Michael Adams Green Mountain Mustard and Gredio

Michael Adams, Owner
Green Mountain Mustard & Gredio

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price your food product

How to Price Your Food Product and Still Make Money

This is the blog post you need to calculate your food product cost and make sure you’re making money, too. I’ll walk you through what’s included in your cost of goods sold, how to calculate it. etc. And then, we’ll walk through how to price your product through the distribution channel. Oh, and examples. Because nothing with numbers makes any sense without examples.

Here we go.

What’s included in your cost of goods sold?

Simply put: Anything you do or use to produce a finished product goes into your final product cost. Some people include all the overhead of  a business in your cogs, but I won’t here because many of you are just starting out. Here’s a short list of what absolutely needs to be included:

  • Your ingredients (plus shipping)
  • Your packaging – plus shipping (jars, bags, boxes, labels, string, etc)
  • Your labor (even if you produce in your own house – more on that later)

Why include shipping?

It’s part of getting that ingredient to your kitchen. Here’s an example of how much shipping makes a difference. You order a 50# bag of flour for $50 – $1/pound. But, it costs you $25 to ship the flour. Your $1/pound flour skyrockets to $1.50/pound. That ultimately increases your product cost. That’s why manufacturers order enough raw materials to get free shipping or spread shipping across more items by increasing the order size.

Why include your own labor?

If you’re making products in your house, you have to include labor because, if you don’t, you’ll lose most of your gross margin when you you move to a shared-kitchen or co-packer.  For example, if it takes you an hour to make 12 jars of jam, and you “charge yourself” $15/hour, you’ve got $1.25 just in labor cost.

Pro Tip: Keep track of changes in your cost of goods sold (COGS). When your ingredients, packaging, and labor increase (or decrease, if you’re lucky). your total product cost changes, too. In some cases, you’ll swallow the increase. In other cases, you’ll have to increase your prices. And don’t be afraid to increase your prices.

Let’s look at an example, now. I’ll use Michael’s Lemon Blueberry Jam as an example:

Michael’s Lemon Blueberry Jam – Ingredient cost

(Note: I’m using fictitious numbers)

Ing (#) Price Grams /Gram Amt Cost
 Berry 50  $175.00  22,680  .008  200  1.54
 Zest  5  $57.90  2,268  .026  10  0.26
Pectin  5  $35.70  2,268  .015  25  0.39
 Sugar 25  $19.50  11,340  .001  350  0.60

The total cost of ingredients is $2.79/recipe. This recipe makes 12 jars of jam. That means your ingredient cost is $0.23/jar. Now, let’s look at packaging.

I’m packaging my Lemon Blueberry Jam in a glass jar with a silver lid and a label. Let’s look at each component.

Glass Jars:

  • 2,400 jars
  • $1,896.00 + $300 in shipping
  • Total cost = $2,196.00 / 2,400 jars
  • Cost/jar = $0.91


  • 2,400 lids
  • $300 delivered
  • Total cost = $300 / 2,400 lids
  • Cost/lid = $0.13


  • 5,000 labels
  • $250 printing
  • $75 in plates
  • Total cost = $325 / 5,000 labels
  • Cost/label = $0.07 (rounded)

TOTAL: $1.11/jar in packaging costs.

So far, our total product cost is $1.34/jar — and we haven’t even added labor yet! Pretty crazy, huh? Let’s look at labor:

Labor costs: Let’s take the example above, but increase your production capacity.

  • 250 jars
  • Produced in 4 hours
  • 1 person at $15/hour
  • Total labor: $60
  • Labor/unit: $0.24

Total Product Cost: $1.48/jar

Let’s review. If you held a jar of Michael’s Lemon Blueberry Jam in your hand, it would cost you $1.48. That includes ingredients, packaging, and labor. Now, you’ve got the fun part — pricing your product through distribution. That means broker (even if you don’t have one), distributor, retailer, and finally, the end consumer – the price on the shelf.

How much do you think your $1.48 jar of jam is going to be on the shelf? Let’s find out.

The food industry works on margin, not markup. You can read about the difference here. Before you send your jar of jam through distribution, you’re going to want a 40-60% margin. Here’s how to calculate your margin:

Price to distributors = COGS / (1 – margin %)

Here’s how your price changes with different margins:

  • 40% margin: $2.47
  • 50% margin: $2.96
  • 60% margin: $3.70

That’s a difference of $1.23, depending on which margin you choose. You want a high margin so you have room to fit a broker’s free of 5-7% into your cost structure. Plus, you want to have room for promotions when you start using larger distributors.

For simplicity’s sake, we’ll say you’re going to have a 50% margin. That means you’ll sell your jam to a distributor for $2.96/jar. Now, let’s look at what your distributor would sell your jam to their retail accounts for….

Distributors usually take another 30% margin.

  • Price to retailer = $2.96/ (1 – margin %)
  • Price to retailer = $2.96/(1-0.3)
  • Price to retailer = $2.96/0.7
  • Price to retailer = $4.23/jar

This means a couple things. This is the price a distributor sells your jam for to a retailer. And, more importantly, this is the price you sell your jam to a retailer. Don’t give them a special price. Give them the price your distributor would give them. Now, this cost goes up, if the distributor has to factor in shipping. Let’s take a look:

  • Price to distributor: $2.96
  • Shipping 1,000 units costs $200
  • Added shipping cost/unit: $0.20
  • Total cost to distributor: $3.16
  • 30% margin = $4.51 price to retailer

See how that adds $0.28 to your wholesale cost with some simple shipping? Pretty crazy. Now, let’s take the non-shipped cost to a retailer to see what price they’ll sell your product for.

Depending on the retailer, they’ll take another margin of between 30% (big grocery) – 50% (high-end gift shop). Here’s how all the margins play out:

  • Price to retailers: $4.23
  • 30% margin: $6.04 ($5.99 retail)
  • 40% margin: $7.05 ($6.99 retail)
  • 50% margin: $8.46 ($8.49 retail)

See how your jar can retail for anything between $6 and almost $9 depending on where your product is sold. That’s pretty wild, isn’t it? Your jar of jam that costs you just $1.48 retails for an average of $7.18?

Don’t think for one second that that’s too expensive. You make a super-premium product. It demands a higher price than everything else on the grocery store shelf. After all, you’ve got to make enough money to put food over the table, a roof over your head, and clothes on your kids. The more money you can make, the better. (Yes, it is about the money in the food industry).

And the high price tag is what you charge your customers when you do a farmer’s market, fair, or event. That’s why events are so great – your margins are sky high and it’s great marketing – a win-win, if you will. Where else can you make $5.52 per jar in gross profit (that’s profit before operating expenses)?

Let’s look at how different it would be if you took a 60% margin, your distributor took 30% and high-end retailers took 50%. In that scenario, your jar of jam would retail for a whopping $10.57! Whoa, baby!

A quick note about testing your price…..

Will consumers pay for a $12 jar of jam? Maybe. You’ll have to find out. Or, does 4x the jam move when it’s $3.99? No one will know until you test your pricing. And if you find consumers will pay less, you might want to see if you can cut your costs down. With that being said, you still need to make money. A higher price point may be the only option for now.

A little tweak goes a long way……

After you’ve established pricing, you should focus on decreasing costs. That usually means buying more ingredients in bulk, glass by the pallet, or increasing the number of units you can produce in the same amount of time.

Let’s look at how much more profit you’ll make if you decrease your cost just $0.10/unit.

  • Cases sold per month: 400
  • Units per case: 12
  • Total units per month: 4,800
  • Monthly savings: $480
  • Yearly savings: $5,760

This examples shows how important it is to literally pinch every penny. But, it’s also important to hold your prices where they are. A decrease in costs doesn’t mean a decrease in price. Let’s pass the $0.10 decrease in COGS through the distribution channel:

  • New product cost: $1.38
  • New price to distributor (50%): $2.76
  • New price to retailer (30%): $3.94
  • New price on the shelf (40%): $6.56

So, the price comes down significantly, but a retailer will likely round up to $6.99 to increase their margin. They may go to $6.59 or $6.79 to make it a more “familiar” price to the consumer, but I wouldn’t stretch your luck. (Side note: does pricing blow your mind, too?)

There’s so much math! What does this all come down to?

It comes down to this…..how much money do you want to make? Do you want to make $60k a year from your food business? Maybe $100k? Whatever the number, you can use your pricing to figure out how many units you need to sell every week/month/year. Let’s see what it would take to make $60k a year – that’s a net profit of $5,000/month.

All through distribution:

  • COGS: $1.48
  • Price to distributor: $2.96
  • Gross Profit Margin: $1.48
  • Operating expenses (30%): ($0.44)
  • Net profit margin: $1.04
  • $5k profit = 4,807 units (401 cases)

All through direct-to-retail sale:

  • COGS: $1.48
  • Price to distributor: $4.23
  • Gross Profit Margin: $2.75
  • Operating expenses (30%): ($0.82)
  • Net profit margin: $1.93
  • $5k profit = 2,591 units (216 cases)

All through direct-to-consumer sale:

  • COGS: $1.48
  • Price to customer: $7.00
  • Gross Profit Margin: $5.52
  • Operating expenses (40%*): ($2.21)
  • Net profit margin: $3.31
  • $5k profit = 1,510 units (126 cases)

* Operating margin is higher due to the high cost of direct events

Now, most companies use a blend of all three channels – distribution, retail, and direct – to grow their business. But, you can see how going direct to retail – or to the consumer – is the way to increased profits. This shows you how much product you need to produce and sell every month to sustain a profitable food business.

Pricing is not simple. It’s a complex animal that is constantly evolving. You have to stay on top of it, scrutinize every penny, and make changes where you see fit. That may mean changing your business model, increasing/decreasing your pricing, or cutting down on your operating expenses.

If you leave this blog article learning one thing, it’s this:

You are in business to make money.

If you make jam that costs you $2.00 and sell it for $3.00 at a farmer’s market, you won’t make any money when you sell your product through the distribution channel. If you have dreams of selling your product in stores, all of this pricing has to be taken into account. And if you use broker’s, make sure to add in that extra 5-7%.

Business is tough. Pricing your product right helps alleviate some of the risk because now you know you’ll be making enough money when you sell your jar of jam to customers.


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163 Comments on this post

  1. AUTHORJ. R.. Klein

    on August 1, 2014 at 11:53 am - Reply

    Thanks Mike, Very informative.

    • AUTHORmichael

      on August 4, 2014 at 12:44 pm - Reply

      Thanks, J.R. Happy you found it helpful!

  2. AUTHORVal Dantzler

    on August 2, 2014 at 2:26 am - Reply

    Thanks so much for this article! You don’t know how much this helps me!!! I love the way you break down the numbers!! You just made this so easy for me to understand!!!

    • AUTHORmichael

      on August 4, 2014 at 12:44 pm - Reply

      Awesome, Val — glad you found it helpful!

  3. AUTHORPër's Smoked of Vermont

    on August 3, 2014 at 5:01 pm - Reply

    Thanks so much! This is the clearest, most understandable explanation of this subject that I’ve ever read. We’ve needed to review our prices & this will be SO helpful.

    • AUTHORmichael

      on August 4, 2014 at 12:41 pm - Reply

      Awesome! So glad you guys found it helpful!

  4. AUTHORjon whaley

    on August 6, 2014 at 3:52 pm - Reply

    GREAT post! very informative and well written.

    • AUTHORmichael

      on August 13, 2014 at 3:46 pm - Reply

      Thanks, Jon – glad you found it helpful!

  5. AUTHORharold

    on August 16, 2014 at 3:20 pm - Reply

    I understand what you are saying.With your pricing method you must also look at what the market will bear..

    • AUTHORmichael

      on August 17, 2014 at 8:51 pm - Reply

      Yes, Harold — good point. Only so many people will buy $16 salad dressing….

  6. AUTHORDenise

    on September 1, 2014 at 4:16 am - Reply

    This is great Mike. I’m going to use this to revisit my pricing strategy. You are right it is all about the numbers and it is so daunting. One of my goals is to get to where I’m really comfortable with my pricing so it doesn’t seem like such a task.

    • AUTHORmichael

      on September 6, 2014 at 11:52 pm - Reply

      Awesome, Denise! Make sure you review your costs every once in a while, though!

      • AUTHORBruce

        on March 6, 2018 at 3:34 am - Reply

        Omg thank u so much great input

  7. AUTHORDave

    on September 4, 2014 at 3:15 am - Reply

    Hi Michael, thanks for the informative article. Our problem is one of what people will pay as well. We make gourmet nuts, and there is only so much people will pay for nuts. If I have a COGS of $1 for a 3oz bag of nuts that I sell for $4, have I pretty much screwed myself in terms of distribution profit?

    • AUTHORmichael

      on September 7, 2014 at 12:08 am - Reply

      Not necessarily. Is that $4 direct to the consumer? That’s a good price – and you do have enough room for a distributor and retailer margin.

      For example, if you sold through a distributor (30% margin) and retailer (40% margin) at a $1 COGS, your nuts would retail for $2.49 (most likely). That means you have a little more room if you want a $2.99 MSRP. Ultimately up to you! But, keep in mind what your competition is charging and what people are willing to pay.

      My favorite nuts (Squirrel Stash Nuts) are 4ox for $6. And they’re awesome. But, I don’t buy them all the time.

      Hope that helps!


  8. AUTHORYemi Raiwe

    on December 4, 2014 at 10:21 am - Reply

    This is a really valuable article. I would pin it up on the wall for a minimum monthly review!

    • AUTHORmichael

      on December 11, 2014 at 1:37 am - Reply

      Thanks, Yemi! Glad you got something out of it! — Michael

  9. AUTHORJennifer

    on March 9, 2015 at 10:43 am - Reply

    Hi Michael,

    I am a raw food chef and want to offer a $10-$12 raw food sandwich at farmers market.

    My COGS are $4-$5. This is only the cost of food not labor. Is it worth my while to make and earn a profit?

    Thank you,

    • AUTHORmichael

      on March 9, 2015 at 11:32 am - Reply

      Hi Jennifer,

      If it’s just you making the sandwich, it’s probably worth it. You sell 100 sandwiches at a market, you’ll make on average $750 – or $3,000 a month. However, I’d add labor in because you’re bound to become successful and hire people to make the sandwich for you. Let’s say it takes 5 minutes a sandwich and you hire someone at $12/hour. They make 12 sandwiches an hour which is $1 a sandwich – and you can be out growing your business.

      I’d say go for it. Nothing ventured, nothing gained. What’s the worst that could happen?

  10. AUTHORKaren L

    on April 20, 2015 at 7:46 pm - Reply

    I am a brand new food entrepreneur in the pre-start up phase. I just wanted to say THANK YOU for posting such a helpful and informative article, and for reinforcing the fact that the end goal is to make money. By reading this, I can price correctly from the start, and avoid some early pitfalls I may have had. The simple example using layman’s terms is much appreciated! Thanks so much for sharing!

    • AUTHORmichael

      on May 19, 2015 at 4:42 pm - Reply

      Hi Karen,

      You’re so welcome! Glad many of the posts have been of value to you!


  11. AUTHORJenny

    on May 24, 2015 at 12:39 pm - Reply

    It really helps a lot! I’m starting a small food entrepreneur hope you give me new tips and tricks of yours

    • AUTHORmichael

      on May 31, 2015 at 3:21 pm - Reply

      Thanks, Jenny – best of luck!

  12. AUTHORpeaksupplements

    on June 23, 2015 at 7:44 am - Reply

    Thanks…for sharing food products and Ingredient prices in blog. i find it long times…..

    • AUTHORmichael

      on June 23, 2015 at 10:31 pm - Reply

      You’re welcome! Glad it was useful to you!

  13. AUTHORChris

    on July 21, 2015 at 7:27 pm - Reply

    Thank you so much for your awesome insights! We manufacture a specialty dough mix through a co-packer because of the need for our product to be certified gluten-free. That being said we are relatively new to the game, just over a year and a half, and have a very high manufacturing costs simply because we don’t have the sales yet to make bigger runs of product. (1000lbs yields us around 1600 boxes, about 260 cases) Currently our cost is $4.01 out the door with freight etc. The problem that we have found is that the market is only willing to bear a retail price of around $6.49-$6.79. When we launched we did so at $12.99/box which sells well enough on Amazon but in a retail scenario we found that a $13 box next to a $6.49 box loses every time, even though we are a unique premium product. As a trial we dropped the price to $9.99 but still not many sales. Then in desperation, we dropped it meet that $6.49-$6.79 threshold for all the other “like” products and voila we started to sell a good amount of dough mix at local stores and farmers markets. I guess the question is this: How would you go about increasing margins and make money in this scenario? I have been racking my brain since we launched. The gluten-free crowd is a tough one and none too willing to try new and expensive items unless it has a proven track record… which we are slowly getting through our Amazon reviews. Thoughts?

    • AUTHORmichael

      on July 22, 2015 at 12:40 pm - Reply

      Hey Chris — thanks for the comment. So happy you found value in the post.

      You have an interesting problem here, but it isn’t the end of the world. Right now, you don’t have enough of a margin to cover the majority of your operational costs. But, it is worth experimenting to see what happens.

      $4.01 is pretty high for costs, but there are a couple ways you could potentially reduce them:

      – Can you reduce packaging costs in your box or bag?
      – Can you buy equipment to speed up your co-packer?
      – Can you reduce your package size to one crust and lower the price point?

      One final question to think about is, are you communicating the value to your customers well enough to where they don’t have to think twice about spending a premium on your crust mixes.

      Hope this helps — good luck!


  14. AUTHORTwain

    on September 1, 2015 at 5:13 pm - Reply

    I have one product and I am sturggling on pricing wholesale. The product is a 3 oz jar of pain cream, my cost is 4.37 a unit. Can you please advise me on how to price to sell to a grocery store?
    Thank you

    • AUTHORmichael

      on September 2, 2015 at 11:36 am - Reply

      Hi Twain,

      Thanks for reading! In general, you can multiply your COGS by 4 to arrive at a rough retail price. $4.37 x 4 = $17.48 – this means, your product will likely retail for $19.99. Since it’s a cream, I’d imagine you could get away with that price point. Here’s your rough pricing, assuming you give yourself a 50% margin, your distributor takes 30% and your retailer takes 35% margins.

      Your price to a distributor (50% margin): $8.74
      Distributors price to retailer (30% margin): $12.48
      Retailer’s price on the shelf (35% margin): $19.20

      This would round up to $19.99 I’m imagining. It also means, you’d sell direct to a store for $12.48/unit.

      I hope this helps — good luck with launching your product!


  15. AUTHORJesse

    on October 8, 2015 at 10:13 pm - Reply

    Hey Mike
    AMAZING Article. Thank you so much. Using your advice, I am thinking of starting a beverage that retailers may price along the lines of $2.99 SRP
    Just a few questions I had that I am hoping you can explain.
    • COGS – would an organic or kosher certification, be part of COGS calculation? I ask because even if you factor the costs to create the product above, you still need to pay for the certification before it gets to be sold. In addition, how about the freight out to a warehouse once goods are produced? Is that considered COGS?
    • How do you determine your wholesale cost and what do you tell a retailer that wants to go direct? As per your example, would it be $4.23? What if a big box retailer with 100’s of stores? Would you give them the distributor price of $2.96 or maybe a discount/”special pricing”off from the $4.23? Alternatively what if someone overseas wanted to purchase a possible large volume (ie a container)? What discount would be possibly given or price to start negotiations?
    • Do manufacturers ever provide different distributor costs to different distributors? For example Distributor A will work with you for $2.90 a unit and Distributor B will work with you for $2.96?
    • Special Price/Volume Discounts – Where do you ever start negotiations when going direct to retailers and at what price points? For instance do you give retailer a price of $4.50 and negotiate anywhere above $4.23? Or start at $4.23 and negotiate as close as possible? Does the same when looking for a distributor?

    • AUTHORmichael

      on October 18, 2015 at 9:00 pm - Reply

      Hey Jesse – thanks for the note. Sorry it’s taken me so long to get back to your questions – I’ve been at a lot of festivals. Here we go!

      1. COGS: I would count certification as part of your start-up costs. This means your break-even is going to be more to accommodate this extra cost. Shipping to get it to a warehouse would be a cost because it transports your finished goods to their final destination.
      2. Wholesale cost is the price your distributor would charge a retailer – that way you’re not undercutting your distributor. Going direct is simply eliminating the distributor. In the example, it is $4.23. Don’t go down on price unless you have to. Your wholesale cost is what it is so you can cover your operating expenses. For large container orders, I wouldn’t go too much more than 10-15% off your distributor price. You still need to make money.
      3. Distributors: don’t provide different pricing. Just don’t do it.
      4. Special Discounts: Keep your pricing simple. Don’t pull anyone’s leg. Give it to them straight. I don’t go below a certain price because I need to make money. This is called dead net.

      Hope this all helps!


  16. AUTHORTerry Coughlan

    on November 5, 2015 at 2:43 pm - Reply

    Hey Michael,
    We are doing a start up business for jelly.We are more interested in the marketing and distribution aspect so we are looking at a co-packer to produce our product.Do you have any sources in the Peterborough area that you would recommend

    • AUTHORmichael

      on November 6, 2015 at 4:13 pm - Reply

      Hi Terry,

      Congrats on starting a jelly biz! I’m assuming Peterborough is in England. If that’s true, I don’t have too much to offer up for suggestions. I’m US-based – in New England and know a lot of resources here. best of luck on your search across the pond!

      — Michael

  17. AUTHORRene

    on November 11, 2015 at 4:31 am - Reply

    Hi Michael, great article! I am struggling with pricing right now for a beverage product I am making. I just started a specialty food business in New England and I will be adding new products next year…this article helped me because right now I am selling directly to consumer as my retail and wholesale licenses are pending making about a 40% margin…so would I have to lower my price to sell to distributors, making less margin?

    • AUTHORmichael

      on November 11, 2015 at 2:16 pm - Reply

      Hi Rene,

      Thanks for reading! You’re selling to the consumer at a 40% margin? If you are, honestly, you’re going to burn through cash and go out of business. You need to be selling direct to the consumer at a 70%+ margin. That way you have enough margin to integrate a retailer and distributor into your sales channel. I’d re-evaluate your pricing before moving forward.

  18. AUTHORRene

    on November 11, 2015 at 9:24 pm - Reply

    Ok, so then I will have to double my price…what about 60%? Is that still too low…I’m just struggling with doubling my price I guess…but you are right, I was already feeling the strain…that’s going to be a hard sell since my COGS is kind of high right now…but I will try.

  19. AUTHORTricia

    on November 16, 2015 at 2:43 pm - Reply

    Hi Michael,

    Firstly, really love your breakdown that makes it a little easier for people like myself that have difficulty with figures!
    Hope you don’t mind, could you kindly advise on the following:
    1. I reside in Europe, and planning to sell jam online. Do I include the 19% when I quote prices to distributors / retailers? 19% makes hell of a difference my jam which averages about €1.10(30g) and €2.00(130g). I don’t really know where to fit in this tax portion in my calculation!
    2. To verify what you shared, the price I quote customers online, should it be the same price a retailer would sell it for? Or cheaper on my website? Really sorry, rather confused on this part about setting the price for distributor, retailer, and selling online directly to consumers. Wouldn’t want to over price and be out of the game.
    3. For an online business selling jam, could you kindly guide me a little on what operating expenses may include?
    Really appreciate your time and help Michael! You are a saint 🙂 All the best for your business.
    Warmest regards,

    • AUTHORmichael

      on November 16, 2015 at 9:16 pm - Reply

      Hi Tricia,

      Thanks for reading my blog — so happy you’re getting value from it! Here are the answers to your questions:

      1. If the 19% is a tax, it would be included on your invoices to retailers and distributors. If it’s a tax charged to consumers online and they know about it already, I wouldn’t worry too much about it. I’m just not familiar with business in Europe as I am in the states.

      2. Your online price should be the price a retailer would sell it for – or higher. You want the highest margin possible when selling directly to your consumers.

      3. Operating costs for online businesses have the following costs: online ecommerce platform, credit card processing, freight costs, packaging materials, printed materials, labor to pack the order, and online marketing expenses. Of course, you’d also have to work in insurance and other general business expenses.

      Hope that helps — good luck selling your jam!


      • AUTHORTricia

        on November 30, 2015 at 12:37 pm - Reply

        Thanks a million Michael 🙂 Really appreciate the advice! Thank you for your time. Have a great day!

        • AUTHORmichael

          on December 8, 2015 at 1:08 am - Reply

          Hey Tricia,

          You’re welcome! Thanks so much for reading! — Michael

  20. AUTHORKevin

    on November 18, 2015 at 6:06 am - Reply

    Great article. Are your example margins for manufacturers, distributors, and retailers based on nationwide data? I manage a food business in CA, and I’ve never encountered a distribution company that expects a 30% margin. Also, most distributors speak in terms of markups instead of margins, and even the pricier distributors only markup 30% (with the bigger distributors using a markup as low as 8%).

    • AUTHORmichael

      on November 18, 2015 at 11:52 am - Reply

      Hi Kevin,

      These numbers are not based on national data. I’m basing the numbers on my 12 years of selling food products in the Northeast. All five of my distributors work on margin – and all take 25-30%. While UNFI and Kehe may take a lower margin, they tack on added costs like case-splitting fees, mandatory advertising, and other fees. Other manufacturer’s may have different experiences, however, this is how I’ve been pricing a food product for years – and how you’re taught it you took a class with the National Specialty Food Association.

      Thank you for reading my blog — best of luck in your food business!

      — Michael

  21. AUTHORIsac

    on January 8, 2016 at 10:35 pm - Reply

    Hi Michael

    Thank you for this. It’s very specific and so helpful. I am working on a beverage and figuring out my distributor cost. Being on the east coast, I have estimated that my delivered cost to a local distributor would be approximately $1.45. However will this price need to change for a distributor out in California? Meaning would I pass through the cost to the West Coast distributor and charge for example $1.60 a unit (Assuming $0.15 per unit extra to deliver) ? Or do I reduce it from my costs making only $1.30? Or alternatively share the cost and charge $1.52 per unit delivered? My fear is that if I provide a delivered cost of $1.60 per unit to a distributor in California, this will for sure be unattractive with thinner margins for everyone involved especially if trying to keep the same SRP with all retailers. Lastly would you know the industry gross margin % standard to be considered a healthy business? I have heard gross margins should be at 40-45% but not sure if that is correct. Thanks again!

    • AUTHORmichael

      on February 10, 2016 at 12:03 pm - Reply

      Hi Isac,

      Thanks for reading the blog. Sorry for my late reply. For some reason I wasn’t getting the comments in my email. You will have different pricing given geographic proximity. They may pay shipping because they have brokered freight deals. You might not have to worry about it. Or, you just give them a delivered cost. Either way. For success, regardless of channel or product, you want a 40-60% GPM to cover your operating expenses. Obviously, the better the margin, the more money you make.

      Good luck!

  22. AUTHORglenn

    on January 13, 2016 at 5:13 am - Reply

    how do you one find a good broker who help new product get in major grocery

    • AUTHORmichael

      on February 10, 2016 at 11:59 am - Reply

      Hi Glenn,

      Apologies for a late reply – I’ve been slammed at our kitchen. Finding a broker for a brand new food product is tough. You need to have a little bit of traction, at least regionally before pitching a product. A quick google search in your specific industry should yield options. See if they’ll take a quick meeting with you!

  23. AUTHORVida

    on January 28, 2016 at 5:19 pm - Reply

    Hi, I am so concerned about my product, can you help me to figure out if it’s worth to go to distributors and retail shops or it’s a dead thing. I have a recipe of healthy organic granola, manufacturers would make it for 3.50$ at the best scenario, but might be 4$. Distributors take 30% and they offer 30% for retail shops. The max price on the shelves in the shops should be no more than 6.99$. If I add on each product just 20-30 penny for myself. Would that work? Is it possible to earn enough money per month if I get just peanuts from one pack sold? I do not have experience in food market and not sure if I start this business or just stay online/close it?

    • AUTHORmichael

      on February 10, 2016 at 11:54 am - Reply

      Hi Vida,

      Sorry for my late reply – it’s been crazy at the kitchen. I woudl not pursue your granola. Something made for max $4 is going to hit the shelf for $12-16 and you’ll price yourself right out of the market. You could sell direct to consumer as a side gig, but I wouldn’t pursue this much further. Thanks for reading the blog!

  24. AUTHORRaquel de Antonio

    on January 28, 2016 at 9:42 pm - Reply

    Hi Michael,

    I am so glad I found your article as I was doing all of my pricing wrong. I am about to launch a new super food product to market. I manufacture my product abroad and my import and shipping costs are high. Doing all the correct math I just learned with you, my MSRP is average with other super food products out there.

    I would love to know about your experience with UNFI and other distributors, did you made the deal yourself or with the help of a broker?

    Also to have a reference, around how many cases do you sell per store per week? Do you ship full pallets to your distributors? When selling directly to retailers, do you ship to their own distributor centers? You ship pallets or cases to them?


    • AUTHORmichael

      on February 10, 2016 at 11:52 am - Reply

      Hi Raquel,

      Happy to help with the pricing – it’s a complicated subject and can spell doom for many startup businesses. I have not worked with UNFI because I don’t have the margin to justify it. I would imagine a broker would be your best route.

      In my best stores, I’m moving about 3 cases a week. I ship and do direct delivery. Distributors pick up what they need from my kitchen – or get a pallet. Thanks for reading!

  25. AUTHORRaquel de Antonio

    on January 28, 2016 at 9:56 pm - Reply

    Also do you know what margin online stores get? What would be the pricing structure for them? Should I give them wholesale price?

    • AUTHORmichael

      on February 10, 2016 at 11:50 am - Reply

      Hi Raquel,

      Online stores, if they are reselling your product, would get wholesale rates and then mark it up as much as they want.

  26. AUTHORLiza Yong

    on March 1, 2016 at 2:28 pm - Reply

    Thank you for sharing. It is very helpful.

    • AUTHORmichael

      on March 4, 2016 at 11:44 pm - Reply

      You’re welcome, Liza — glad you find it helpful! Good luck with your food business! — Michael

  27. AUTHORmichael

    on April 22, 2016 at 3:08 pm - Reply

    Hi Maria – sorry for the delayed reply. You’re likely looking at 25-50%, but it depends on the product. Know what your cost is and know how to hammer down your COGS if you’re trying to hit a certain price on the shelf. But, you can also chalk up the price increase to an opportunity to sell your product instead of make it.

    Good luck! — Michael


    on April 24, 2016 at 6:21 pm - Reply


    • AUTHORmichael

      on May 9, 2016 at 6:52 pm - Reply

      Hi Ronald,

      40% is certainly realistic. You definitely do not have enough margin built-in to keep running. I’m assuming your cost is mostly labor. You may want to look into co-packing to get your unit cost down. Good luck!

      — Michael

  29. AUTHORMarie

    on May 12, 2016 at 2:08 am - Reply

    Hello Michael,

    Thank you very much for all this information.
    I was wondering if we always have to add our labor cost since the beginning. I have done my calculations by figuring out my cost (everything that goes in the product and leaves with the product – no labor included since it stays in the kitchen) and then add 250%-300% plus my cost.
    Is this correct?
    I am too doing my own distribution but it is getting harder to do as a get more stores.

    Thanks for your help,

    • AUTHORmichael

      on May 12, 2016 at 5:05 pm - Reply

      Hi Marie,

      You don’t have to add it in from the beginning if you never plan to hire anyone. But, if you take yourself out of the manufacturing part of your business, you’re paying someone to make your product. That cost has to be added into your total COGS. The way you’re pricing is risky because it doesn’t add in the whole distribution channel. As a rough idea, your COGS x 4 is your retail price – sell there. But, if your labor cost ends up being $0.60/unit you didn’t account for, that’s an extra $2.40 on the shelf you’ll need to go up to account for your increased cost. Hope that helps — best of luck! — Michael

  30. AUTHORSofia

    on May 18, 2016 at 1:32 am - Reply

    Hi Michael, thank you so much for this tremendous blog! It’s sooo incredibly helpful! 🙂 I just have a question – how do companies like Morton’s selling Iodized salt at like $1.50 per pound make any money? Is it just pure volume of sales? I can’t imagine they make much money per salt canister.

    Also, have you taken your product directly to restaurants? I’m wondering what differences may exist as compared to selling retail. And how to pitch to them….

    • AUTHORmichael

      on May 18, 2016 at 10:59 am - Reply

      Hi Sophia,

      Happy you found the blog and you’re getting value from it to use to build your business! Morton’s is able to do what they can because of volume and because of contracted rates with their suppliers. Your goal should not be to focus on the huge guys, but your own company and how you can differentiate away from Morton’s.

      We are just starting to feel out the restaurant industry. The majority of our current line can’t be made into food service, but we’re launching a separate food service line to try and grow our sales. As for sales tactics, owners are price sensitive. You have to add value where you can. For example, if you can sell a product to restaurants that is a pain to make in-house you may have an in. Pitch a few local restaurants and see what feedback they give. Don’t ask for the sale immediately, but listen to them to see what their pain points are and how you can address them.

      Good luck!


  31. AUTHORNancy

    on May 19, 2016 at 4:58 pm - Reply

    Hi Michael,
    Just wanted to say thank you for providing this real world information. I work with Entrepreneur students at Fresno State and many of them are interested in the food business. I was looking for an easy way to explain to them pricing strategies in the food industry and this blog is spot-on. Kudos!

    • AUTHORmichael

      on May 20, 2016 at 11:41 am - Reply

      Hey Nancy — glad you like it and thanks for using it as a resource in your business class at Fresno State – that’s awesome!


  32. AUTHORSara

    on June 11, 2016 at 5:47 am - Reply

    Hi Michael,

    Thanks so much for all of this info! So valuable!

    I’m starting a granola company and am trying to figure out my pricing. It’s a premium product – no preservatives, no skimping on fruits and nuts, homemade ingredients like candied lemon peel and candied peanuts, etc. At this point I’m going to be selling at the farmers market and to a few local stores. Right now, my COGS is $4.50 per 8 oz. jar of granola (it will decrease soon with bulk pricing that I’m going to be getting, but for now it’s $4.50). What should I charge at the farmers market, and what to the local stores?


    • AUTHORmichael

      on June 11, 2016 at 10:59 pm - Reply

      Hi Sara,

      Congrats on starting your granola business! Your COGS is very high right now. I’d recommend that you charge the following:

      Distributor: $7.50
      Retailer: $10.70
      Consumer: $18.00

      But first, you need to reduce your costs. Otherwise, you’re going to have a tough time selling granola at $18 for 8 ounces. This also gives you a 40% margin into a distributor — it should be closer to 50%. With that being said, if all you want to do is sell direct to consumer, you could get away with $9/jar — still pricey.

      Best of luck!


  33. AUTHORWilfredo Lehrian

    on June 20, 2016 at 9:11 am - Reply

    nice post keep it up realy enjoyed your post

    • AUTHORmichael

      on June 21, 2016 at 5:20 pm - Reply

      Thanks for the love, Wildredo! Appreciate you reading my blog! — Michael

  34. AUTHORRussell

    on July 10, 2016 at 3:22 pm - Reply

    Hi Michael,
    great info on your blog.I am about to start our own spicy sauce biz, luckily I have done these similar exercises with 2 partners I had in a nother biz and they were Mckinsey company partners/consultants.even so, your content is very informative.
    A question, although we are going to produce from a small commercial kitchen which is ours here in Portugal, we are getting costs from copackers in the UK to produce for the Uk Market as well as logistics and export costs should be reduced this way don’t you think?Also as our Branding and marketing is hot and our contacts are excellent on the possability of a large order this type of set up is better as our production unit as a start up is manual filled etc.Look forward to your feedback, Thanks..Russell

    • AUTHORmichael

      on July 15, 2016 at 3:37 pm - Reply

      Hi Russell,

      Thanks for the comment. You can get decreased costs depending on if you have a lot of customers there. If you don’t it doesn’t make any sense to produce there. If you do get a large order, it’s nice to know that you have the production to back it up instead of scrambling to fill the order.

      Best of luck!


  35. AUTHORAinesh

    on July 19, 2016 at 3:33 pm - Reply

    Very nice information up here good job nice knowledge.

    • AUTHORmichael

      on July 25, 2016 at 9:56 pm - Reply

      Thanks, Ainesh! Glad you enjoyed the information!

  36. AUTHORSuzana

    on July 31, 2016 at 5:28 pm - Reply

    Right on point, direct and clear. Love it! Thank a lot for sharing this information.

    • AUTHORmichael

      on August 5, 2016 at 11:56 am - Reply

      You’re welcome, Suzana! Glad you found the article helpful! — Michael

  37. AUTHORRob Vital

    on August 11, 2016 at 2:10 pm - Reply


    Thank you for your kind support for a lot of us in need for a helping hand. Great guidance thru the costing process.

    God Bless

    • AUTHORmichael

      on August 12, 2016 at 12:29 pm - Reply

      Hey Rob — glad you liked the information. Thanks for reading the blog!

  38. AUTHORAllen

    on August 28, 2016 at 2:43 pm - Reply

    What will be a good profit margin range to each of the sales channel?

    • AUTHORmichael

      on August 28, 2016 at 3:57 pm - Reply

      Hi Allen,

      You want to have between a 40-60% margin into any of these sales channels. Ideally, you want that margin before you sell to a distributor but sometimes that isn’t possible. Good luck!

      — Michael

  39. AUTHORnoni

    on September 11, 2016 at 11:10 pm - Reply

    Hi Michael,
    Thank you so much for this great article!! It helped me greatly on determining the price for my cream. I was charging initially $25 and after I utilized your wonderful math breakdown I have raised the price to $29.99.
    However, I do have a question regarding the overhead cost.
    You mentioned above 30% for operating cost. Is that the food/cosmetic industry average?
    I just want to make sure that down the line when a facility or other expenses arise I can cover them and not be in negative.
    Thank you so much!! Please continue writing these awesome articles!

    • AUTHORmichael

      on September 16, 2016 at 4:33 pm - Reply

      Hi Noni,

      Thank you for your comment! I’m glad you raised your prices – always a good thing! As for overhead, 30% is typically what I’ve seen in the food business, but it depends on what you have for overhead. For example, my overhead this year is 20%, but it has been as high as 35%. Always plan for more overhead than you think you’ll have! Hope that helps – best of luck growing your business!


  40. AUTHORLuke

    on September 14, 2016 at 9:00 pm - Reply

    Wow! What a great article. Thank you so much for this. I’m starting a hot sauce company and my cost is around 75 cents per bottle. Most sauces like mine are around 5-7 dollars at markets and stores. I figured I could sell at farmers markets around 5 dollars a bottle but still am a little confused on how much I should expect to sell to a distributor or retailers. Is my price too high?

    • AUTHORmichael

      on September 16, 2016 at 4:36 pm - Reply

      Hey Luke, thank you for your comments. I’ll answer both in this one. I don’t think your price is too high when you’re selling direct to consumer. This is when you want to get your highest margin. 5 bucks is a great margin if your cost is that low. Conversely, you could sell a ton of hot sauce if you level with the competition and push volume. As for your other restaurant question, I’d aim for $3.00 – $3.50/bottle. Hope that helps. Good luck with your business and thanks so much for reading! — Michael

  41. AUTHORSanthoshi Radhakrishnan

    on September 16, 2016 at 12:44 am - Reply

    That was a Great Article. Thank you! I am planning to start a small business to make tomato Chutney. This is an Indian recipe. Everything seems so overwhelming, I have an additional expense which was not mentioned in this article. I am planning to rent a shared commercial kitchen. So that adds up to the price too. Do you have any advice for me?

    • AUTHORmichael

      on September 16, 2016 at 4:39 pm - Reply

      Hi Santhoshi,

      Thanks for your comment! I do not mention a shared kitchen because the costs vary from kitchen to kitchen. You would ass that cost in as follows:

      Hours renting kitchen: 8
      Cost per hour: $45
      Kitchen help (8 hours @ $20): $160
      Total cost to rent kitchen: $520
      Units produced: 1,500
      Cost/Unit to Produce in the Kitchen: $0.35.

      This number is added to your ingredients and packaging costs. Hope that helps! Good luck with your chutney business!

      — Michael

  42. AUTHORLuke

    on September 16, 2016 at 4:28 pm - Reply

    Hi Michael,

    I’m starting a small hot sauce company and I will be selling directly to bars and restaurants. What would be a good price to sell to them since they won’t be reselling it? My cost is around .80 per bottle?

  43. AUTHORRenee

    on September 22, 2016 at 7:41 pm - Reply

    Hi Michael! If I am importing product, how would you factor in the various importing costs? I purchase and import a final product (from small organic manufacturers in East Africa), and then package, brand, and resell for the US market. It seems obvious to include the air freight shipping rate per kg in COGS, but what about pick up fees, customs fees, or freight forwarding? Would you consider those to be more operational costs as opposed to cost of goods sold? I was thinking of including any per kg rates (i.e. freight forwarding) but not the more flat rates. Any advice?

    Also, as a start up, you would recommend printing labels ourselves? I gather that from your post on labeling. How much would you factor in for that?

    Thanks so much for your time!

    • AUTHORmichael

      on September 22, 2016 at 9:22 pm - Reply

      Hi Renee,

      All of those costs should be incorporated into your COGS. Your COGS includes any costs that takes you from raw material costs all the way through to the finished, shelf-ready product, in it’s packaging and ready to ship out. It’s just like importers to foreign countries. They account for product, shipping, tariffs, taxes, and more. Then, they price from there. It’s why the prices they demand are so low — because they have to incorporate all of those costs.

      I would get your labels professionally printed. This is your product and you want it to look AWESOME. At-home inkjet labels are not going to cut it. Pricing depends on how many you order. If you’re talking 1,000 labels, you’re looking at $0.15-$0.25 (size might make it different, too).

      Hope that helps you! Good luck!


      • AUTHORRenee

        on October 26, 2016 at 4:41 pm - Reply

        Hi Michael! Thank you for your reply. I’m now trying to figure out the whole concept of “cases”.

        I’ve received advice on selling according to case size, but I also know certain retailers (and online customers) appreciate when you can break the 12-unit case size. Do you have any thoughts or ideas on costs associated with cases? If I am packaging myself, where can I order “case” packaging? Can I use standard USPS shipping boxes and just put in 12 units or is that frowned upon?

  44. AUTHORSheila Davis

    on September 25, 2016 at 1:55 am - Reply

    I Would Like To Know How Much I Should Charge For A 32 Oz Jar Of Home Made Cinnamon Jelly,
    It Takes
    (3) 5.5 Oz bags of 1Type of candy @ $1.00 each bag
    (1) 3.8 Oz of another candy per bag
    (11) Cups Sugar @$7.99 for 10lbs
    (6) Cups Water /Water Cost per Month is $ 33.00
    (2) 6oz Packets Of Certo@ $4.89 for 2

    • AUTHORmichael

      on September 26, 2016 at 10:49 am - Reply

      Hi Sheila,

      Your best bet is to weigh everything out so you can convert the weight and price per pound to USD ($). I’m happy to help you figure out your cost, but would need to know the weights. The cost for recipe pricing is $125/recipe. You can email me at michael@gredio.com if you’d like to move forward.



  45. AUTHORWaleed

    on October 6, 2016 at 9:20 pm - Reply

    I loved the clarity of your explanation, and the clarity of the typography. Great article. Thank you very much.

    In other countries, particularly Saudi Arabia, would the margins to retailers, and distributors be the same?

    • AUTHORmichael

      on October 6, 2016 at 11:30 pm - Reply

      Hi Waleed,

      Glad you liked the article! I just emailed you, but I would assume this pricing strategy is somewhat similar to other countries abroad. — Michael

  46. AUTHORMarc

    on November 30, 2016 at 6:31 pm - Reply

    Informative article, Michael! I would be oh so grateful if you could clarify a few things about logistics, though 🙂

    1. Who typically pays for shipping to the distributor? Also, is shipping usually through private carriers (fedex, ups, etc.) or USPS?

    2. Why don’t you factor in shipping cost from the distributor to the retailer when arriving at your price to end user?

    3. Who typically pays for shipping if I sell directly to grocery stores?

    Do you have any general tips around how to manage shipping costs?

    Thanks so much,


    • AUTHORmichael

      on December 1, 2016 at 12:01 am - Reply

      Hi Marc,

      Here are the answers to your questions:

      1. Who typically pays for shipping to the distributor? Also, is shipping usually through private carriers (fedex, ups, etc.) or USPS?

      It depends. I have our out-of-state retailers pay for shipping. Some local retailers I wave shipping. Online orders are through USPS for the most part. Wholesale orders are FedEx unless the store requires UPS.

      2. Why don’t you factor in shipping cost from the distributor to the retailer when arriving at your price to end user?

      This is a cost of doing business for the distributor — not the manufacturer.

      3. Who typically pays for shipping if I sell directly to grocery stores?

      You pay for shipping (most of the time) as a delivered price to large retailers.

      Do you have any general tips around how to manage shipping costs?

      Negotiate rates with freight brokers if you’re shipping 1+ pallet. Small orders, you can call UPS or FedEx directly.

      Good luck!


  47. AUTHORMarine Bastain

    on January 8, 2017 at 7:40 am - Reply

    Many thanks really handy. Will share site with my good friends.|

    • AUTHORmichael

      on January 8, 2017 at 1:09 pm - Reply

      Glad you enjoyed the post and got some value! — Michael

  48. AUTHORTom Dubowski

    on January 12, 2017 at 10:18 pm - Reply

    Michael … i wonder about your Op Exp on your goods.

    I’ve read other blogs which say you should add 30% to your COGS first before adding a wholesale margin.

    That would make your calculations a lot different.

    Example 1
    COGS: $1.48
    Price to distributor: $2.96
    Gross Profit Margin: $1.48
    Operating expenses (30%): ($0.44)
    Net profit margin: $1.04

    Example 2
    COGS: $1.48
    Add Operating expenses (30%): ($0.44)
    Price to distributor: $3.84
    Net Profit Margin: $1.92

    Which way is preferable ?

    • AUTHORmichael

      on January 13, 2017 at 11:26 am - Reply

      Hi Tom,

      From an numbers perspective, operating costs come out of your gross profit margin, not your net profit. You can make your margins whatever you want them to be, but know that when you’re selling to a distributor or retailer, your margin is already built in, by increasing our price 40% – 60%. Hope that helps — good luck!

      • AUTHORTom Dubowski

        on January 13, 2017 at 5:12 pm - Reply

        Thanks for clarifying. Right now our margins are 44% so we can keep our retail price under $10. It leaves us with a small amount of wiggle room, and at present time are looking at cutting costs on ingredients and bottles/labels, ect.

  49. AUTHORLisa

    on February 18, 2017 at 2:43 am - Reply

    WOW! Really appreciate this post. I recently started my hot pepper vinegar business. My COGS is $2.49 and I’ve been selling direct to consumer for $5.00. Had a few people tell me that I was charging way too little and that it should be approx $7-$9. I was going to go up to $6.99 but felt so greedy that I went back down to $5.99. Now it’s so clear to me that $7 is a fair price because if I get big enough to sell wholesale it would end up being that much. Thank you so much for this, I really learned a lot! 🙂

    • AUTHORmichael

      on February 18, 2017 at 11:59 am - Reply

      Hi Lisa,

      Thank you so much for the comment 🙂 — Yes, for many people this is an eye-opening post. If it were me, you should really be selling your products for $10 with a cost of $2.49, but if your goal is to sell direct and then maybe wholesale, $7 isn’t a bad margin. Plus, don’t feel greedy, You have to make enough margin to be able to produce more product and cover your expenses. Plus, make a profit. Good luck with your biz!

      – Michael

  50. AUTHORJeff

    on March 10, 2017 at 6:18 pm - Reply

    Recipal has a great tool for this. Enter your ingredients and costs + shipping then add in your output and the app calculates everything automatically.

    • AUTHORmichael

      on March 14, 2017 at 8:30 pm - Reply

      Yes – Recipal is great for this! Thanks for the reminder for Gredio readers!

  51. AUTHORRami kassem

    on March 15, 2017 at 7:39 am - Reply

    Hi Michael.
    Thank you for your amazing post, it is very helpful. I have a question. I have a coffee shop and want to sell an item that cost me 4.5$ including delivery. How much I should sell it to my customers to be on the safe side. Thank you in advance

    • AUTHORmichael

      on March 15, 2017 at 10:59 am - Reply

      Hi Rami — if you’re paying $4.50, I’d sell it to your customers for $9.

  52. AUTHORClaribel

    on April 11, 2017 at 3:18 pm - Reply

    Thank you for the article, but think you are forgetting something very important, You didn’t calculate the cost of electricity and gas for the stove, do you have any suggestions on how to calculate that.

    Thank you!

    • AUTHORmichael

      on April 29, 2017 at 11:22 am - Reply

      Hi Claribel,

      Electricity and gas are overhead costs that fall under the operation of the business. In theory, your margins should be high enough to cover these costs.

  53. AUTHORMarcy

    on May 18, 2017 at 10:45 am - Reply

    Hi Michael,
    I wanted to thank you for your post. It was exactly what I was looking for.

    • AUTHORmichael

      on May 20, 2017 at 11:45 am - Reply

      Great, Marcy! I’m glad!

  54. AUTHORAnnie

    on August 7, 2017 at 5:05 pm - Reply

    Hi Micheal!
    Thank you for this article! Very helpful. Just wanted to ask about the average distributor margin of 30%. Is this for large distributors like UNFI? I’ve heard the average being between 30-60%! (The latter sounding ridiculous!) Can they really have a margin that high? Or is it usually more like 30%?

    • AUTHORmichael

      on August 9, 2017 at 10:49 pm - Reply

      Hi Annie,

      It’s usually 30%, but can do as high as 40% – 50%+ is craziness and no one would make money. With that being said, retailers could take margins as high or higher than 50%. Good luck with your business – love your fun website!

  55. AUTHORRama

    on August 24, 2017 at 1:13 am - Reply

    Thank you so much, this gives me much better understanding.

  56. AUTHORAzarmeen

    on August 29, 2017 at 6:59 pm - Reply

    Dear Michael,
    Indispensable post for everyone starting food business- so many thanks.
    In your calculation of COGS I don’t see that you have factored in your 30% operating expenses. If my product costs (ingredients, packaging and labor) $1.75 should I add on 30% before I figure out what my price to retailer should be? (I am not going through a distributor).
    Thank you again.

    • AUTHORmichael

      on August 29, 2017 at 10:20 pm - Reply

      Hi Azarmeen,

      Thanks for reading! Yes, you should include the extra 30% for two reasons:

      1. You get more margin selling direct to retailers
      2. You may get a distributor down the road and factoring the % in from the start means you’ll be able to anticipate it and keep a similar price on the shelf.

  57. AUTHORDustin

    on September 7, 2017 at 3:32 pm - Reply


    Great info you have provided but it seems a lot different up here in Canada. For example we have a product that we sell to distributors for $5.00, it retails in nationwide big box grocery chains for $8.99. Our products that we sell for $4.00 to distributors, retails for $6.99 in most stores. Another product we have is going to be sold for $6.75 to distributors with a retail price of $12.99. This is a mass produced product in a federal plant, we end up making about $1.00 profit per bag sold of our frozen meals, which is good for a quick turnover item with large orders.

    It must be different in America?

  58. AUTHORsam

    on October 18, 2017 at 8:50 pm - Reply

    Hi Michael,
    Your content is the best I’ve seen online and I just brought your videos on pricing a food product. Great deal!
    I currently make savory hand pies with a COGS of $1.40 and sell direct to consumer between $5-6 depending on how I’m selling it. $6 would be more for boxed and delivered. To me my margins seem pretty good, I’m a little over 70% with room to work with a distributor and retailer in the future when I expand to a co packer.
    I would say my biggest challenge I expect is to getting people to buy my product, which would normally be half the price from the big competitors. Even little mom and pop shops sell this product at a much lower price, makes me wonder how they are surviving in a place like NYC At the end of the day I want to make money on my product .
    Would love to hear your thoughts

    • AUTHORmichael

      on November 3, 2017 at 12:13 am - Reply

      Hi Sam – thank you! Your pricing is pretty spot on. Competing on price just isn’t going to work for you, but selling your story and how you make your hand pies with superior ingredients will help you get the premium price point. Good luck!

  59. AUTHORJenn

    on January 12, 2018 at 10:44 pm - Reply

    Hi Michael:

    Just working on my business plan and can’t tell you how helpful this clear explanation was! Just wanted to double-check: I’m only including VARIABLE pricing in my plan, correct? I’ve been including fixed prices, such as monthly kitchen rent (required to sell my product commercially), monthly lawyer fees to manage my business, and product liability insurance. These all wouldn’t be considered as part of the COGs, correct? Thanks again for this, really the most helpful resource I’ve found!

    • AUTHORmichael

      on January 13, 2018 at 3:17 am - Reply

      Hi Jenn,

      That’s so great to hear! In terms of COGS, the lawyer fees and insurance are definitely operating costs and should not be included in your math. The kitchen rental, however, is directly related to the production costs. Is your cost fixed per month? Or, can you attribute a per unit cost to your rental? That should definitely be included in your pricing structure.

      Hope that helps — best of luck!

      – Michael

  60. AUTHORRiadh Benameur

    on January 16, 2018 at 8:23 am - Reply

    Hi Michael: Great post. I am working on my start up to make Mediterranean hot sauce. After contacting multiple co-packers, The one I finally chose is located in WI and I am based in Las Vegas ( I tried contacting few in California to ensure shipping cost will be less, but no luck). The Wisconsin co- packer could not give me a price per case yet, until the entire process is done according to their rep. My minimum will be 2400 units. They will charge $1500 for initial R&D fees even though I provided the formula, then $450/hour for them to run a machine test for the 1st batch.
    My 2 competitors import their 5 oz hot sauce and charge $2.50 online and in the specialty stores. I am planning to pick 10 oz bottle for my all natural sauce. Any recommendations on co- packing protocols? Any reliable California co- packer you recommend? I did commit with the current co-packer yet until I make sure he is not trying to take advantage. Thoughts?

    • AUTHORmichael

      on January 16, 2018 at 12:53 pm - Reply

      Hi Riadh,

      Congrats on taking the first steps to launch your food business — that’s exciting! The co-packer you’re working with does sound a little pricey and will likely put you on the shelf at a significant price premium to your imported competitors. How long does it take the co-packer to make 2,400 units? That would help determine viability.

      I have written the Ultimate Guide to Co-Packing that you may be interested in…. but if you wait a few weeks I’ll be running a sale on my courses and e-books.

      Good luck!

      — Michael

  61. AUTHORChris

    on February 13, 2018 at 9:09 pm - Reply

    Thanks for the great article and keeping up with your replies. I own a nut roasting company and my raw cost per bag is .98 cents. The rest of my monthly expenses relating to production totals $2800. how can I determine the price I should sell my bags directly to grocery stores? My overhead cost per bag changes drastically on volume. where do I start for retail, wholesale and distribution? I anticipate a loss until my volume increases.

    • AUTHORmichael

      on February 13, 2018 at 10:59 pm - Reply

      Hi Chris,

      Thanks for reading my blog. You likely will have a loss until your volume increases. That’s just the start-up world. I’d recommend working through a couple scenarios that let you know how many bags you need to sell to just cover your expenses. For example, if you sell direct to consumer for $7/bag, you’d have to sell 466 bags a month just to break even. If you sell to a distributor for $2.00, you’d have to sell 2,7451 bags just to break even. HUGE difference. I hope that helps in creating your business plan.



  62. AUTHORTia

    on March 20, 2018 at 5:32 am - Reply

    This is a great article! We are learning so much about the food start up world. We are starting our own gourmet snack product and looking to market to consumer/wholesale/ and or distributors. Do you have an example pricing sheet template similar to what you suggested for the sell sheets?

    • AUTHORmichael

      on March 21, 2018 at 12:47 am - Reply

      Thanks, Tia! I’d include your MSRP on your sell sheet. Then, pricing is more of an in-person discussion. If you have a ton of products, a simple pricing table will work.

  63. AUTHORCallum Palmer

    on March 29, 2018 at 12:55 am - Reply

    This was a fascinating read; after all, when you’re planning to sell food product it can be hard to tell what to price it as. I particularly like that you reminded your readers about the importance of working in the cost of your own labor. Of course, there are other costs that you need to keep in mind as well such as distribution costs if you are planning to sell to a lot of stores.

  64. AUTHORAlan B. Cranford

    on June 4, 2018 at 8:15 pm - Reply

    First, I am located in Mexicali, BC, Mexico [but am American]. I wish to package and distribute [to start locally] small labeled and heat sealed bags of spices, nuts, dried fruits… for the local grocery stores… then a website for direct to USA orders.
    1. Are you still in business? Have you changed your website/business name as my “computer security” system is telling me this site is a “bad” site… but that might be do it it being an old, out dated site.
    2. Are you currently selling courses?
    I am an “old retired guy”, former executive chef, HACCP trained, former food writer, taught commercial food production in Oregon and British Columbia to high school students and special needs students… been a foodie all my life!
    Thank you
    Alan B. Cranford

    • AUTHORmichael

      on June 15, 2018 at 10:57 am - Reply

      Hi Alan,

      Green Mountain Mustard is closed for business – life changes :p

      I am still selling courses – you can find the latest video course here: https://gumroad.com/l/VYRkf

  65. AUTHORcj

    on June 11, 2018 at 8:33 pm - Reply

    Hello and Thank you for sharing what you know! We have a food product line we currently sell at farmers markets. We are meeting with our first potential retail outlet tomorrow and I have been working on our pricing. I somehow keep getting lost in the numbers and need a bit of help. So each of our 10 products have different COG but we sell for only 2 different prices. 12.99 and 13.99. Can you check my process and tell me if I have the numbers correct?
    Example: For one of our most expensive items to make… (others have COG around $2.50 and they sell for 12.99)
    Product A COG= $3.68 (includes pkg, labor, ingredients)
    Price to Distributor = COG / 1-.5
    = $7.36
    Price Direct to Retailer = COG/1-.5/1-.35
    = $11.32
    DTR Gross Profit Margin=
    $11.32 – $7.36 = $3.96
    DTR Operating Expenses (30%)=$1.18
    Net Profit DTR= $2.78
    Is this how I should be figuring this out? Would the retailer then need to sell our product for around $14.79 to cover their margin if it is 35%?
    THANK YOU.🙌 for any insight.

    • AUTHORmichael

      on June 15, 2018 at 11:01 am - Reply

      HI CJ,

      You’re missing the retailer’s markup. Your pricing should look more like this:

      COGS: $3.68
      Price to Distributor: $7.36 (Your 50% margin)
      Price to Retailer: $10.51 (30% margin usually)
      Price on the Shelf: $17.49 – $21.00 (depends on the retail margin)

      Hope that helps!

      — Michael

  66. AUTHORDarren

    on July 12, 2018 at 7:42 am - Reply

    Just starting out and it’s very useful to read this. Thanks

  67. AUTHORMira M

    on July 26, 2018 at 3:14 am - Reply

    WOW this is GREAT!!! Thank you so much!! I have been wrecking my brain trying to figure this out, going back to reading my school books,etc. you have explained it so simply.
    Thank you!

  68. AUTHORPer

    on August 23, 2018 at 5:13 pm - Reply

    Thanks Michael, this ia very informative and well-written post. Quick question: how does one figure out ones operating expense? I was following all your math until it got to the very end and all of a sudden there was a 30% operating expense. I didn’t understand how that 30% was derived or how the actually calculation worked from that into dollars and cents. Can you please shed a bit more light?

    • AUTHORmichael

      on August 23, 2018 at 9:55 pm - Reply

      Hi Per,

      Operating costs are subjective because each company will be different, low and high. 30% is a rough ballpark for any company. It includes things like rent, utilities, administrative costs, marketing costs, etc.

      • AUTHORPer

        on September 6, 2018 at 8:06 pm - Reply

        Thanks Michael. So I do I subtract my operating costs from my gross profit margin (50%) and thus lower my profit margin, or do I add in an extra 30% to my COGS (in addition to profit margin, distributor margin, and retailer markup) so I maintain a 50% profit margin (net)? Thanks for your guidance. Final stages of evaluating a food start-up and trying to make sure my financials are accurate before I proceed.

  69. AUTHORGabrielle

    on September 7, 2018 at 12:42 am - Reply

    I have a new granola company, we’ve been doing well so far. Our product is 2.40-2.70 to make- usually retails for about 9.99. We’re looking into distribution, do you think we’re at the right price point?

    • AUTHORmichael

      on September 7, 2018 at 12:19 pm - Reply

      Hi Gabrielle — seems you would have enough margin (at least on those lower-priced products) to go about 40% margin to a distributor.

  70. AUTHORGabrielle

    on September 7, 2018 at 2:41 am - Reply

    Hello Michael,
    I have a granola company, that’s doing well. Our cost to make our granola is 2.40-2.70 (without co-packers or distributers), it usually retails for 9.99. Are we at a good price point of a distributer? Thanks.

  71. AUTHORAyana

    on September 13, 2018 at 6:39 am - Reply

    Great thanks. I’m just curious how often do you demo, and how many cases do you move per month at your fastest and your slowest stores? Thanks!

    • AUTHORmichael

      on September 14, 2018 at 12:09 am - Reply

      Hi Ayana,

      I only did demos at stores within about 25 miles and I’d demo about once a quarter at five locations. Then it became three locations as I got busier. Because my product was a specific, I’d only move about a case/demo. I should also say I’m in VT so population plays a big deal, too.

      • AUTHORAyana

        on September 18, 2018 at 9:42 am - Reply

        Thanks for your reply. One more question, should the commercial kitchen be factored into your pricing. Also do most people get copackers and then a distributer or a distributer then a copacker? Which order is the best?

        • AUTHORmichael

          on September 19, 2018 at 8:17 pm - Reply

          Renting a kitchen is overhead (in my opinion). It’s just like paying rent. Most people get a co-packer first, in preparation for larger-scale distribution, however, I’ve seen it done both ways.

  72. AUTHORJoy

    on September 21, 2018 at 6:43 am - Reply

    Hi Michael, Thank you so much for your very articulate blog. I am about to launch an importing jam-business. I am not sure I can afford it now, after the calculations. If the price to me is $2.33/jar, I add operating expenses 30%, my margin 30%, distributor 30%, and retailer 40%, price is getting way to high to turn it on the shelf at $10.30/jar! It could be the best jam in the world, but it won’t go! :(( Thank you very much for any further suggestion.

    • AUTHORmichael

      on September 21, 2018 at 12:08 pm - Reply

      Yep that’s pretty expensive jam, but it’s been done before. There’s a preserves company near me selling 2oz oz of jam for $5.49, to put it into perspective.

  73. AUTHORChris Terhark

    on October 17, 2018 at 6:45 pm - Reply


    I have factored in everything from raw ingredients, labor to make it, labor to box it, etc down to the exact penny. I then multiply by 1.3 for variable expenses (insurance, commercial kitchen rental, etc)

    I roast, package, and wholesale gourmet nuts.

    I am having a hard time determining what I should charge for shipping/transport. Some stores I do direct distribution (personal delivery or UPS shipping) some stores I use a distributor.

    How do I calculate/average my self-distribution costs like shipping UPS or personal delivery? Should I also add a cost in for getting the product to my distributor?

    Lastly, do you think a factor of 1.3 to cover variable expenses is too high and/or should that be enough to cover shipping/transportation I asked about in my previous paragraph?


    • AUTHORmichael

      on October 19, 2018 at 2:48 pm - Reply

      Hi Chris,

      You could multiply by 1.3 but that will result in a high product cost on shelf. The idea is that your gross profit margin is built in to cover your operating expenses. Those are deducted from your gross profit margin.

      For shipping, just pass the rate on that you’re charged. No need to nickel and dime the retailer. It’s the cost of doing business to ship orders out.

      Your 30% margin for operating expenses is a great average across the industry.

      • AUTHORChris

        on October 20, 2018 at 12:31 am - Reply

        Thanks for your response! To be clearer in my original post, i multiply my cogs by 1.3 to cover variables and THEN I factor in a 20% margin for me and a 15% for distributors. The 1.3 I multiply my cogs by is a number I just came up to cover variables like insurance and kitchen costs.

  74. AUTHORxenia

    on December 1, 2018 at 12:29 pm - Reply

    Hi Michael,

    Im working with a contract manufacturer who is making my product, do I still need to get a 30% margin or will it be less since I am not making the product myself.

    Also, for shipping to the stores should this be paid from my end of should I calculate it in the price of the buyer.


    • AUTHORmichael

      on December 1, 2018 at 8:31 pm - Reply

      Hi Xenia,

      You want a 40-60% margin on top of the co-packer’s price. For shipping, the store usually takes care of it unless they order enough product for you to eat the cost.

  75. AUTHORYani

    on January 16, 2019 at 4:33 am - Reply

    How long was it before your business became profitable? Any tips for becoming profitable quicker?

    • AUTHORmichael

      on March 17, 2019 at 12:47 pm - Reply

      Hi Yani,

      I was profitable within the first year, but I was pretty scrappy. It took me about 3-4 years to get to a place where I could run my mustard company full-time.

  76. AUTHORTony Jean

    on February 22, 2019 at 12:25 am - Reply

    Hi Buddy, great article. Quick question me and my wife own a food truck where we sell empanadas ( chicken and Beef ) we price them at 2 for three dollars. It cost us about 40 cent an empanada to make. Their selling like hot cake and we would love for them to be sold at stores. How do we go about doing that? We’re located in Long Island NY

    • AUTHORmichael

      on March 17, 2019 at 12:48 pm - Reply

      Hi Tony — sorry for the delayed reply. You’d need to get them made in a commercial kitchen that’s licensed with the state. You can’t retail something out of your food truck, unfortunately.

  77. AUTHORTheeya

    on March 13, 2019 at 9:13 pm - Reply


    I am going to sell my sauce that costs me $2.43. A large chain store is contemplating putting my product on their shelves. He asked me what is the cost? I’m assuming that is the price I’m selling it to him for? I’m not sure if I’m to charge a store the same I would a direct customer. Please help me figure what to charge!

    • AUTHORmichael

      on March 17, 2019 at 12:53 pm - Reply

      Hi Theeya,

      The cost is your wholesale cost to him. $2.43 is an expensive sauce that will likely retail for $9.99. Your pricing depends if you’re going through a distributor or not. Ideally, you factor this in so you won’t undercut them in the future. You can follow my blog post to determine pricing from there.

  78. AUTHORAchyut Mishra

    on April 23, 2019 at 1:13 am - Reply

    Your explanation is very convincing. This is valuable for me for pricing our new product prototype in our college.
    Thank you so much.

  79. AUTHORYani

    on May 16, 2019 at 5:20 pm - Reply

    My granola product is currently 2.70 to produce (I can get it to 2.50 best case scenario) it retails for 9.99- am I at a good price point?

    • AUTHORmichael

      on July 30, 2019 at 11:23 pm - Reply

      Yep! At least for now.

  80. AUTHORAyana Kelly

    on May 16, 2019 at 7:17 pm - Reply

    How did you get about getting into 140 stores? I’m in 30 right now and I am looking to expand. Thanks.

    • AUTHORmichael

      on July 30, 2019 at 11:24 pm - Reply

      Multiple distributors built up over 2-3 years.

  81. AUTHORSandra D

    on March 5, 2020 at 2:07 am - Reply

    This is just what I needed to see right now. I’ve been selling at farmers markets for 3 years, small shops for 1.5 yrs and will be dealing with a distributor as I go into a regional grocer. Hopefully, I can get everything right, keep distribution channels balanced and make it work.

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