Private label products can significantly improve your margins, but only if you calculate the total costs correctly. Many food service entrepreneurs forget to include development costs and only calculate based on production price. This makes your private label seem cheaper than it actually is.
What are private label development costs?
With private label, you don't just pay for the product itself, but also for its development. You need to recoup these costs through your sales.
- Recipe development: €500 - €5,000 depending on complexity
- Packaging design: €1,000 - €3,000 for logo and labels
- First production run: Often higher costs per unit
- Certifications: HACCP, BRC or other quality labels
- Test batches: Testing and adjustments
💡 Example:
You develop your own hamburger sauce. Total development costs:
- Recipe development: €1,500
- Packaging design: €800
- Test batches: €300
- Certification: €400
Total: €3,000 in development costs
The correct formula for private label cost price
Your actual purchase price is higher than just production costs. Use this formula:
Actual purchase price = Production price + (Development costs / Expected volume)
The expected volume is crucial. The more you sell, the lower your development costs per unit become.
💡 Calculation example:
Hamburger sauce from previous example:
- Production price: €1.20 per bottle
- Development costs: €3,000
- Expected volume year 1: 2,000 bottles
Development costs per bottle: €3,000 / 2,000 = €1.50
Actual purchase price: €1.20 + €1.50 = €2.70 per bottle
⚠️ Note:
If you sell less than expected, your development costs per unit will be higher. Plan realistically and calculate with a lower volume rather than being too optimistic.
Determine depreciation period
You don't have to recoup all development costs in year 1. Many entrepreneurs spread this over 2-3 years.
- Year 1: 50% of development costs
- Year 2: 30% of development costs
- Year 3: 20% of development costs
This gives you more room in your pricing, but increases your risk if the product doesn't take off.
💡 Depreciation example:
€3,000 development costs over 3 years:
- Year 1: €1,500 (at 1,000 bottles = €1.50/bottle)
- Year 2: €900 (at 1,200 bottles = €0.75/bottle)
- Year 3: €600 (at 1,500 bottles = €0.40/bottle)
Your cost price decreases each year as your volume grows
Calculate break-even point
Calculate how much you need to sell at minimum to recoup your development costs:
Break-even volume = Development costs / (Selling price - Production costs - Other costs)
This gives you insight into whether your private label project is realistic.
KitchenNmbrs and private label cost prices
In KitchenNmbrs you can add private label products as an ingredient with your actual purchase price (including development costs). This way you immediately see if dishes with your private label are more profitable than with A-brands.
You can also calculate different scenarios: what if you sell 1,000 units versus 3,000 units? This helps you make better decisions about your private label investments.
How do you calculate the actual private label cost price?
Gather all development costs
Add up: recipe development, packaging design, test batches, certifications and any consulting costs. Don't forget any cost item.
Determine your realistic sales volume
Estimate how many units you realistically sell in year 1. Calculate conservatively rather than optimistically. Check your current consumption of comparable products.
Calculate development costs per unit
Divide your total development costs by your expected volume. This gives you the development costs per product that you need to recoup.
Add to production price
Actual purchase price = production price + development costs per unit. Use this price for your food cost calculations and recipes.
✨ Pro tip
Start with a small volume to keep your development costs low. Test first with 500-1000 units before making large investments in recipe development and packaging.
Calculate this yourself?
In the KitchenNmbrs app you can do this in just a few clicks. 7 days free, no credit card.
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Frequently asked questions
How long does it take to recoup development costs?
Usually 1-3 years, depending on your sales volume and margins. With higher volumes you recoup faster. Plan realistically and count on at least 18 months.
What if I sell less than expected?
Then your development costs per unit will be higher and your margins lower. That's why it's important to estimate carefully and possibly use a depreciation period of 2-3 years.
Can I deduct development costs from taxes?
Usually yes as business expenses, but check this with your accountant. The depreciation method can vary by situation and may affect your tax return.
When is private label financially interesting?
When your actual cost price (including development costs) is at least 20% lower than your current purchase. Otherwise the risk is too great for the benefit.
Should I include development costs in my food cost?
Yes, absolutely. Otherwise your private label seems cheaper than it is. Calculate with your actual purchase price including development costs for a fair food cost calculation.
📚 Sources consulted
- EU Verordening 852/2004 — Levensmiddelenhygiëne (2004) — Official source
- EU Verordening 853/2004 — Hygiënevoorschriften voor levensmiddelen van dierlijke oorsprong (2004) — Official source
- EU Verordening 1169/2011 — Voedselinformatie aan consumenten (2011) — Official source
- NVWA — Hygiënecode voor de horeca (2024) — Official source
- NVWA — Allergenen in voedsel (2024) — Official source
- Codex Alimentarius — International Food Standards (2024) — Official source
- FSA — Safer food, better business (HACCP) (2024) — Official source
- BVL — Lebensmittelhygiene (HACCP) (2024) — Official source
- Warenwetbesluit Bereiding en behandeling van levensmiddelen (2024) — Official source
- WHO — Foodborne diseases estimates (2024) — Official source
Food Standards Agency (FSA) — https://www.food.gov.uk
The HACCP standards shown in this application are for informational purposes only. KitchenNmbrs does not guarantee that displayed values are current or complete. Always consult the FSA or your local authority for the latest regulations.
Written by
Jeffrey Smit
Founder & CEO of KitchenNmbrs
Jeffrey Smit built KitchenNmbrs from 8 years of hands-on experience as kitchen manager at 1NUL8 Group in Rotterdam. His mission: give every restaurant owner control over food cost.
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