IF YOU HAVE A CONSUMER PRODUCT STARTUP, DON'T WASTE YOUR TIME AND MONEY. LEARN WHAT HAS WORKED SO YOU CAN APPLY IT TO YOUR COMPANY.
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Markup depends on the retail channel in which you sell.
Specialty/natural channels run 50-65%, drug is 45%, grocery is 35%, mass is 30%, and club is 14%.
If you sell direct to consumers, then the anchor price on a single unit of your product would equal that specialty/natural channel price.
In my experience and opinion, your EBIT (earnings before interest and taxes) should be 30%+ if you sell direct to consumer. This is your most profitable channel – selling direct to consumers.
For retail, you should strive for a 20%+ EBIT.
For cost of goods sold (COGS), you should strive for 40% or lower, which is not necessarily possible when you are a startup or doing smaller volume. I see COGS in the 40%-70% range for startups and small food companies.
The above profitability and COGS margins assume you are selling at volume, not at startup. You likely won’t have EBIT at 30% or 20% for direct and retail, respectively, and COGS at 40% or lower when you are a startup or running small volume, but you want to make sure you can get to these metrics as you scale.
In reality, especially if you are selling an organic or natural product, it can be difficulty even at volume to hit the 30% and 20% EBIT metrics, but to be sustainable, you really need to shoot for these metrics.
If your forecasting reveals that you may not be able to hit these metrics at volume, then go back to R&D to redevelop the product with more value that will allow you to charge the price that will give you the profitability you need to be sustainable.
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