Price
To sell a product successfully one must set a price fit for the product. Many ideas
and thoughts go into the decision of price, these are: the cost to produce one unit,
what profit is intended to be made, what is the demand for the product, who is your
target market, what is your competition’s prices and how new or useful is the product.
All these are key factors in determining the selling price of a product or service so they
are important to understand fully.
Using the commons corner store will cost us nothing to house our business, and
we will require no further office or storage space. What needs to be purchased before
the start up of the business, is a refrigerator, a blender and knives. The refrigerator will
need to be large enough to hold supplies for one week. The refrigerator will need to
hold enough milk for the week and enough fruit; because tropical twister will be using
one hundred seventy-five millilitres of milk in each product, and there is two selling
dates each week, which the intention is to sell fifty units each date, the fridge needs to
hold approximately five four litre bags of milk. The fridge is also going to need to hold
mangos, coconut, vanilla and strawberries. In each mango smoothie there will be
approximately one third of a mango. In the duration of one week the intentions are to
sell 40 mango smoothies, therefore needing fourteen mangos. In each week we intend
to sell 35 coconut smoothies. In each coconut smoothie there will be twenty five
millilitres of coconut milk therefore the fridge needs to hold a one litre carton of coconut
milk. Strawberry smoothies are intended to have twenty units sold each week. In each
smoothie there will be approximately two strawberries in each. So the fridge will need
to be able to hold about four cartons of strawberries (fifty strawberries). After
considering all of this the refrigerator will need to be approximately fifteen to twentytwo cubic feet. The refrigerator that Tropical Twister will purchase will be eighteen
cubic feet, made by a reliable and respectable company GE and will be bought from
Future shop for five hundred dollars. In the freezer we will store as much ice as
possible. The fridge will come with a seven year warranty, so to add value to the
company the fridge will be amortized over a seven year period. Knives will be provided
by all of the co-owners, so will not be a factor in the price per unit. A high quality
blender will need to be purchased as the base of Tropical twisters; this will be
purchased from sears and is a Hamilton Beach smooth pour 10-speed blender. The
features it pertains will be beneficial as it has 700 watts of power, an easy pour lid, the
ability to crush ice, multi speed settings, forty ounce capacity glass jar, stainless steel
mixing blade and the capability to make smaller sizes in a “travel size” mug. This
blender will be bought for fifty- nine dollars and ninety-nine cents. The blender comes
with a three year warranty so will be amortized for that period in time.
The cost of the ingredients is as follows: with Mangos from Food Basics at one
dollar each two buy the required mangos for the week it will cost fourteen dollars. As a
cost per smoothie it will be thirty five cents per unit. The milk will cost twenty dollars
for the week and will be purchased from any grocery retail store at four dollars and
ninety-nine cents per 4L unit. For each smoothie it will cost twenty cents per unit for
milk. The ice used will not be a cost as the water will be used from the water fountains
provided at school. Cups will cost two dollars per twenty-five cups at Dollarama
therefore as a weekly cost will need to be bought for eight dollars so for each unit the
cost will be eight cents. Strawberries per week will cost twelve dollars (2.99 per carton
of 14). Per strawberry smoothie the cost will be forty-eight cents. Coconut milk will be
bought in a five week supply at twenty-eight dollars and thirteen cents. This will make
the cost per unit seventeen cents per unit.
The general price mark up in the food industry is two hundred percent meaning,
one should charge twice what the product costs to make. This is a large factor and will
ensure a sizeable profit margin.
While conducting research we have concluded that two dollars and fifty cents is
the most desired price by the target market. While taking into consideration that the
target market is adolescence it is a fact that they have the highest percentage of
disposable income. This will help determine price because they will be able to purchase
products made by Tropical Twister.
Smoothies, or great tasting healthy drink alternatives are not traditionally served
at North Park SS. This adds a great novelty factor to the smoothies that will be served
by Tropical Twister. By having a novelty product it means that the idea is new and
unchallenged in the nearby market, this allows for a larger than normal price mark up
with still a great amount of sales.
Minimum wage right now is eight dollars and twenty five cents, with three coowners working approximately one hour twice a week this will influence the cost of a
smothie. While calculating minimum wage it will be 24.75 per selling date, and if since
fifty units are expected to be sold each date it will add another fifty cents to the total
cost of one unit.
total cost per unit
Cost of fridge per unit: School is a total of 38 weeks and the price of the fridge is being
amortized over 7 years which is 266 weeks. With selling a projected 100 units per
week, over the seven you amortization period there will be 26600 units sold. The cost
per unit for the fridge will therefore be approximately two cents.
Cost of Blender per unit: as the blender has a amortization period of 3 years that will
mean 114 weeks of selling product. in that 114 weeks there is a projected amount sold
of 11400. therefore the 59.99 spent on the blender will cost half a cent per unit.
Cost of strawberries per unit: (predetermined) forty-eight cents
Cost of coconut milk per unit: (predetermined) seventeen cents
Cost of Mango per unit: (predetermined) thirty five cents
Cost of milk per unit: (predetermined) twenty cents
Cost of cup per unit: (predetermined) eight cents.
Cost of labour per unit: (predetermined) fifty cents
Total cost per strawberry Smoothie: 1.29
Total cost per Mango Smoothie: 1.16
Total cost per coconut Smoothie: 0.98
Average price per Smoothie: 1.14
With the price to make a Smoothie around one dollar and fourteen cents and
price mark up for the food industry is two hundred percent, it makes sense to sell
product at the same price that the target market wants two dollars and fifty cents.