Hi, Paul from The Cocoa & Roast Club again. We supply and match artisan coffee and luxury chocolate and deliver direct to your door. We just started our subscription box and are sharing some of our experiences with you guys.
In our first post, I explained how we got started. Equally important is calculating the cost of goods and the sales price of your box. This was an iterative process and the price changed drastically as I started to finalise my suppliers and total prices I was willing to pay.
First stage: Break down what's in your box
Once I had decided what was going to be in the box (just to recap – 250g of coffee, 2 large bars of artisan chocolate) I needed to break down what materials and supplies this box would consist of. The list ended up being as follows
- Mailing box
- Mailing box logo
- Double sided tape
- Kraft 250g coffee bag with valve
- Coffee bag label
- Coffee type label
- Coffee insert
- Chocolate insert
- Generic cocoa and roast label – circular
- Chocolate bar x 2
- Tissue paper sheet x 2
- (Assembly/ labour time)
As you can see, what appears to be a simple coffee and chocolate box now equates to a fair amount of product to ensure that the experience is as we want it – that of luxury and enjoyment.
The next stage was to feed this into a detailed profit and loss spreadsheet. What I mean by detailed profit and loss is that it includes each item listed above as the cost of product instead of just having an overall cost of sale. I found doing it this way I could play around with prices for each component to see how much it influenced the gross margin of the box and as a result the influence on my break even point i.e. I had to make sure the number of boxes I sell covers the cost of operation.
I’ve added my excel budget template that I used here if you would like to see it and get an idea of what I am talking about.
I started the whole exercise off with what I was prepared to pay for each item and what I was thinking of charging. (Hence the iterative process). We quickly realised that our initial ideas were unrealistic and had to iteratively adjust our expectations!
Pricing the box:
When trying to decide the price I had two slightly contradictory considerations in mind:
- Be aware of competitor pricing.
- Not be dictated by competitor price. Make your own price based on your product and its USP’s
Don’t be too led by competitor prices- if your product is better, don’t undercut yourself by reducing your selling price. Instead, use marketing to focus on the uniqueness and quality of your product, instead of focusing on price.
That being said it's also good practice to be aware of competitor prices. You can only sell your product for double the price if it’s double the quality.
For us, £19.99 was the perfect price. At this price we still manage to make a small gross margin which allows the company to operate, whilst offering excellent quality and value for money
For our business, our biggest cost allocation is for the product (coffee & chocolate), and is a cost which varies monthly. Even a difference of 50p in price can affect our margin, so I aim to plan suppliers up to 3 months in advance in order to sufficiently plan our budgets.
Prices in hand, I finalised suppliers by looking at who fitted with our brand. I priced up stock at various quantities to see how much realistically I could afford to buy in a cost effective way. Inevitably, the more you buy, the cheaper it gets and it’s amazing to see just how much the cost of product drops as quantities increase.
This can be a difficult one and will greatly dependent on the type of box you are supplying, but in our case, we felt it would be better to include delivery in the overall cost, rather than adding it on at checkout.
Doing some quick research on “Parcel2go” or “Parcelmonkey” made me realise that there are certainly cheaper options out there than the standard company we all associate with delivery (naming no names…!). We have ended up using “MyHermes” who offer a tracked service for cheaper than normal second class delivery. Absolute jackpot!
Just consider the delivery when it comes to pricing. It sometimes might be better to show it as a separate item rather than bump up the overall cost of the product in some situations.
Unfortunately as we are selling a luxury we need to add VAT at some point.
You do not need to become VAT registered until you expect to or exceed £83,000 turnover in your financial year, so we have not become vat registered yet as a result.
There are two ways you can approach this issue. You can ignore the idea of VAT completely until you reach the threshold, but then you need to either add 20% to your retail price or swallow that vat up and your GM takes a nose dive. Alternatively, (and I would recommend), you can be prepared early and add it to your price from the start.
For us the actual cost of the box is £16.66 but with VAT it comes to £19.99. We found this to be the best way to avoid any problems later on. However, it is worth pointing out at this point that whilst we are not VAT registered, we cannot claim VAT back either so we are paying higher than anticipated costs for our products. It all evens out.
Payment Process charge and Web Hosting Charge:
Why we went for them I’ll detail in another blog 🙂 but basically they both take a small fee for each order we receive. I’ve added them in as a cost of sale on the spreadsheet already and are calculated based on your sales price.
There you have it. Pricing breakdown of a box. I hope you find it useful any questions give me a shout, we would love to hear from you.
All the best.
Paul - The Cocoa and Roast Club