Understand Your Unit Economics

Knowing your costs, and the costs built into your supply chain, is fundamental. Unit economics refers to profitability at the item level, and it is a lens every emerging brand needs to get comfortable using.

Aim for at least forty percent gross margin at the item level. Fifty percent is better. Here’s why: trade spend will eat up fifteen to twenty-five percent of your revenue, opening a new retailer is expensive, and free fills often make year one a wash. Eventually, you will also want to pay yourself. Set your pricing to protect cash, especially early on.

Include Freight in Your Margins

Always include freight in your margin calculations. When a distributor picks up your product, they will add freight to your landed cost and apply their markup. You can work with them on a freight allowance or control the cost yourself by delivering directly. For small orders, distributor pickup is usually more efficient.

Benchmark Against the Market

A simple way to test your pricing is to double your delivered cost to the distributor. That is roughly what your on-shelf retail price will be. It is not perfect, but it gets you close. Keep in mind that health and beauty categories often have higher markups, commodity dairy has lower margins, and retailers vary by their margin expectations. Do your homework and know your retailer.

Do Aisle Research

Visit your target retailers and walk the shelf. Identify where your product would go. How does your retail price compare to the competition? If you are priced higher, why? What makes your product worth it, and how does the shopper know?

Avoid the Race to the Bottom

It is tempting to drop your price to stay competitive, but do not compress your margin into nothing just to be shelf-safe. Price matters, but differentiation matters more. Do not be a 'me too' product at the same or higher price point. Find your niche and own it. Set your pricing to capture the value you bring to the category.

As you scale, you should gain leverage and lower costs, but do not sell yourself into bankruptcy along the way.

The Takeaway

Your pricing strategy should balance competitiveness with sustainability. A realistic path to profitability gives you staying power in retail. Protect your margins early, and you will have the financial room to invest in marketing, trade, and growth.