The price formula

When to use it

After the cost map, then every time you open a new sales channel or your costs change.

The framework

The floor and the ceiling:

• The floor: your real cost per kilo. Never sell below it.
• The ceiling: the market price: what your customer pays today, and to whom.
• Your price: somewhere between the two, and you choose it.

Six questions, in order:

1. What goes into one kilo? Every line in the cost map.
2. What changes with quantity, and what stays fixed? Milk and packaging grow with every kilo; rent doesn't change.
3. How many kilos do you produce a month? The more you make, the smaller each kilo's share of the fixed costs.
4. How much do you need to keep going, and how much do you want to earn? Profit is a line you write in, not whatever happens to be left over.
5. Where do you sell? A shop takes a margin, delivery has a cost, and selling direct takes time. Each channel has its own price.
6. What do others sell at? Visit at least three shops and write the prices down.

If the ceiling is below the floor: cut a cost, change the channel, or change the product. Don't sell at a loss hoping things will "get better".