Start a Packaged Food Brand
Unit Economics & Margin Cascade Worksheet
Companion to "The Money Math of a Jar."
1. Margin is not markup
Worked example from the lesson: sell to the store at $6.00, retail at $10.00. The store's $4.00 is a 40% margin (their share of the final shelf price). Markup math ($6.00 × 1.4 = $8.40) shortchanges them. When you hear "the store wants forty," compute it off the shelf price, always.
| Line | Worked example (hot sauce, operator-reported) | Your product |
|---|
| Realistic shelf price (pick from the category around it) | $10.00 | $ |
| Store margin (natural grocery, operator-reported ~40%) | −$4.00 → $6.00 to you or your distributor | |
| Distributor share, if used (~25 to 30% operator-reported) | −$1.50 to $1.80 | |
| Broker, if used (~5% of net sales, operator-reported) | small bite of what remains | |
| What arrives home | about $4.00 to $4.50 | |
| Landed COGS (section 2) | $1.30 | |
| Gross per unit on paper | about $3.00 | |
Then reality takes its bites: promotional discounts you fund, opening discounts distributors demand, damaged goods, and unsold inventory charged back. The shares above are operator-reported ranges, not posted tariffs; exact numbers are set account by account.
2. Landed COGS builder
| Cost line | Worked example | Per-unit cost |
|---|
| Ingredients (per unit) | hot-sauce bottle | $ |
| Packaging (bottle, cap, label, case share) | | $ |
| Co-packing toll or kitchen time (tolling example from the course: about $1,200 per run, $2.40 a case, 4,000-unit minimum; shared kitchens $15 to $45/hr, most $20 to $30) | | $ |
| Freight in and out | | $ |
| Landed COGS per unit | $1.30 | $ |
3. Channel table (typical shares, operator-reported)
| Channel | Retailer/distributor share of shelf price | You get, roughly | Your number |
|---|
| Farmers market / your booth | table fee only ($20 to $50/day typical) | ~90%+ of retail | |
| Your own website | payment + shipping subsidies | retail minus ~10-25% | |
| Independent store, direct | 30-40% store margin | 60-70% of retail | |
| Natural chain (direct) | ~40% store margin | ~60% of retail | |
| Chain via distributor | ~40% store + ~25-30% distributor | ~40-45% of retail | |
| Club (Costco-type) | 12-14% store margin | ~86% of shelf, brutal volume terms (operators price the cash requirement at $50,000 to $100,000 before the first pallet sells) | |
| Convenience | ~50% store margin | ~50% of retail | |
4. Quarter-of-retail gate
Working target most operators converge on: landed COGS at or under a quarter of retail price. Above that fraction, every promotional dollar, distributor discount, and chargeback starts eating your salary directly.
| Row | Worked example | Your product | Pass? |
|---|
| Retail price | $10.00 | $ | |
| Landed COGS | $1.30 | $ | |
| COGS ÷ retail | 13% | | ☐ |
| Quarter of retail (÷ 4) | $2.50 ceiling | $ | ☐ under = pass |
If your jar costs four dollars to make and the category tops out at $9.99 retail, treat it as a product design problem: reformulate, resize, or repackage until the rule holds.
5. Trade-spend budget line
| Line | Planning figure | Your budget |
|---|
| Planned conversion of gross wholesale revenue to discounts and fees | 15 to 20% (operator pattern; be pleasantly surprised when a year comes in lighter) | % |
| Slotting / entry fees, where required | about $250 to $1,000 per item per store (verified); one shelf-space analysis puts the average near $1,500 per store | $ / store |
| Distributor opening discounts | 10 to 20% for the first 30 to 60 days, again at each new distribution center (operator-reported) | % |
| Context: grocery's own net margins | 1.6 to 2.1% (verified, FMI): the chain pushes every cost it can onto vendors; your promotion budget is their margin repair kit | |