Know your bottom line
- Always factor all operating costs into your prices
- Balance passion with profitability
- Don’t make the lowest price your main selling point
Ivan Smith’s knack for adding things up when setting prices is a habit anyone selling food to consumers should acquire.
“A lot of local food producers don’t take the time to do the math,” says Smith, owner of Big Bend Bison Ranches and Big Bend Markets.
“They just go to a few grocery stores, look at what they’re charging for something and think, ‘If I sell it for that price, I’ll make money. It’s not that simple.”
Add up the costs
The 36-year-old Albertan buys from about 40 bison producers and has sourced animals from many more over the past decade. Many of them sell – or used to sell – meat out of their freezer and figured they were making good money until Smith brought out his pencil.
If you’re going to sell local food, don’t market on price – do it on your product, passion and ideals.
“When I sold out of my house, I thought I was doing well until I started going to seven farmers’ markets a week,” says Smith, who began raising bison in 1998. “I looked at the time it was taking along with other costs, and knew I had to start factoring those in. As soon as I did, I had to put my prices up.”
Balance passion with profitability
A fanatic about bison’s merits as healthy and lean natural meat, Smith started with just 42 animals, grew his herd to 2,100 head by 2008, and started buying from other producers.
“I wanted everybody eating bison, so I kept my prices low – below the cost of beef,” he says. “I wanted to make a point, but I created a monster. Long afterwards, I’d have customers come in and say, ‘How come that bison burger is $8 a pound? It used to be less than hamburger.’”
In 2007, Smith bought his first meat shop in Red Deer. That meant more overhead costs, plus wages, but also the chance to compare his margins on bison to the other meats he sold.
Finally, he was able to look past retail prices and focus on profitability. It was then that he admitted the obvious – small players in the food chain who compete on price are at a huge disadvantage.
Don’t make price your selling point
Smith had one more lesson to learn about retail pricing: You don’t have to be the cheapest. Big Bend Markets is booming, with sales growing by 60% annually in the last three years.
These days, when a bison supplier figures he’s making a fortune off him, Smith has to get out his pencil again to show his markup is reasonable. He suspects many match what other sellers charge, rather than analyzing their costs.
“If you’re going to sell local food, don’t market on price – do it on your product, passion and your ideals,” he says. “It’s one thing if it’s just a hobby. But a lot of people start that way and when things take off, they’re stuck. Once people expect a certain price, it’s really hard to raise it.”
If you don’t know your production costs and margins, it’s hard to succeed in farming. Why would it be any different in retailing?