When supplier prices rise: how much to raise your prices

How do you work out a supplier's price rise as a percentage?

Subtract the old unit price from the new one and divide by the old price. If pistachios went from ₺1,100 to ₺1,300 per kg, the rise is 200 ÷ 1,100 = 18.2%.

The hidden rise usually arrives as a smaller pack. If your supplier turns the 1 kg bag into an 800 g bag at the same price, nothing seems to change on the invoice, yet your price per kilo has gone up 25%. So at every purchase, note the price per kilo, litre or metre, not just the total.

How much does a price rise add to a product's cost?

As much as the product uses of that ingredient: quantity used × increase per unit. A rise of ₺200 per kg is ₺0.20 per gram, so a cheesecake with 40 g of pistachios costs ₺8.00 more each.

You need the product's recipe for this: how many grams, millilitres or metres of each material go in. Without one, you can only guess what a rise does. We show how to write a recipe once and cost it in recipe costing.

Why does the ingredient's share of cost matter so much?

Because a product doesn't feel the whole rise, only the part matching that ingredient's share of its cost. If pistachios are 55% of the cost, an 18.2% rise makes the product 10% more expensive; for an ingredient that's 5% of cost, the same rise doesn't even reach 1%.

In textiles the biggest share is usually the fabric. Linen went from ₺220.00 to ₺244.20 a metre, an 11% rise. If a linen shirt takes 1.6 m, the increase per shirt is 1.6 × ₺24.20 = ₺38.72. The shirt cost ₺412, of which ₺352 was fabric, a share of 85.4%. The shirt gets 9.4% more expensive, almost as much as the fabric itself. We show how to keep fabric in metres and buttons in pieces on the textile studio cost and fabric stock tracking page.

Should you keep the same margin or the same profit?

They lead to different new prices. Keep the same margin and you pass the cost rise through as a percentage; keep the same ₺ profit and you add only the cost difference, so your margin slips a little.

Which one you pick depends on your situation. If rent, electricity and wages are rising too, keeping the margin is safer, because ₺120 profit covered last year's costs. If only one ingredient went up and the product is price-sensitive, keeping the ₺ profit may be enough. You can also land in between: at ₺210 the margin is 58.1%. What matters is knowing what the new margin is. We cover margin and pricing from a target margin in detail in profit margin and pricing.

When should you raise your prices after a cost increase?

Do the sum the day you learn about the rise, and decide that week. Don't wait for your old stock to run out; when it does, what you buy to replace it will come at the new price.

The yardstick for a price is what it costs to make the product again today. Sell a cheesecake made with old pistachios at the old price and the money won't buy the new pistachios. Still, checking cost at every purchase doesn't mean changing the label at every purchase. Update the price when:

• The margin drops below your floor. Set a margin for each product that you won't go below. If a rise pulls it there, it's time to update the price.
• Small rises have piled up. Three 3% rises on three separate purchases each look harmless, but stacked together they come to 9.3%.
• You're reprinting the menu or labels anyway. Pass on the rises that have built up in one go, with the sums done.

What can you do besides raising the price?

There are four routes: look at another supplier, change the recipe or material, absorb the rise for a while, or raise the price in stages. Most of the time you'll combine two of them.

• Another supplier. Another wholesaler at the same quality, a bigger pack or buying in bulk can bring the unit price down. If quality changes, test it first with a tasting or a sample.
• A recipe or material change. Swap some of the pistachios in the decoration for another nut, or make one style in a different fabric. Look for a change that doesn't alter what the product is.
• Absorb it for a while. If you think the price will settle soon, you can hold your label; but work out what it costs you and set an end date.
• Raise in stages. Splitting a big rise into two steps unsettles regulars less, as long as you fix the date of the second step from the start.

Here's how the sum looks in a restaurant: ribeye went from ₺800 to ₺912 per kg, a 14% rise. On a 250 g portion that's 250 × ₺0.112 = ₺28.00 more. If you sell 120 portions a month, absorbing the rise for a month costs ₺3,360. Waiting while knowing that number is a decision; waiting without knowing it is a loss. For kitchens where meat and vegetable prices change often, see restaurant food cost and stock tracking.

Which products does one ingredient's price rise hit?

Every product that uses it in its recipe, in proportion to how much it uses. List them and start with the one that uses the most; the hardest-hit product isn't always your best seller.

Two things stand out. The cookies go up most per piece, but the croissant goes up most in percentage terms, because butter is a bigger part of its cost. The bread isn't affected at all; raise the whole counter by the same percentage because butter went up, and you've made the butter-free products more expensive for no reason. We cover tracking product cost from flour, yeast and butter on the bakery cost and stock tracking page.

If two rises land in the same week, their effects add up. At a café, if beans go from ₺1,000 to ₺1,120 per kg (12%) and milk from ₺40 to ₺46 per litre (15%), an espresso with 18 g of beans costs ₺2.16 more. A latte with the same beans and 200 ml of milk costs ₺2.16 + ₺1.20 = ₺3.36 more. Milky drinks take a double hit. For cost per cup drink by drink, see café stock tracking and coffee cost per cup.

How do you tell your regulars about a price rise?

Briefly, in advance and honestly. Announce the change a few days ahead at the counter or on the menu, give the reason in one sentence, and if you can, keep a cheaper option on offer.

• Give notice. A small sign saying “Croissants ₺50 from Monday” beats a surprise at the till.
• Give the reason in one sentence. “Butter has gone up” is enough. A long explanation sounds like an apology.
• Leave an option. A small size, a plain version or a product of the day; a price-sensitive customer picks that instead of leaving.
• Do it in one go, not often. Passing on built-up rises once, with the sums done, gets talked about less than adding ₺2 every week.
• Keep the quality. Raising the price while quietly cheapening the ingredients loses the customer twice.

How do you update prices after a supplier increase, step by step?

Find the rise, work out its effect on each product, decide whether to keep the margin or the profit, weigh the other routes, and tell your customers.

1. 1Compare unit pricesCompare the new purchase's price per kilo, litre or metre with the last one and work out the rise. A smaller pack counts as a rise too.
2. 2List the affected productsWrite down every product that uses the ingredient, with the quantity it uses. Increase per piece = quantity × increase per unit.
3. 3Check new cost and marginWork out each product's new cost and the margin left at today's price. Flag the ones that fall below your floor.
4. 4Work out the new priceTo keep the margin, divide the new cost by (1 − margin); to keep the ₺ profit, add the cost difference to the old price. Round up.
5. 5Weigh the other routesAnother supplier, a recipe change, absorbing it for a while or raising in stages: work out what each one costs you per month.
6. 6Announce it and apply itAnnounce the new price a few days ahead and change it on the day you said. At the next purchase, run the sum again.