Hey Seller Community! Hope you're all having a wonderful week โจ
This week's question is...
How do you determine or calculate your pricing? ๐ท
Do they come with preset prices? How often do you adjust them? Can't wait to read your replies!
@QuokkaCoffee Margins on ice cream and other frozen treats are already pretty good as it is. And I spent a lot of time over our closed months buying up all of the product that I could before we opened, since I could see that the prices werenโt going to get better for probably a year. But when we blew through that product, inflation hit me square in the face. The worst part of it for us was the freight costs, especially on our basic soft serve product. Those have gone up over 100%, which is a huge impact given that Iโm limited in where I can source that.
Honestly, if I were going to pass my entire costs on to my customers, I would have had to raise prices by at least 30% and in many cases 50%. Iโm not sure I could have done that. So we decided to share the pain with our guests โ they eat about 60% of the increased costs and we eat the rest. Also, for now, we are not applying our markup rule for the added costs โ we are assuming they will be temporary (ie - this season only) and only adding the extra costs to our selling price โ no profit. For now, it is working, and the customers are by and large none the wiser. But, I have the advantage of not having indoor seating and the massive overhead associated with that seating. So we can do this, for now.
This is the area where I said being in a diverse socio-economic neighborhood is tricky. Many of my customers count not afford the drastic increases Iโd have to make if I passed everything through to them, with overhead. So I try to carefully balance it, praying to whatever gods exist (if any) that this will break sooner rather than later.
Gauges of success? Thatโs easy for me. It is my basic line of frozen treats โ dishes and cones. As long as my CoGS remains relatively consistent (since that line is 75% of my sales), we will survive and even thrive. So far, weโve managed it.
I'm eager to see other people's replies to this, especially people in the food/beverage industry! It feels like a combination of art & science and is a constant learning process for us.
Our first step is to look at our ingredient/food cost for every item as well as estimated labor, knowing that we want those costs to stay under a certain percentage. Knowing food cost should be 30%, for example, helps us know where we need to set our pricing to make sure that's the case. Then, we do periodic "audits" of other cafes/coffee shops/restaurants in our area and price compare -- are our prices way lower, much higher, or somewhere in between? We personally don't want to be the most expensive option, or the cheapest option -- so we try to fall somewhere in the upper middle of that pack, while making sure we hit our desired percentage goals.
With how volatile ingredient prices have been lately, we've been keeping a very close look on our pricing and adjusting as we need to (for example, when avocados doubled in price from one week to the next). We try to just be very transparent and proactive with communicating changes with our customers, who generally are okay paying for high quality food and service.
Look forward to seeing other replies to this!
So, Iโm with @mksavage on this one. Itโs a balancing act, and requires constant attention in the food & beverage world. We, too, want to find ourselves in that pricing sweet spot. I love it when we are making good money and still hear โis that all?โ from customers.
I have a spreadsheet (cue the laughter and nods from Square folk who are well aware that I have spreadsheets for EVERYTHING!)โฆ. Anyway, I have a spreadsheet that I developed years ago. It is actually an app in spreadsheet form. In it I keep my โpantryโ list and update costs every few months. It tells me what needs attention and what is fine where it is.
While I at least give attention to the x% rules, I donโt live and die by them. For example, beer and wine here at my ice cream shop is something I offer so that parents have other options while their kids are getting ice cream. Iโm not trying to make a killing on those, so my margins are less than most bars. Also, in the current inflationary world in which we find ourselves, my CoGS are higher than normal because I made the decision to โsplitโ the temporary (please be temporary!!!) increases Iโm experiencing. So far that balancing act is working well โ customers didnโt even notice that I did a price increase last week. Thankfully, on $8-10 average checks, those increases arenโt so noticeable.
Iโll put my plug in here. Square really, really, really, really, really, really (x100 million) needs to offer a restaurant and bar costing and pricing app. Yes, I know, food and beverage pricing is hard. But I did it with a spreadsheet without all of the fancy tools that software engineers have these days. Iโve got a very good start on what could become a Square Restaurant/Bar pricing app! (JKโฆ or am I?)
Iโll add one more rule I live by. Piperโs is smack in the middle of a mixed-use residential/commercial urban core area. Within 10 blocks of us are people who have more money than anyone should ever have, and those who are barely getting by day to day. We want to appeal to both crowds. That sometimes requires creative pricing which doesnโt always follow the rules.
Great topic! Iโm hoping this means Square is laying the ground work for that amazing all-purpose pricing and costing app weโve all been waiting for!
Super appreciated reading your thoughts on this, @TheRealChipA -- as always! We are in a similar socio-economic area, split between so much money and barely enough money. It certainly does call for creativity. It was helpful to read that you use the percentages as guidelines, but not live & die rules.
Also, yes yes yes to a costing/pricing app from Square!! I'm 100% behind your spreadsheet-turned-app idea!! We have spreadsheets that we've developed too, and it'd be SO great if this could all be integrated!
@QuokkaCoffee Margins on ice cream and other frozen treats are already pretty good as it is. And I spent a lot of time over our closed months buying up all of the product that I could before we opened, since I could see that the prices werenโt going to get better for probably a year. But when we blew through that product, inflation hit me square in the face. The worst part of it for us was the freight costs, especially on our basic soft serve product. Those have gone up over 100%, which is a huge impact given that Iโm limited in where I can source that.
Honestly, if I were going to pass my entire costs on to my customers, I would have had to raise prices by at least 30% and in many cases 50%. Iโm not sure I could have done that. So we decided to share the pain with our guests โ they eat about 60% of the increased costs and we eat the rest. Also, for now, we are not applying our markup rule for the added costs โ we are assuming they will be temporary (ie - this season only) and only adding the extra costs to our selling price โ no profit. For now, it is working, and the customers are by and large none the wiser. But, I have the advantage of not having indoor seating and the massive overhead associated with that seating. So we can do this, for now.
This is the area where I said being in a diverse socio-economic neighborhood is tricky. Many of my customers count not afford the drastic increases Iโd have to make if I passed everything through to them, with overhead. So I try to carefully balance it, praying to whatever gods exist (if any) that this will break sooner rather than later.
Gauges of success? Thatโs easy for me. It is my basic line of frozen treats โ dishes and cones. As long as my CoGS remains relatively consistent (since that line is 75% of my sales), we will survive and even thrive. So far, weโve managed it.
This is a great question, and I can't wait to read the responses especially anyone in the fashion industry. I myself do a markup of nothing less than 64% + shipping. I look at the price and decide if that's something I would pay and then I compare that to other brands prices. It varies on the items as well but that mostly how I do it.
Your initial post is quite literally what we currently do for the food and drinks we don't produce. Our focus has always been on our wine and spirits, however as we're in a weekend tourism driven area, we rely on the restaurant to bring traffic to the door.
Our clever chef is always coming up with new things that are cost effective (read - cheap to make ๐) and this really helps.. In those situations we price based on market expectation and have a little extra for the pocket. Our lowest profit items would be cheese platters as good cheese is not cheap but for the 'winery' aspect it's something we need to have.
The alcohol we produce is obviously higher profit, and is generally based on the middle to higher end of the craft market. We do not apply as large a markup on our produced wine and spirits in the restaurant as a normal restaurant would, but this serves to enhance our offering.
