Food Product Costs and Profit Margins
It’s really important to have a clear understanding the profit margin on food products, along with your costs and pricing. Otherwise you can’t be sure that your product is viable. Watch the webinar to find out more.
Costs and profit margin on food products
- Why you need to understand your commercials ASAP
- How to work out your product costings
- How to assess the commercial viability of your product
- What margins do retailers and distributors want?
Webinar Recap: Food Product Costs and Profit Margins
Getting your food product costings right from the start is one of the most important – and most often overlooked – steps in building a commercially viable food or drink business. In this webinar, Jo Densley of Relish Marketing walks through what to include in your product costings and how retailer and distributor margins work, using live spreadsheet examples to show how to calculate selling price, RRP and profit.
Key Takeaways:
- A food product costing needs to cover five core areas: ingredients, packaging, manufacturing, distribution, and marketing.
- Ingredient costs usually come out lower than founders expect.
- Packaging choices can double manufacturing and packaging costs, so it’s worth costing them out early.
- A marketing budget of 4–10% of the product cost should be built into every product costing from the start, not treated as a separate spend.
- 30% is a reasonable rule-of-thumb profit margin for a producer to aim for, with the margin rising as the business scales.
- Farm shops and delis typically take around a 40% margin, premium retailers 50% or more, and distributors a further 25% on top – none of which include VAT, which needs to be added separately.
Notable Quotes:
- “It’s the numbers and margins that make a business successful at the end of the day.”
- “Surprises in product costings are not nice.”
- “There are listing fees [to be accounted for]. You actually have to still do the selling and the marketing [when you’ve been listed].”
FAQs:
- What should be included in a food product costing? Ingredients, packaging, manufacturing, distribution, and a marketing budget – with ingredient costs tracked separately and fed into the main costing template.
- What margin do retailers and distributors take on food products? Farm shops and delis generally expect around 40%, premium retailers 50% or more, and distributors a further 25% on top of that.
- Are RRP and selling prices inclusive of VAT? No. VAT needs to be added on top separately for any VAT-able product.
Next Steps:
If you’d like help building or reviewing your own food product costing, get in touch with the team at Relish.
