Three years ago we talked about ways to present customers with their pricing. In the interest of getting back to basics we will analyze different methods to calculate the prices for a customer. We have covered this before in bits and pieces but it is a good thing to have these methodologies at your fingertips.

A food guy's pricing manual. What is your price?

Part 1 (Method):
For starters there are several ways to base your pricing to your customers, They are:
  1. Cost+ pricing: (also known as markup), calculated using % or $.
  2. Margin Base Pricing: The price is calculated using a %.
  3. Raw pricing: The price not based on any cost.

To decide which one to using the linked guide will help.

Part 2 (Cost basis):
Determinine the cost basis to use.  This may look intimidating, but the ability to select the right cost basis will help you configuring pricing calculations that match the unique product flow in your business.

Cost Type What it means How it’s updated
True Cost of product from vendor+ freight Through PO’s, receiving, or manually
Salesperson Padded by % or $’s By item or categories based on any cost
Average The average cost of items Through PO’s or receiving (correctly)
Invoice From the invoice of the vendor Through receiving or manually
Purchase Cost Using vendors Unit of Measure Through Receiving or PO’s
Market Cost What the “market” for that item is Importing or receiving or mass update

Warnings:

  • Distributors must make sure their cost of doing business in in their price or they will not see the true profit they desire.
  • Processors need to make sure all their costs are accounted for including labor and plant expenses.


Part 3(Implementation):
This is where the Food System comes in. QuickBooks users should be using an add-on package to accomplish this level of sophistication.

  1. Contract Pricing: Pricing just for that customer or a group of customers.
  2. Price levels: Determine by the user and named by the user. Multiple levels required.

These are the implementation tools, but updating pricing is a critical part.  Make sure you watch your costs and update in a timely fashion. Weekly is the most popular for Protein guys whose prices change with the market.  Having a practical way to change Market cost is an advantage. Your system should allow all pricing methods regardless of how you implement.

MAKE SURE YOU HAVE A PRICING STRATEGY





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