How to price a food product: costing, trade price and RRP
To price a food product, add up what one unit costs you to make and deliver (ingredients, packaging, labour, overheads and delivery), set a trade price that covers that cost with a margin for you, then check the shop can sell it at a sensible RRP after taking its own margin. Last, compare that RRP with similar products already on the shelf. This guide shows how to price a food product step by step, with a full costing for one product and the formulas to reuse for your own range.
1. How to cost a food product
Cost each product by the batch, then divide by the number of units you can sell from it. Count sellable units after waste: the jar that cracked, the bake that came out wrong, the bottles you open for tastings. Five lines cover everything.
Ingredients
Use what you paid on your last invoice, including delivery charges from your supplier. Weigh what goes into a batch, including what is lost in trimming, cooking down or sticking to the pan.
Packaging
Every item one unit leaves with: jar or bottle, lid, label, seal, tissue or sleeve, plus its share of the outer case and any void fill. Packaging prices change with order size, so cost it at the quantity you buy.
Labour
The hours a batch takes, from weighing out to labelling and packing, at an hourly rate. Include your own time at the rate you would pay someone to do it. If you leave yourself out, the price only works while you work for free.
Overheads
Kitchen or unit rent, utilities, insurance, equipment, software, accountancy and trade show costs. Add up a typical month and divide by the units you make in a month. If you make several products, share overheads by units or by production time.
Delivery
What it costs to get an order to a shop: courier charges, fuel and van costs for your own deliveries, and the packaging that protects it in transit. If you offer free delivery over a certain order value, you pay this on those orders, so it belongs in the cost.
2. A worked costing for one product
Here is a full costing for a fictional Bristol maker, Wildfire Chilli Co, for its Smoked Habanero Chilli Sauce in 150ml bottles. A batch gives 240 sellable bottles, and the business makes four batches a month.
| Cost | How it's worked out | Per bottle |
|---|---|---|
| Ingredients | £168 per batch ÷ 240 bottles | £0.70 |
| Bottle and cap | £0.38 each | £0.38 |
| Label | £0.12 each | £0.12 |
| Outer case | £0.90 per case of 6 ÷ 6 | £0.15 |
| Labour | 8 hours × £15 per hour = £120 per batch ÷ 240 | £0.50 |
| Overheads | £300 a month ÷ 960 bottles a month | £0.31 |
| Delivery | £9.60 average per order ÷ 24 bottles per order | £0.40 |
| Total cost | £2.56 |
Packaging and delivery together come to £1.05, more than the ingredients. Volume discounts on bottles and fuller delivery runs are where this product's cost comes down fastest.
3. How to price a food product: from cost to trade price and RRP
Wholesale pricing for food: the two formulas
Two formulas take you from cost to shelf. Both use margin, which is profit as a share of the selling price.
Trade price = cost ÷ (1 − your margin)
RRP excluding VAT = trade price ÷ (1 − the shop's margin)
Wildfire wants at least a 35% margin. Its lowest trade price is £2.56 ÷ 0.65 = £3.94.
At a shop working to a 35% margin, that trade price needs an RRP of at least £3.94 ÷ 0.65 = £6.06.
Similar 150ml sauces in the shops Wildfire wants to sell to are priced from £5.95 to £6.95. Wildfire sets the RRP at £6.50 and the trade price at £6.50 × 0.65 = £4.23, rounded to £4.20.
Shop's margin: (£6.50 − £4.20) ÷ £6.50 = 35%
Wildfire's margin: (£4.20 − £2.56) ÷ £4.20 = 39%
Profit per case of 6: (£4.20 − £2.56) × 6 = £9.84
Chilli sauce is zero-rated for VAT, so the RRP and the RRP excluding VAT are the same here.
Margin and markup give different answers
Adding 35% to a cost of £2.56 gives £3.46. The margin on £3.46 is only 26%. Shops talk in margin, so do your sums in margin too, and use the formulas above.
Ask each shop what margin it works to
Margins vary from shop to shop and category to category. Ask buyers what they work to and check your trade price against it. Our guide to getting stocked in farm shops and delis explains how buyers use your RRP to check their margin.
4. How VAT changes the retail price
Most food in the UK is zero-rated for VAT. Crisps, confectionery, soft drinks and alcohol are standard-rated at 20%. For those products, take the VAT off the shelf price before you work out anyone's margin.
Wildfire Chilli Tortilla Chips, 150g, standard-rated
RRP including VAT: £3.00
RRP excluding VAT: £3.00 ÷ 1.2 = £2.50
Trade price at a 35% shop margin: £2.50 × 0.65 = £1.625, so £1.63 ex VAT
If Wildfire is VAT registered, the invoice adds 20%: £1.63 + £0.33 = £1.96 per bag
Get this wrong and the shop loses out. Working from the £3.00 shelf price gives a trade price of £1.95, which leaves the shop a margin of 22% instead of 35%.
On your price list, show trade prices excluding VAT and mark the VAT rate on each product, so a buyer can see what the invoice will add.
5. Leaving room for wholesalers and distributors
A wholesaler or distributor buys from you and sells to shops. They need their own margin, and the shop still needs its margin at the same RRP. So a distributor pays you less than a shop would.
Margins vary between distributors and depend on what they do for you: holding stock, delivering, or sending sales reps to shops. Ask each one what it works to and what price it sells to shops at. Then work out your price to them:
Your price to the distributor = their price to the shop × (1 − their margin)
Before that conversation, set your floor. If Wildfire needs to keep at least 25% on distributor sales, its floor is £2.56 ÷ 0.75 = £3.41. Any offer below that loses money at this cost.
If the distributor's price falls below your floor, you have three options: raise the RRP if the shelf will take it, bring your cost down (bigger batches, packaging bought in larger runs), or keep that product for direct sales. Do this check before you launch, so the price you give your first shops leaves room for a distributor later.
6. How to price food products against what is already on the shelf
Your RRP has to make sense next to what a customer sees on the same shelf. Visit three to five shops you want to sell to and note every product similar to yours.
| Shop | Product | Size | Shelf price | Price per 100g or 100ml |
|---|---|---|---|---|
| [Shop name] | [Brand and product] | [150ml] | [£6.25] | [£4.17] |
| [Shop name] | [Brand and product] | [200ml] | [£6.95] | [£3.48] |
Compare price per 100g or 100ml as well as the shelf price, because pack sizes differ. Wildfire's £6.50 for 150ml is £4.33 per 100ml.
- If you're above the shelf, give the customer a reason they can see: an award, a local maker, an unusual ingredient. Put it on the label and on your trade sheet.
- If you're well below, check your costing. A low price can look like a mistake, or leave money on the table.
- If the numbers don't work at any shelf price, change the product: a smaller pack, a cheaper jar, a bigger batch.
Review your costing whenever an ingredient, packaging or delivery price rises, and at least every quarter. When the numbers change, update your sheet and give stockists written notice. Our guide to laying out a wholesale price list and trade sheet covers how to present the prices and keep them current.
Questions about pricing food
How do you work out the price of a food product?
Add up the cost of one unit: ingredients, packaging, labour, overheads and delivery. Divide by (1 minus your margin) to get the trade price, then divide the trade price by (1 minus the shop's margin) to get the RRP excluding VAT, and check it against similar products on the shelf.
What is the difference between trade price and RRP?
The trade price is what a shop pays you for each unit, usually shown excluding VAT. The RRP is the shelf price you recommend, and the gap between the two is the shop's margin.
What margin do shops take on food products?
It varies by shop and category, so ask each buyer what they work to. Check it with this formula: (RRP excluding VAT minus trade price) divided by RRP excluding VAT.
Is food VAT free in the UK?
Most food is zero-rated for VAT. Crisps, confectionery, soft drinks and alcohol are standard-rated at 20%, so take VAT off the shelf price before working out margins on those.
Should I include my own wages when costing a food product?
Yes. Cost your time at the rate you would pay someone else to do the work. Otherwise the price only works while you go unpaid, and it won't cover a hire when you need one.
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