceived competitive advantages, e.g. ingredients, labeling, size, etc.
Look for ways to lower costs without affecting product quality, e.g. buy in bigger bulk, spend more time looking for and taking advantage of sales or lower cost suppliers. Substitute ingredients only if you must.
Add a little something to justify higher retail pricing. (This is HOT!)

One of the tactics we discovered in our retail and wholesale enterprises, was that sometimes adding a 25-cent item, justifies another dollar in the mind of a customer.

For example, you might add a bow, full color labeling, higher quality packaging. Something like sprinkling a few chocolate chips or candies on top. And, especially during major holidays.

Differentiate… ingredients, cute product names. Most folks are provincial… add some products that highlight your state or local region… or make fun of unpopular neighboring states or other entities.

Your cost is low for these options, compared to what you can gain in pricing AND sales.

Also, keep an eye out for different psychographics. What are people looking for? Low cost? (make smaller items) Gifts (upgrade packaging options, offer baskets or boxes). You get the idea.

PS One of my next articles, will talk about how to double or triple LABEL the same product, to appeal to different demographics.

All for today! Are you getting ready for Market season? I know those of you in warmer climates are already there…

Mal Dell
The MONETIZATION CHEF
”Helping Foodies Cook Up Profits!”

Thanks for reading COTTAGE FOODOLOGY! This post is public so feel free to share it.

WHAT DO I CHARGE FOR MY GOURMET FOOD PRODUCT?

Finding Profits in Pricing is a Gut Wrenching Process That Requires a Rational Approach

COST PLUS PRICING DISCUSSION

MARKET CAP ANALYSIS PRICING DISCUSSION

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