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Why calculating cost of production is key to food production business success

Reference: FCC

Many food and beverage products are a labour of love, started when a market opportunity is identified by someone who has the expertise to develop a distinct product or formulation.

Labour of love
Companies may be well-aware of their product, material and labour costs, yet the costs associated with growing the business may be a blind spot. Small businesses can be so enamoured by their product, says Quebec consultant Yanick Bouchard, that they can fail to see some of the potential obstacles — or production costs — in their way.

“So many times, companies have great ideas and products, but they don’t know how to bring them to consumers,” says Bouchard, whose company, Solution YB, works with small and medium-sized businesses to help bring their products to market. “It’s quite a bridge to cross.”

Factors such as retail price, cost per unit and distribution costs are fundamental yet frequently overlooked costs. They need to be considered up-front to ensure the business’s continued viability, he says.

Hard to go back
What sometimes happens, Bouchard explains, is detailed costs are forgotten at the time of launch. Then, several months into the venture and with some experience, the costs are identified. Processors may be tempted to increase retail prices to cover overlooked expenses. It is a tough move, Bouchard says.

“[Processors] know the cost of ingredients for that one unit, and how much labour [it requires], but they also have to include all of the other variable and fixed costs that contribute to financing the product,” Bouchard says. “This is where very often the problem starts, because they’re not clear on that level.”... Read More