There are a number of methods a company can use when setting a price. Generally, companies will use one or more of the following approaches:
- Cost-based approach which includes cost-plus pricing, break-even analysis, and target profit pricing.
- Buyer-based approach which is perceived-value pricing i.e. what is your consumer prepared to pay.
- Competition-based approach which is the going-rate and sealed-bid pricing.
The simplest and most common approach amongst small food companies is the cost-based approach.
To help you work out your pricing using the cost-based approach, we have provided you with a sample pricing model and pricing template. The forumlas are prepared for you on the excel document, so all you have to do is input your figures.
When looking at your costs and pricing, you should really get some help from your accountant. Your accountant should also help you establish an Management Information System which will record the following data:
Volume (kgs, units)
Cost of Sales
Materials (meat, spices, salt, packaging, etc) – completed by product
= Gross Profit (by product and customer monthly)
Sales and Marketing
Fixed Costs e.g. depreciation machinery, insurance, accounting fees, other admin
= Operating Profit (look at by month/time period rather than by product)
Read more on getting the most from your accountant from bizstartup.ie.