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Raising Prices


gelaro

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I would tell the location that you are forced to raise prices due to your costs.

You could leave a few things at current pricing such as nuts and crackers and just  raise chocolate.  Check your cost and commission to location and figure new price.  After you raise you should hold your cost for a minimum of 12 months if not longer.

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Cost x markup + commision = price

If cost goes up, price goes up.  If commission is requested, price goes up.  I explain this to my accounts and let them decide if they want to increase prices for commission.

Otherwise I just update the prices as we fill the machines, trying not to do every item at the same time.  In the route I purchased prices were set by shelf, not by cost - so every pastry was $0.85, no matter what it cost.  I change those that I could to $0.75, some stayed at $0.85, and some went to $1.00 BASED ON THEIR COST to me

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All of our pastries ate at least a dollar and most are 1.25.  The grocery store is a minimum of $1 and hostess is more.  Our chips are. 90 - 1.25 and our chocolate is 1.25. Our crackers, meat sticks, nuts etc. are .90. Cookies and specialty items are. 90-1.50. You need to set price according to C store prices.  They may complain for a little while but they will get over it.

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Pricing strategy is an important part of this business, but few operators agree on how to do it.  Do you tell the account?  I will if there is a key contact I deal with often, just as a courtesy.  I won't go hunting for someone I barely know to tell them (and give the impression that they might actually have some say or can debate the matter).  If I raise a common price, say all the canned drinks in a stack machine, I will post a small sign for the first couple weeks so that people will know and not think the machine is broken when they put in the money for the old price.  I try to raise only one category at a time and space out the increases by 6 months or so.  If you leave prices alone too long, people will be more upset when you do finally raise them; as opposed to being accustomed to routine but not too frequent changes.  I try to make clear in a nice way when I am speaking to a new account that pricing is my territory - unless they want to subsidize costs for their employees.  I can make the point that if my prices are too high I will lose business, and my prices are reasonable compared to the local C-store.  At least that is my theory.... in 5 years I have only lost one account because of a price increase, and I didn't cry over it at all...

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I just raised accounts from

.65 to .75 on cans.

.60 up to .65 on 1oz chips

1.25 up to 1.50 on 20oz. 

Im sure they will "boycott" them for awhile.

I don't mind losing sales for a short time but really hate the thought of losing any customers or accounts. I have to keep telling myself that the pricing is not out of line and is fair. 

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There is nothing easy about raising prices in my opinion.  You can explain it to the customers to kind of ease the pain, or you can just raise them without any advanced notice.  On one hand, simply raising the prices might offend some people but the decision maker might not even pay attention.  On the other hand, notifying the decision maker that the prices need to go up might cause the decision maker to want to look for someone else.  The worst-case-scenario to me is when someone says "just take the machines out."  In all fairness, these accounts need to be canceled anyway if they cannot accept price increases.  Any way you raise prices can lead to some form of backlash.  It's difficult.

On top of the previous point, physically raising prices can be a pain too.  I have a lot of accounts with 90 cent candy and going to $1.00 can be difficult on older machines because I don't have $1.00 tabs and the label maker doesn't look as professional.

I feel for anyone who stresses over raising prices.  However, it should also be well understood that keeping the prices fair (relative to your area) is important.  There are some old vendors out there that don't ever want to raise prices in fear of losing customers.  They eventually get to the point where their equipment is so old and the prices are so low, revenue becomes very misleading (as profitability is very low) and the equipment holds very little value.  These vendors make it difficult simply by leading other customers to believe that things such as 80 cents for candy is a fair price.  When I explain to customers that I don't make a profit on 85 cent candy, they start to go on about how they can get reese's cups at walmart for 75 cents or that candy costs 65 cents at sam's club OR they try to tell me that I need to "buy in bulk" so that I can get a discount on candy so I can sell it cheaper and thus make more money.  You know, the vending experts that have never actually done vending before.

I find it 100 times easier to explain the need for price increases in person than over the phone.  Usually, when they see the sincerity in my tone about how I don't WANT to raise prices but I have to, they usually understand.  I have a very simple ideology for price increases too.  I make my top accounts profitable but I want to keep the prices low as to not get undercut.  On the bottom accounts, it's my way or the highway.  Oh, and I try to stagger price increases so I don't get canceled by multiple accounts at the same time.

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Chris brings up a big problem we have these days - wholesale is no longer limited to businesses.  Anyone can walk into Sams or go to their website and see what our product cost is, but they have no idea about overhead costs.  They just think that everything over product cost goes into our pockets.  It would be nice if everyone had the experience of running a business for a while to better understand how many different expenses we have to cover out of revenue before we make anything.....

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I changed the machine to $1.00 across the board and left the 20 oz drinks at 1.35. I figured the dime is probably more trouble than it's worth for most people. They (and I) wouldn't lean over to pick a dime up off the ground in the parking lot. I am interested to see what it does. I can always change it back. I didn't tell anyone. I just put a sticker on the machine that says "All Selections are $1.00." 

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31 minutes ago, gelaro said:

I changed the machine to $1.00 across the board and left the 20 oz drinks at 1.35. I figured the dime is probably more trouble than it's worth for most people. They (and I) wouldn't lean over to pick a dime up off the ground in the parking lot. I am interested to see what it does. I can always change it back. I didn't tell anyone. I just put a sticker on the machine that says "All Selections are $1.00." 

I'll pick up a penny if I see one one the ground :) 

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  • 2 months later...
1 hour ago, K services said:

How much markup is normal? If I'm clearing 40 percent (gross profit), is that considered a normal amount? Say I spend 105k on snacks and sold 145k, is this"typical".

If you are spending 105 k on snacks you should be selling them at the very least for 210k. If I can't at the minimum sell the product for double what I pay I won't carry it. 

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1 hour ago, K services said:

How much markup is normal? If I'm clearing 40 percent (gross profit), is that considered a normal amount? Say I spend 105k on snacks and sold 145k, is this"typical".

To calculate the gross profit margin as a percent, you need to know the revenues and the cost of the goods sold

1. Subtract the total costs of your goods from the revenues the sales generate to find your gross profit.
$145K (gross sales) - $105K (cost of goods) = $40K (gross profit).   

2. Divide your gross profit by your total revenue generated. In your example, you would divide $40K by $145K to get 0.2758

3. Multiply the result from Step 2 by 100 to find the gross profit margin percentage.  You have a 27.6% gross profit margin percentage.

I try to double my money, i.e. if it costs me $0.27 to buy it, it sells for $0.27 x 2, or $0.54.  Then I look at the cost and round to the nearest nickle,  In this example, I'd sell it for $0.55  This will provide you with a 50% gross profit margin (after cost of goods, before other expenses).

 


 

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Yeah... based off of the numbers you gave us, you are at 27.6% like Jim said, not 40%.  Our pricing here in Ohio seems to be different from most of the country.  Cost of living is cheap and people won't pay much for vending machine products and the competition's prices are also quite cheap.  I have seen prices go up a lot with the surviving companies in recent years but there are still so many old-timers out there and new vendors who keep prices incredibly low.  Having said that, I just did the math and I am currently at 42.5% year-to-date.  Trust me, I would like to be at 50% or more but it's not easy to get to in this market.

Just remember this: keeping your prices too low may keep you in your locations but it generally won't allow you to keep up with repairs and pay yourself without leaving a heap of debt in your tracks.  What happens to the low-baller vendors is that they ride it out until there's no room left for any profit and then they sell out for maybe half of what they hope to get.  Once they get out of the market, the new vendor(s) start to raise prices and customers call left and right looking for the same pricing they had before only to find out that those prices were non-existent.  At that point, they look for the next lowest pricing available or the best service.  The companies that provide the best service are the ones who manage to stay comfortably afloat by keeping prices profitable.

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By the way, I recommend raising prices in waves.  Ideally, you raise prices on customers different months (ie. 10% of your accounts in January, 10% in February, etc...) that way, should they decide to cancel you, you don't have too many machines coming back at once.  I'm also in favor of simply raising prices and leaving a note.  Talking to someone directly seems to result in more of a "just take your machines out" in some places than just leaving a note and raising prices (ie. prices will be raised by xx date).

 

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  • 3 weeks later...

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