Price Your Product Right

At Gary and Saundra Polletta’s Edgewood Bakery, the price of raw ingredients has jumped almost 25%. [Photo: Kelly LaDuke]

'People are More Cautious'

Gary W. Polletta has owned Edgewood Bakery in Jacksonville for 30 years. In the last year, the price of raw ingredients for his baked goods has jumped almost 25%. In February he raised prices for the first time in a year, but he knows he has to be careful: “You can only raise the price of a donut so much before people say it’s not worth it and quit buying them. Our customer counts are the same or better than last year, but our amount purchased per customer is down, which tells me people are more cautious about what they’re going to spend money on,” he says.

Polletta says he tries to educate his customers about the rising cost of his raw materials while maintaining his product quality and pricing his products fairly. “We can figure our costs exactly on an item,” he says. “But there’s not a set formula on what you can charge. Some items have a perceived value that’s more than the actual cost. Other items cost a little more to make but you can’t add three times the ingredients cost because it puts the price so high people just won’t buy it.”

Polletta says he’s making less money today than he made five years ago because he’s absorbing some of the increased costs. But long-term benefits — including maintaining his customer base — may make up for the short-term income loss, he says. If the cost of raw ingredients such as flour decreases in the coming months, Polletta’s income will bounce back, and “It would just be that much longer before we have another price increase,” he says.

Suzanne Specht, assistant director of the Florida Gulf Coast University Small Business Development Center, says business owners have to understand both fixed and variable costs, and they have to watch what their competitors are doing. “It’s not a science, it’s more like an art,” she says.

Consumers, Specht says, are sensitive to price, but added value — good customer service, a good brand or even something as simple as a cordial greeting — can make it more difficult for them to leave when prices increase. “They won’t switch for a nickel or two,” Specht says.

Once business owners have determined how much to charge, they still have to monitor the market and react to ever-changing conditions or they won’t survive, Polletta says. “Unless you’re living in a cave, everybody knows the cost of everything is going up. Everybody knows if you don’t raise your prices, you don’t stay in business.”

Tags: Florida Small Business, Entrepreneur