Running a small food business involves the ability to balance your passion for your product with the pragmatism of being a business owner. At times, the need to increase prices, both wholesale and retail, is an unavoidable reality, so let’s look at some of the nuances of when and how.
Step 1: Do you really need to raise prices?
To begin with, assess the need for a price increase. In other words, have your raw materials, supply chain challenges, commercial kitchen rental, labor shortages and rising labor costs hit your bottom line? Remember, this is affecting businesses across the board, so acknowledging them is your first step.
Step 2: Normalize the idea of increasing prices
Needing to raise prices is not unique to you or your business. In fact, it’s not unique to small food businesses as a whole. Normalize the idea for yourself and your customers. This is a necessary step for the survival of your business. Remember, you’re not a non-profit; your goal is to build a sustainable and thriving food business.
Step 3: Know your numbers first
Just having a gut feeling doesn’t cut it; you first need to thoroughly understand your COGS. There are tools to use to get clarity on your COGS. Grabbing new prices out of thin air rarely works. (We have a downloadable eBook that’s all about pricing…there’s even a COGS calculator!)
Step 4: Decide on the new prices
At this point, it’s time to put on your CEO hat. Make sure you’re fully informed before making any changes. Consider all increased costs, including potential increases from co-packering or your commercial kitchen rent. Anticipate future increases in your production expenses so you can make the best-informed decisions on your price increases.
Step 5: For wholesale accounts, communication is key
Even though this might be difficult, for your wholesale accounts, it’s best to give buyers 30 days’ notice. If you can’t do 30 days, at a minimum, give 15 days. It’s not necessary to provide detailed reasons for the increase, a quick note pointing to increased labor or ingredient costs is sufficient. Just to make sure your email was received (and read), ask for buyers to confirm receipt. That’s a way of avoiding unpleasant surprises.
Step 6: Remember to update prices on all sales channels
This includes price files for grocery stores, farmer’s market signage, your website/Shopify site and online platforms like Amazon and Faire Market. Is the contact info for your buyers all over the place? As can be seen, this is a great opportunity to create a spreadsheet, keeping all contact information in one place.
Step 7: Avoid broadcasting your price increases on your website
Another important point: Yes, transparency is important, but it’s not advisable to announce you’re increasing prices on your website. Over-communicating on shipping delays is fine. Attempting to explain away your new prices, for your general audience, is not necessary. Many people won’t even notice.
Now that you have a strategic plan, here are two ideas to consider:
Idea: Consider an email promotion
To soften the impact on retail customers, consider running a promotion, encouraging them to buy before the prices increase.
Another idea: Timing your price increases matters
It’s not uncommon for prices to increase effective January 1st. Being that retail customers aren’t surprised, so consider following suit.
In conclusion, for small food business owners, navigating a price increase is never fun. Above all, using a strategic and transparent approach will lessen the pain for you and your customers. After all, you want the increase to be as smooth as possible. Acknowledge the industry-wide challenges. Understand your costs. Communicate effectively. Remember, you’re not a non-profit. You’re not in business to simply survive, but to thrive.
We have tons of free resources to help small food businesses run more effectively. Ready to up your game? We’re here to help. Crafted Kitchen offers flexible, affordable commercial kitchen rentals in Los Angeles. Schedule a call!
Crafted Kitchen is a shared use commercial kitchen in the Arts District of Los Angeles. We offer flexible kitchen rentals to small food businesses. Rent a kitchen today!
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