Pricing against competitors without copying them

Competitors' prices tell you whether your price is possible. They do not tell you what it should be. First work out your own floor: the lowest price that covers your loaded cost and your minimum margin. Then compare with others for the same quantity (per 100 g or per piece) and in the same channel. That lets you decide whether to sit below, in the middle or above, and to know why.

Why copying a competitor's price is risky

When you copy a price, you copy a cost you know nothing about. The baker at the next stall might buy flour in bulk, not count their hours, or simply be losing money without realising it. Take their price and you inherit their numbers, good or bad.

It happens the other way too. Plenty of new food businesses undercut everyone "to get started" without checking whether that price covers their cost. They sell well, work hard, and have nothing left at the end of the month.

So the order matters: your numbers first, the market second.

First, your floor

Your floor is the lowest price you can sell at without losing money. It comes from your loaded cost and the minimum margin you need to cover everything outside the unit cost (stall fees, transport, phone):

floor = loaded cost ÷ (1 − minimum margin)

Below that number, every sale costs you. Alongside the floor, work out your target price with the margin you actually want. If you are not sure how, setting a price that hits your target margin has the formula, and markup vs margin explains why adding a percentage to cost is not enough.

How to collect competitors' prices

Make a short list of four to six real competitors. Real means your customer actually weighs them up when buying:

• Same channel. If you sell at a farmers market, look at the market. If you sell online with delivery, look at other online sellers and the delivery apps. The supermarket is a different market, though it is a useful reference for the lowest price around.
• Same product. A factory loaf and a long-fermented sourdough do not compete on equal terms.
• Exact size. Write down the weight or count. Without it the comparison is useless.

Bring everything to the same unit: price ÷ grams × 100 = price per 100 g. Then an 800 g loaf and a 1 kg loaf can be compared.

Compare like with like on tax as well. If shelf prices include sales tax and yours are quoted before tax, take the tax out of theirs before comparing. Check your local tax rules if you are unsure.

Worked example: a sourdough loaf

You bake 900 g sourdough loaves and sell them at a Saturday farmers market and by preorder. Your loaded cost:

To keep it simple, the example compares prices as the customer pays them and assumes no sales tax.

Your floor, at a 40% minimum margin: 3.90 ÷ 0.60 = $6.50. Per 100 g: 6.50 ÷ 9 = $0.72.

Your target, at a 50% margin: 3.90 ÷ 0.50 = $7.80. Per 100 g: $0.87.

Now the competitors. These prices are examples; you would note the ones around you:

What the table tells you:

• The supermarket is below your floor. You cannot compete with it on price and should not try. Your customer is not the one buying the supermarket loaf.
• The bakery and the other stall sell comparable bread, in or near your channel, at $0.94 to $1.00 per 100 g.
• Your target of $0.87 per 100 g is below both. You were about to leave money on the table.

You decide to charge $8.50. That is 8.50 ÷ 9 = $0.94 per 100 g, the same as the bakery and still below the other stall, and your margin is (8.50 − 3.90) ÷ 8.50 = 4.60 ÷ 8.50 = 54.1%.

Notice you did not copy anyone. You started from your cost, and the market showed you there was room above your target. The check works in both directions.

Where to sit: below, middle or above

Below the range. Only makes sense if your cost really is lower (you buy better, you bake bigger batches) and you still clear your floor. Otherwise you are giving margin away.

In the middle. The comfortable spot when your product is comparable. Customers do not feel they are overpaying.

Above. Works if customers can see the difference: better ingredients, better presentation, delivery, bigger portions. Say it clearly on your sign, menu or posts. If you charge more and nobody understands why, you will sell less.

If your floor is above the market

If even your floor sits above what comparable products sell for in your channel, the price is not the problem. Your options:

• Look at the cost. Are you buying in the right place? Is your waste reasonable? Is the packaging more expensive than it needs to be?
• Change the size. A smaller loaf can have a price people pay, at the same margin.
• Change the channel. A product that does not work at the market might work for café orders or events.
• Drop it. Sometimes a product does not pay. The guide on which products to keep, push or drop shows how to decide with numbers.

When you sell to shops

If you sell to a shop or café, the competitor prices that matter are on their shelf, not yours. The shop adds its margin to your price, and the result has to fit within what sells there. So it pays to work backwards from the shelf price. That is covered in wholesale and retail prices for the same product.

When competitors change their prices

If a competitor drops their price, do not react the same day. Ask whether your customers have actually left and whether your floor allows a cut. If a competitor raises theirs, do not follow just because they did: raise yours if your costs justify it. Either way, how to raise prices without losing customers helps you decide how much and how to tell people. The full method for reaching a price is in how to price a food product.

Do it with the calculator

Put your recipe and minimum margin into the food cost calculator to see your floor and target price before you go and look at what everyone else charges.