LESSON 16: CREATING A PRICING STRATEGY

In any business it is important understand the relationship between the cost of goods sold (COGS) and the revenue from sales which results in the gross profit margin.  

As cheese professionals, it’s necessary to understand how to establish a retail sales price based on the COGS. How you price your products sends both covert and overt messages to your customers, so it’s important to be mindful and intentional when pricing specialty cheese items.

What is the message you want your customer to receive from your pricing?

  • Consistently high margin with no blending says this is a special occasion shopping experience.
  • Consistently competitive low margins say this is a great value but may raise suspicions about quality.
  • Calling out sale pricing says this is a fresh, high-turning item the customer should pay attention to.

Do the math when planning promotions

  • When planning promotions and discounting product, do the math to ensure you do not go below your department’s minimum percentage target. Pricing an item too low may result in an increased volume of sales but will reduce your sales revenue.

  • Margin and markup are the two basic methods used to establish a retail sales price.  
  • The Margin formula states to calculate the retail sales price, divide the COGS by (1 – % Margin)
  • The Markup formula states to calculate the retail sales price, multiple the COGS by (1+ % Markup)

The following are retail examples and formulas to assist you with determining your sales margin.  

A case of 15 – 5.6oz units of exact weight gouda cheese costs $44.90 each unit needs to retail at a 50% margin.  What is the retail sales price for each unit of gouda cheese?

Retail Sales Price Formula

  • (Retail Sales Price) = COGS ÷ (1-Margin)
  • COGS = ($44.90 per case ÷ 15 units) = $2.99 a unit
  • 50% Margin = 0.50 decimal equivalent
  • Retail Sales Price =$2.99 a unit ÷ (1-0.50)
  • Retail Sales Price =$2.99 a unit ÷ (0.50)
  • Retail Sales Price = $5.99 a unit


Blue Cheese costs $8.42/Lb. and retails for $15.99/Lb.  What is the margin?  

% Margin Formula

  • (Retail Sales Price – COGS) ÷ Retail Sales Price = % Margin
  • $15.99 - $8.42 = $7.57 Net Profit
  • $7.57 Net Profit ÷ $15.99 Retail Sales Price = % Margin
  • ($15.99 -$8.42) =$7.57 ÷ $15.99 = 47% Margin


Aged Cheddar costs $9.70/Lb.  If you charge a 45% margin what will the retail sales price be per pound?

Retail Sales Price Formula 

  • Retail Sales Price = COGS ÷ (1-Margin)
  • Retail Sales Price = (COGS) ÷ (1 - 0.45)
  • Retail Sales Price = $9.70/Lb. ÷ (0.55)
  • Retail Sales Price = $17.64/Lb.  


A very ripe soft cheese needs to be sold quickly.  The current retail sales price is $15.89/Lb. at a 45% margin.  If the margin is cut in half.  What will the new retail sales price be?

When discounting and item you need to determine COGS first

COGS = Retail Sales Price * (1- Margin)
COGS =$15.89/Lb.* (1 -0.45)
COGS =$15.89/Lb.* .55
COGS = $8.74/Lb. = COG

45% margin (0.45) ÷ 2 = (0.225)
Retail Sales Price =$8.74/Lb. ÷ (1-0.225)
Retail Sales Price =$8.74/Lb.  ÷ (0.775)
Retail Sales Price = $11.28/Lb.

Chevre logs that retail for $4.29/unit were marked up by 45%. What was the cost per unit?

Markup Formula   

COGS = Retail Sales Price ÷ (1+Markup)
COGS = $4.29 ÷ 1.45
COGS = $2.96 a unit

Blending Margins 

  • Figure out what the target margin is for your department (typically specialty cheese departments range for 40-60 percent margin).
  • Take that number as an average and strategically choose items to deliver under or over that average margin to entice your customers and compete with other retailers.
  • Perhaps you’ll need to price match a few top sellers to your competition, but you can make up margin on items you sell that your competition doesn’t.
  • Consider taking a lower margin percentage on some items that have a very high cost of goods, even though the margin percentage is lower than your average. The margin dollars you make on a cheese that costs you $20/lb. that you retail for $40 is already double the margin dollars you make on a cheese you buy for $10 and retail for $20.

Consider a Loss Leader Model

  • A loss leader is a high-volume item that you make a conscious decision to retail at a low margin because doing so gains you an advantage such as competitive edge with another store, a way to entice a customer into the department.
  • If you take your Top-5 items in volume and drop the margin on those, still gaining enough on everything else to meet your target margin for the department, this will usually result in a margin dollar increase because you will sell even more of those top- volume items as customers realize you have the best price in town.
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