Originally posted February, 2012
I am assuming that you are making chocolate and looking to sell it to stores for retail?
There are many things you need to consider when pricing your products, and some of the most important have to do with how you are selling them. By that I mean are you selling direct to the consumer, are you selling directly to retailers, and/or are you selling through a distributor and/or broker.
Because you might not always be selling directly to the consumer or retailer, you need to build at least one (and preferably two) layers of distribution into your model, a broker and a distributor.
I have seen many chocolate businesses fail because they did not account for middlemen in the distribution chain and there wasn’t any slack in their cost structure. You want to avoid this situation at all costs (pun intended).
Keep in mind that most retailers are going to double the wholesale price they pay. Some retailers, especially larger ones, will want to nickel and dime you, such as requiring free fill (basically, the first order for free). They will also upcharge for giving you a good location on the shelf (called slotting fees), and they may want you to contribute free product for promotions. And oh, by the way, if you want to sample in-store there will be a charge for that.
The most important thing in all this is to have a very good handle on your total cost of goods – including the price on ingredients, labor, packaging – as the starting point for pricing the bar.
To this total COGs figure add a gross margin (not markup amount. This is the minimum gross profit you will make and out of this figure comes all your other costs – overhead, cost of sales and marketing.
- 25% markup on a bar with a COGS of $4 is $1.00, for a price of $5.
- 25% gross margin on that same $4 bar nets out at $1.32.Those thirty-two extra cents, when added up over thousands (perhaps tens of thousands) of bars, can be the difference between having a healthy business and going out of business.
After all those expenses are accounted for, what’s left over, if anything, is your net profit or (loss).
One rule of thumb suggests that the wholesale cost of the bar, including ALL your profits, should be about one-third of the retail price, figuring in a 100% markup (double the wholesale price) for the retailer. The difference is what you have to play with to offer distributors, and you get to keep the difference until, or if, distributors get involved.
Comment by: DiscoverChocPosted on: Aug 05, 2017@Dylan Butterbaugh
You’re right, I’m planning to sell bars to stores like Whole Foods and R Fields very soon. I’m in the process of leasing a place to set up a little factory. Thanks for explaining Gross Margin. At this point I will assume a 100% markup on my wholesale price to retail stores to be safe. This explains why so many small scale chocolate makers have to sell bars for $6-$9.
I urge you to reconsider only a 100% markup from wholesale and build in some distributor margin – at least one tier – into your pricing structure from the beginning. From the start you can keep it, or offer it as an incentive discount for volume commitments. Later on, when you decide you do need help distributing, you have the margin built in and don’t have to either raise prices or reduce your margin.
Ok, sounds like a wise decision that can only be beneficial. I will account for a distributor in my pricing structure in excess of the 100% on top of whole sale. Thanks for your advice.
Would mind expanding on this? Say the wholesale cost of a bar, including profit, is $3.33. Should you then price it to the retailer at $5, building in an allowance of $1.67 for a future distributor/broker? Assuming the retailer prices the bar at double their cost, the retail price will be $10.
Is there a “typical” retailer markup for chocolate? For instance, I’ve read that a general rule of thumb for clothing retailers is to set the retail price of an item at 2.3-2.5 times what they paid for it. Is there something like that in the chocolate world?
Retail Shops generally look for “Keystone” a wholesale price that they can double for retail.
Food Industry looks for a 40% margin.
Sounds like you’re in an exciting place – Good Luck
Thanks a lot for bringing up this very important topic. It seems to me that at stores, the highest I see chocolate bars sold for is around $7.99. If I am using very good couverture, I see the bar costing $1.40 in material costs (100grams of very good chocolate and the cost of any inclusions). Am I way off? With packaging and labor also involved, that would bring it up even more. So I wonder how do I bring the costs down? Of course, I understand if you do not wish to share any personal information. Thanks for creating this post
There are several European imports (Bonnat, Valrhona) that sell for $20-35 for 80gr or 100gr bars. Bars of Fortunato #4 (Peruvian beans converted to chocolate in Switzerland) that are melted here in the US easily cost upwards of $12 for a 56gr bar.
Materials cost is a part of it, and European chocolates are very dependent on exchange rates. Up there are labor costs, the cost of packaging, and fixed overhead. Short of moving, you probably can’t do much about fixed overhead, so you have to look at the cost of the chocolate itself, and find ways to reduce labor and packaging costs.
After buying a number of bars and making some myself the pricing thing is somewhat confusing. Probably the best prices I have found is at some of the Whole Foods. I generally convert to pounds in order for comparison. Much of the Lindt, Godiva and other brands generally sell in the low $20 a pound. Usually $4.00 for a 3 to 3.5 oz bar. Generally, the smaller higher quality producers are in the $40-$60 range. Most of these bars are somewhere between 2 and 3 oz. From what I see as far as pricing for beans, roasting, winnowing and grinding is around the $3 a lb range. Transport, customs another $1.50 or $3 depending on size and method. If you ship beans by the container, you may bring this down. You conche, age, temper and mold, maybe another $3 a lb. in costs. If you are doing high end chocolate, you probably have more waste in bean selection, testing and other factors I am unaware of thus far. As a small producer of lets say 25 tons a year you probably need to charge somewhere between $8 and $10 a pound wholesale to make a living working very slim. I assume that would put you your chocolate in the low $20’s retail and if you can do something special you can get into the next level of pricing. I have found some of the expensive chocolate bars to be of the medium range as far as quality. I would love to hear from anyone who has traveled this road and adjust what I have discovered.
Thank you for the reply. the European bars you mentioned would be a very tough sale here in Chicago. Obviously, the couverture is going to be the most costly element in a chocolate bar. Do you have any recommendations for couvertures or favorite couvertures that are high quality yet reasonable in price?
Yes, the higher the price the smaller the audience. It’s worth it – on occasion – to purchase one of the Bonnat Porcelana or vintaged Valrhona bars, and it’s also important to remember that even at those prices, high end chocolate are still among the most affordable luxury goods on the planet. Think about, for about $20 bucks I can go into a store and get some of the best chocolate anywhere. Can’t do that for any alcoholic beverage I can think of …
My personal opinion is that most people who think about melting chocolate into bars are stuck in the single-origin mindset, which translates into one bar = one chocolate. People may not consider domestic producers like Guittard as quality producers, but they are. Now – you may not like the flavor profiles compared to others. That’s a different question.
Most people when they say they don’t like the flavor profiles look elsewhere. The creative melter will consider blending chocolates to achieve flavor profiles that are unique to their line. Don’t like the intensity of a 55%? Add a small amount of 90%. Want to make a dark milk? Go ahead – and blend.
All but one or two of Guittard’s couvertures, in bulk, cost under $5/lb. You can do the same with Barry-Callebaut, Kakao Berlin, Belcolade … all of which are in the $3-4/lb range. Think something’s too sweet or too bland? Blend (with something that has a higher cocoa content). It’s easier to do this when all the chocolates come from the same manufacturer, but that’s a generalization that can easily be overlooked.
Agreed, we don’t make chocolate we make products from great chocolate and sell american artisanal bars we look for a minimum of 80% markup and often are able to do 100% markup. Because you also have to factor in shipping/freight which drags down revenue.
To those that say you can’t sell high end bars I beg to differ, it just takes a conversation. We have bars from 5.50 to 15.00 and I am very often surprised when a high end bar goes after just a discussion about the origin, the creator, the methodology, or maybe just a simple chat on good chocolate. You may not move a lot of them, but I feel it is always good to have a high water line that way when people see the range they gravitate towards the middle and onoccasionwill go for the gold per-say.
Worst case if you don’t move the bars, lose a few percent and liquidate them in a fire-sale.
If there is one thing I have learned over the past 4-5 years is never judge a book by its cover and never try and guess consumer mentality on what they are capable of doing. Yes that’s a double edged sword too, hehe.
Much luck in your endeavors Dylan, let us know what you’re up to.
I am a bean-to-bar chocolate maker, so pricing structure is be a bit different than couverture. Yet many basic principles remain the same. We both have fixed costs that can not be adjusted. Paying yourself and employees less when starting is one way, researching cheaper packaging is another, sourcing beans directly from farmers instead of middle men cut costs as well. I agree a lot with what Clay and Andy say below about making people realize what they are purchasing. You can buy a few of the best chocolate bars in the world for $20. Not many other quality foods and beverages are like this. It is the difference between getting a $7 bottle of wine vs a $70 bottle and often times it is just explaining the difference to people who don’t quite understand what we do with chocolate.
As far as what I’m up to, i am closing on a lease Monday to begin setting up a bean-to-bar factory. The company is called Manoa Chocolate Hawaii. It will be a very exciting and busy next few months as we set up shop and find our way into boutiques and supermarkets.Thanks to everyone for their shared experiences on this page.
we make our own couverture bars in our retail store so our profit margin is VERY good… 3.3oz bars sell for $2.95 four for $10. And like Clay said about blending. I have been blending couvertures for over 18 years to get both percentages and flavors which I am looking for. It can be a lot of fun!
Something about keystoning you might want to consider…. There is shipping as well. All retailers will deal with this differently.
+ wholesale * 2 = retail …(sometimes the retailer will “eat” the shipping)
+ (wholesale + shipping) * 2 = retail
+ (wholesale * 2) + shipping = retail
plug your wholesale number in there and you will find that the retail amount changes quite a bit on a case of bars. Understanding how your customer is going to do their own math may help you close the deal.
Thank you Clay, very informative post.
As you mentioned producer needs to add some markup for possible middleman.
What is a (average) usual percentage taken by a middle man?
I’ve seen anywhere between 10% and 50%. I created a worksheet andshared it so you can model the cost of selling a chocolate bar from the cost of cocoa beans through ingredients and overhead to distribution costs. If you’re not making chocolate from the bean you can download and modify the worksheet to reflect your cost structure.