Roast #49: Pricing is back, back again.
is there a correct answer to pricing?
Popping on here to do a quick pricing write-up.
We’ve reworked our pricing structure. This was a bit overdue (prior post — Roast #19), as its current state is an ad-hoc mess.
Coffee Club Product Changes:
Only subscription boxes:
We will no longer do non-subscription coffee club boxes. If you want to purchase a coffee club box, you’ll have to do so through our subscription offering. If you just want to buy a box for that version, you’d subscribe and then pause/cancel afterwards.
The reason for this change is its low purchase volume and the additional complexity required to maintain it. It just isn’t worth it given the low volume.
Single-bag Changes:
5lb bags:
No more 5lb bags. These will only be for wholesale customers. The reason for this change is due to low sales volume. We’ve maybe gotten one 5lb retail order – ever.
The overhead to maintain this isn’t high; it’s just an additional field to update, so we may bring it back in the future (all the big roasters do it).
Updated base bag costs:
We haven’t updated our base costs to put together a bag. Below is how we are spreading our overhead costs into each bag.
Unfortunately, this has gone up. We are kinda in this awkward phase where there’s not enough volume to take in operating discounts, but we need more robust tooling to set us up for growth.
The fixed costs (software + storage) should drop as we pick up more volume. The cost then gets better spread across the bags.
Simplified pricing:
Our pricing has deviated a bit since we first wrote our pricing post. That was written in a different era of “thoughtful”. I assumed costs would mostly stay constant. :tear-smile-emoji:
Moving forward, the formula is:
Apply a multiple of 3, 2.5, or 2, depending on the cost of green.
The thinking here is that cheaper coffees, we’ll apply a higher multiple to take a bit more margin. Then with more expensive coffees, we’ll take less.
If we always followed a consistent multiple (i.e., 3x), then more expensive coffees will get priced at uncomfortable figures (i.e., the Hacienda La Esmeralda Gesha would go to $60 for a 120g bag).
The end formula comes out to some variation of:
cost of green: this is the cost of the green needed for the bag, accounting for weight loss
margin multiple: amount of margin we take. This ranges between 2 and 3.
size discount penalty: When you go up in size, we apply a discount. this goes higher as you buy larger sizes. As of now, it’s 0.85 for 240g, and 0.7 for 2lb.
production costs: software costs, roaster rental time, material cost (bag + stamp) — all spread over 1000 bags.
Each tier is priced respective to itself:
What this means is there are no dependencies between each tier.
How we used to price our 240g was a multiple of the prior offering’s price. And we did the same with our 2lb offering.
The reason for this shift is to consolidate our margin to a single source — our margin multiple.
With the dependent pricing, we were kinda pulling margin from sometimes double-counting costs.
We didn’t do this purposefully; it initially made sense that the price of a 240g would be twice that of a 120g bag when costs were just the coffee greens (plus the numbers usually came out reasonable).
But as we started loading the the production cost variable with costs like software tools, business insurance, etc, the dependent formula didn’t make as much sense.
Fancy coffees are still priced ad-hoc:
Our model doesn’t really fit well with pricey coffees. The price gets set to values I’m not comfortable selling my coffee at.
An example is the Finca Deborah Parabolic Gesha. Using the above formula (with a 2x multiple), the 120g offering is $60. That’s... a bit too much.
For coffees above $30, we’ll apply ad hoc pricing to reach a price we are comfortable selling at.
2good2go pricing:
This’ll just be 1.3x costs. This’ll continue to stay as primarily 240g options only. We’ll move things into the 2good2go column once we feel it’s right at peak (usually 5-6 weeks post roast)
Final Thoughts:
It seems like the 120g options are now priced higher. They are, but not because of the change in formula; more so because of the bump in the production costs variable.
The margins for the 120g and 240g are pretty much the same, maybe differing by $1 to $3. This feels a bit backwards. But now, with each price independent of the others, I guess we are pricing truer to our work inputs.
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Is this the right move? No clue. 🥲
But I feel good about these changes. Our formulas feel cleaner now that I can easily point to where our margin is coming from.