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Author Topic: Small business owners/entrepreneurs please step up! Need advice on pricing  (Read 310 times)

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Online 1KPerDay

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Howdy,
My wife and I are trying to start a drink shack/desserts place. They are hot around here but we have an angle that will work I think. However neither of us knows really anything about starting a business or pricing or whatever. So anyone who has business acumen or has been SUCCESSFUL  ;D at starting this type of business or any other, please help with the following if you can.

We've met several times with the small business association/assistance groups and whatever, and are working on our business plan, but they all basically say we need to be able to show profitability before we actually know anything about whether we can be profitable. So please halp with the following questions or provide the right questions if these don't work:

1. How do we set pricing? I have materials/components priced out per "batch" or order of desserts and drinks but our current pricing (we're selling basically to friends and family ATM) is based on "average" cost vs. wholesale vs. retail markups/pricing structures from people we have asked for similar products. We don't really know and our components are higher quality and higher cost. Do we start with overhead/premeses/packaging/insurance costs and work backwards? As in, we have to sell X many orders per day to make Y amount to cover the lease? Or do we start from an established cost/wholesale/retail pricing structure and set the prices and then work out how many we'd have to sell to cover total cost of business? A business lease for a small store around here varies from about $20-$50/square foot. That's just from asking around.

2. When working up a business plan, how do you estimate yearly sales if you haven't sold any yearly sales? do you just guess/estimate/project?

3. what else do I need to ask? I'm too stupid to know what I don't know. Family run, small business. No employees yet.
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Online Black Hills

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never been in the food/beverage business, but IMO (from conversations with a friend who owned several bars/restaurants) you need unit pricing on what you sell. how much does that drink and the cup it's in cost you. the rest (wages, rent, insurance, etc, etc, etc) is overhead. you then need to realistically determine (guess for now) how many units you can sell and set the price to cover the overhead and what you want for a profit.
if you use average costs you don't know what to focus on. you don't want to be selling more and more of your least profitable item and less of your higher markup units. the overhead remains the same for the most part no matter how much you sell.

first year projections are a guess based on population, similar businesses, etc.

It will be easy until you have emplyees ;)

best of luck!!

Online Jim

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Perhaps I should not reply. I am self employed (25 yrs) but in a labor, fairly static client roster, business - no employee (so not a good background). Dad ran several Baskin-Robbins 31 Flavors ice cream stores - some of his knowledge rubbed off on me (I wish I would have asked more questions back then...).

1) How to set pricing (uneducated mental rambling). Set AT expenses (count your labor / desired income!) - you break even. Below expenses - you lose. Above expenses - income. What are your expenses (including your labor rate as you wish to have an 'income')? What will the market bear?  Will you offer premium product at a premium price that the market willingly will pay for? BH's comment is spot on.

2) Market research. Sit outside a similar business in a similar market and count product walking out / customer count? Talk with other like business owners and ask them for numbers / perhaps to see their books (wonderful to have - hard numbers - but also more difficult to attain). Perhaps hire a business consultant who has direct access to good / current / hard numbers from other like businesses?

Other: Work backwards from what you wish to make (income) back through expenses (fixed - rent and variable - product, hired labor) and through product sale price to see if your customer count seems attainable (your guess at customers wanting to walk out with paid-for product).

Customers (really - paid for product) walking OUT your door is the big guess (err - educated estimate).

What customer/product counts do your competitors have? Have you sat outside their stores (which might be similar to yours) and counted / documented sales? A good use for a hidden trail cam / go-pro to record people walking in/out might be handy...

From Dad, paid for, PROPERLY SIZED product amount was a big deal with ice cream scoops. Employees were tested - how close were they in scooping a "properly sized" scoop. Were they over (a business loss $$) or under (a loss of quality to the customer). Over scooping would really hurt profitability - those small amounts would sufficiently chew the small amount of profit from each transaction. Employees giving free or heavily discounted product to friends was an issue. How much, in your business, is portion control a concern?

0.02
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Online chornbe

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Shoot me an email and/or phone number. I know a few successful small drink bars and smaller restaurants, as well as an executive chef. I'll put you all in contact, and they'll be happy to share what they know.
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Online 1KPerDay

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thanks folks. 1kperday at gmA1L dot com
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Online Mr. Whippy

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One last thing that I haven't seen mentioned here:  Consider wastage costs.  How much will be thrown out (at the end of the day, etc). Realistically, you will never sell out of everything you make and there will be an average amount of wastage. 

Online chornbe

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Online 1KPerDay

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Many thanks. I owe you a beer/sake/soda/peyote/whatever.  8)
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Online CLAY

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I'm in for the beer/sake/peyote if this pays off (this post may or may not be influenced by Monkey Shoulder whiskey):

You gotta start by covering the costs.  True story I learned while touring Founders:|

Red's Rye, probably my favorite nbeer, was like $9 for a six pack.  I LOVED the stuff and it was a staple.  Suddenly it dropped tio 4 packs, as was $12 a 4 pack!  I still bought it a biot, but was pissed.  After probably a year, you couldn't even find it bottled.

Fast Faorward a year and I take a tour of Founders.  They guy is telling the story of Founders, and brings up Red's Rye.  It turns out they were tracking costs per product, just costs overall.  Red's Rye (due to the ingredients) was (still is) the most expesnive beer they make, and at $9 per six pack they lost money on eash sale.  At $12 a 4 pack they made money at the price, but with reduced sales they still lost money on bottling.  They still make it, but kegs only- and when I find it I get it!

So, beer/sake/peyote goal aside, try to keep track of your item cost.  I'vge been working on this on the farm with my dad, but I don't think it is going to happen- he just ballparkls it all.  A couple iof 70+year old people are not about to start tracking costs like that, but if the business stays afloat after the quit/die/can't do it, it will have to happen.

That's all I have.  I can give you my shipping address if this pans out .   :bigok:
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Online kneescrubber

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We don't really know and our components are higher quality and higher cost.

I'm going to point out the one thing that goes unnoticed by most. Marketing needs to be part of your pricing structure. Unless your location is Times Square, you will have to market your product. If your product costs more because of quality and requires a higher cost than your competitors, your marketing needs to reflect that.

And yes, I come from an advertising/marketing background. So many businesses with very good products have failed because they relied solely on word of mouth.
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Online 1KPerDay

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Good points thanks. I have a marketing background selling $5 worth of herbal pills for $159 so hopefully that concept will transfer over a bit.
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Online Jim

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Good points thanks. I have a marketing background selling $5 worth of herbal pills for $159 so hopefully that concept will transfer over a bit.

:chuckle:   So that might have "a little elbow room" in the wastage and portion control arena.
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