The Cost Of Hot Dogs And When To Raise Prices

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Tim at Get Grilled Foods is a student of mine in Indiana. He writes:

Steve,

I have a question. I am up against a 11% + increase in meat cost this year.
Produce is up, chips are up etc. I have heard stated and read, to charge the
highest price for a quality product. I now run up against product cost
exceeding what the market can bear. We are all tightening our belts. What
do i do when my cost on product is driving my price not the market?

Tim

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This is the number two problem that  businesses have faced since the beginning of time. (The number one problem is getting started. Learn how to do that by clicking here.)

Our hot dog businesses are no different than Coke or Nike. All of us live or die by the same equation: Income – expenses = profits.

I learned in high school biology class that the environment is always changing and that living organisms only have three options: adapt, migrate, or die. I’ve found that this applies to the dog biz as well.

You can adapt: Find a less expensive product, raise prices, increase average customer spend.

You can migrate: Find locations with less price sensitivity.

Or you can die: Not an option.

Everyone’s first instinct is to source a less expensive (but still good quality) product. However, this is a short term solution since the price of product always increases. All you would be doing is putting off the inevitable.

Let’s face facts – periodically you (and every other business in the world) are going to have to raise prices. Sorry to be the bearer of bad news. Actually it’s not bad news. Read on…

I’m willing to bet there is more price elasticity in your market than you think.

It’s difficult to try to penetrate a new market with an item no one has seen before. On the other hand, it is infinitely easier to bump up the price a bit on an existing customer base who loves your stuff.

We scare ourselves into charging less than we should by thinking that our customers are always comparing our prices to McDonalds or Taco Bell. Guess what? They are not.

We don’t compete with McDonald’s, or Taco Bell, or Burger King, or Sonic, or Arby’s. Here’s why:

When someone craves an awesome hot dog where are they going to get one? At Micky D’s? Nope. From that nasty roller grill inside the gas station? Don’t make me laugh.

They get it from YOU Tim, because… your hot dog is exactly what they want and they always get it from you. Because it’s consistently awesome. Every time.

When their stomach sends the hungry-for-hot-dog signal to their brain, their brain automatically says, “TIM’S HOT DOG. WANT ONE. GET ONE. NOW. I NO SHUT UP UNTIL I GET TIM’S HOT DOG. GO. GO. GO.”

People are always willing to pay more in order to keep using a product or service that they have already tried and like to the point that they can’t live without it.

Inertia is a powerful force. Makes you dig behind the seat cushions looking for change.

Your meat supplier knows this. That is why your meat supplier isn’t afraid of raising their prices.

Cost is not driving prices beyond what the market can bear, rural or otherwise.

Drive by the trailer park and you will see satellite dishes on every roof. Why? Because they can’t live without it. Somehow they find the money. (By the way, nothing wrong with trailer parks. I used to live in one.)

If the customer isn’t willing to pay a bit more it’s not because she doesn’t have the money. It’s because she doesn’t perceive the value.

Your job is to make sure your customers can’t live without your awesome hot dogs and other products, and from what I’ve seen of your operation you have that down cold. Congrats on that!

Bump it up twenty five cents, keep your margins intact, and have fun Tim. And if a customer asks about the price increase just tell them, “My supplier raised the prices on me.” Folks understand that.

Sell ‘em all!

-Steve

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{ 25 comments… read them below or add one }

Hot Dog Heroes

That was an awesome piece of advice, Steve.

Tim,

If you’re cranking out a great product, people will support you and will not expect you to work for nothing.

I was a little “gun-shy” when it came to pricing and initially, I was leaving a lot of money on the table.

Now, I have completed my market survey for the downtown core and adjusted my prices accordingly. I’m still 25 cents cheaper than my major competitor, but I’m making up for it in volume.

Up here in the Great White North, our costs are double what it is compared to the U.S. and naturally, our dog prices are up there. For instance, a regular all-beef goes for anywhere between $3 and $3.75 and our sodas sell at $1 to $1.25 a can.

Recently, I was in a situation that caused me to raise my prices as the farmer’s market owner also sold hot dogs and didn’t want me to be cheaper.

In this scenario, however, he wanted to dictate my prices to a point that it was making the customers re-think their purchase.

Usually, when we think of farmer’s markets, we think of getting deals, not about getting raked over the coals. I like to have something on the menu that is affordable for struggling students or families. Ultimately, I decided that no one was going to tell me what I would sell my dogs at and chose not to return to this venue.

That’s the beautiful thing about this business. We are in control.

In my regular downtown site, we’re surrounded by office buildings and colleges so my prices vary from a $3.50 student combo to a $5.00 jumbo bison smokie.

People love a great deal but will also splurge to treat themselves to something special!

Keep on Doggin!

Rex Johnson
Hot Dog Heroes
http://hotdogheroes.ca

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Dan Nicholson

Steve,

I appreciate your response to Tim’s question. It’s one every merchant grapples with, and a very logical way to analize the dilemma of meeting rising costs of goods sold.

Tim,

You have a very skookum looking set-up. You should do well with it. If you have other competitors asking similar prices for their hot dogs you may be the one who remains in business while the others drop by the wayside, due to unprofitability by holding prices down. . . Or the only one among them who can fund a retirement plan. You need to maintain your profit margin.

I was wondering what you are using for those weights taped to your canopy’s legs.

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cecil

you r right steve i spent 40 years in the restaurant business and prices always flucuate upward ive never seen a downward mave in the market if you choose an inferior product you will lose your base long term if you maintain quailityabove all else it is usually short live ” i would much rather apologize for the price increase than the quality of my food”

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Joel

I’m a retired Sous Chef from a very large hotel chain and I have always said “everyone has to eat to stay alive.” Serve up good food and they will come. And get to know your regular comsumers by name.

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Curtis Ormond

I agree with Steve about pricing and keeping a quality product, I use a special brand of all beef dogs, have a yellow and red tent, and so far having to increase the price per dog has not hurt me any, customers want and demand a good dog with quality chili, fresh buns and in return they will pay you more for that than a red, chicken, turkey, fillers and whatever hot dog. I won’t sell a hot dog that I wouldn’t eat.

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Rafael

Great great piece of advice ! !

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Roger

Here’s our experience from this past weekend … not exactly relating to the original question but certainly fits the overall scenario about pricing …

We were set up at a 2-day festival that drew upwards of 100k people and had a very limited number of vendors. This was a unique event because, belief it or not, they do take profitability for the vendors into consideration … we couldn’t sell our world famous fresh squeezed lemonade because someone else was selling it … one vendor selling lemonade for 100,000 people … think about it! At any rate, we were limited to selling our ice tea and apple cider. Our standard fair price for ice tea is $3 for 20 oz and $4 for 32 oz … just our luck, there were no restrictions on tea sales and found that everyone was selling it … at $1 and $1.50 for smaller cups than ours. Our dilemma .. do we lower our price to match the competition or let it ride … well, we let it ride and had no problem selling our tea … our winning formula proved to quantity and quality … our tea actually tasted like tea and not the watered down brown water that seemed to be the norm for everyone else … and, we found that people do refer others to you when they have something good plus we used clear plastic cups so it was readily apparent what people had (other vendors were using the red Dixie cups our white Styrofoam) …

Bottom line, don’t be afraid to make a modest increase in your prices to cover your costs … people may not like it but they certainly understand and they do appreciate a good taste. I personally would never sacrifice quantity or quality for the sake of a modest increase … where you may loose some sales initially, if you have something that is truly GOOD those people will come back.

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Robin/Lakeside lunch

Thanks, Steve,
That’s a problem I’ve only just noticed. At the end of my season here, my supplier went up 1.50 on the meat. My solution is similar to what a friend is doing down the road. I’ll raise the price to $3.00 a dog, but no extra charge for the toppings that I was charging before. Raise the price of the special which still saves them $1.50 and make it up on the higher profit margin I get on the water. They feel like they’re still getting a better deal, I don’t lose money and it’s still the same quality good food. And if they want the standard toppings, my profit margin is higher than before.
By the way, I haven’t heard the word Skookum since third grade. If I remember the story right, it means very good in some Native American language.

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Tim/Get Grilled Foods

Thanks Steve,
That makes all the sense in the world. Switching product was never a consideration. I serve excellent food, we do not compromise on that. i guess i was just freaking out a bit. the economy has me on edge. I have watched a lot of businesses, with a lot more time in, fold up like a dead leaf this year. I am not a seasoned vet. This is our first full year back on the circuit in 20 years. I just needed to hear this again. I, as always, value your advice and thanks for the time, I appreciate it.

Dan,
our leg weights are homemade. I took 4 inch PVC and cut that to 16 inch lengths. put an end cap on one side and a threaded cap on the other. Drilled a hole in the top cap and put an eye bolt through it. then rope it to the canopy. The weight is filled with packed sand. We thought about filling it with concrete, but sand and water work just as well.This canopy, in the configuration pictured, took a 65 mph straight line wind this season and was one of the few places still standing on the midway after the storm passed. Works like a champ!

Thanks to everyone for your input. All you doggers make my day! now i have to go sell ‘em all…Steve said so :-)

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Rick J

Hi Everyone,
Everyone is right on in their thinking of quality and good service. I learned a good lesson from a very smart man, I will back up a bit and say that we sold a product at the same price as we did 20yrs ago and supplies always kept creeping up every year. I asked my self why are we not as busy as we should be and why do we not have the profit we need to stay alive. I was going to raise are prices and meet the demanding times. So I went and talked to this person about what I was going to do and he sat me down and told me, do you sell a great product and service.I said the best, nobody can touch us. Then he said raise your prices, you see Rick people always think If you sell cheap and have more volume you will have a better bottom line. Very wrong thinking, You work harder you wear out equipment and overhead costs kill you. Sell higher and change your marketing a little to let them know the quality they are getting. You will work less with a higher profit. He said you might loose some customers but you will gain quality customers in the long run. I told him it makes since to me. So I went back and raised prices changed marketing a little, just a twist to what we already doing. It worked to well really. We had more work than we could handle. The coustomers that left came back for the quality. All the competion raised thier prices just below ours. Funny how that works. Pay now or pay later!

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Steve(Fat Franks)

It’s all Good, Ive had to raise prices a cople of times in the last year, Customers didnt even notice, Its all in the Dog.Hang in there.

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Duggs Doggs

I agree with you Steve, I just did a big festival and one of the local church’s were set up across from me and waited till I put up my menu, then they cut their prices too $1.00 for a dog. I did not change my prices and I still made a little profit, (not as much as I wanted but still a profit). By the end of the festival they were trying to give their food away but I still had customers…… You get what you pay for…. Service, Service, Service….. It should be noted also that I have a 97 on my health inspection, Serve Safe Certified and sell a great product. People pay for what they want no matter what the price……

Duggs Doggs
Good!! Good!!

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Jeff w w

People i just love this advice every one gives.That is the best leg weight idea i ever heard,and will take that invention also Thanks One and ALL!!!!!!!!!!!

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Tim/Get Grilled Foods

Hi Jeff,
Unfortunately the weights can only be used with permission from the Get Grilled Foods. We own the trademark on the whole set up, at least for the next 20 years. I will sell you a set for $75. ;-)

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Jokey D's

Tim,

First of All you have an excellent looking setup. It looks very professional and when customers see that, they feel they are getting the most for their money because of the time and effort they percieve went into your operation. When they know they are buying a superior product they will pay for it! We will never win the hearts of most price shoppers and you really dont want them anyway. We want the people that understand quality and dont mind paying for it. I have had people tell me I was a little steep at $3 for an all beef kosher dog with mustard onions and Kraut which I think is a good price. Case in point, the same guy that told me that goes to the C-Store I used to work at and buys their 2/1.00 rollergrille hotdogs. Guess what? I am expensive compared to that but they cant touch my quality and they are losing money selling that cheap. He returned the next day for one of my delicious dogs because even tho he only paid One Dollar for 2 dogs the day before, he said he got a belly ache from it and the taste was aweful! I won him over with my quality product and he doesnt complain now about paying 3 dollars for a kraut dog and 4 bucks for a chicago!! So produce Quality and keep your margins! They will be back! Oh yeah, that C-store I used to manage put their rollergrill at that price tryin to run me off! guess what it didnt work! lol

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joe

I will compete toe to toe on anything but price. Service, quality, selection, marketing strategies, etc. But I never want to be the cheapest. Before operating a hot dog cart I owned and operated a bar/restaurant. Putting together a menu is somewhat a science from a buyer behavior stand point and somewhat different from number crunching and food costs.
1. Try averaging out what sells and what are your fast movers. Remember Spaghetti & Meatballs are priced at $12.95 because they have to help pay for the cost of Swordfish. If you didn’t have spaghetti & Meatballs on the menu then the swordfish would have to exceed $30.
2. Give your customers a story….everyone loves a story, a laugh, give them something to remember you by.
3. Make up combo meals
4. look everywhere you go especially dollar stores for items that add value to your product or display
5. don’t forget your tip jar or bucket helps your food costs too…is it up to par
6. Remember every year coke will have a price increase even if it is 3 % they pass costs on
7. price is always going to change, because money has no home, it comes and it goes.
good luck all….joe

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steve

Tim,

$75 a piece, right?

-Steve

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dogs on the run

This being my first year as a carter. I have 20 plus years in the food industry. I charge 3 for a 1/4 lb all beef dog brand name. People feel the price is fair. I have combo for 4 that includes a drink and *free chips.*
I am amazed how many do not wish to take the chips,carrying them around is a hassle. Next year I plan on raising my prices .50 but, going to a larger bag of chips (I use 1 oz now) the cost will be .12 cents per bag but I feel the increase will not hurt me since people are looking for me at the events I attend. I am closing up for the year at my last event I was away from the action by a block. I cannot go against JC s 4 dollar dog combo although the dog is a grilled 1.6 oz. Mine are dirty water dogs which I have the best luck with, I tried steamed but my water leaves to quickly. I still took in 700 plus even though the first day was overcast and 45 mph winds plus cold. Thanks in advance for all the future support. Jerry

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Tim/Get Grilled Foods

Steve
$75 each, that is correct.

Tim

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Mad Dogs Hot Dog Co.

This is totally off topic, but I must say that Steve and the rest of you doggers are awsome! I just ordered the EZ Build and plan to build it over the winter and open in the spring for my first season. I am pumped and you all keep me even more motivated. I can’t wait to sling some good old American dogs’.
-Richard

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Chad/ Bigg Daddy's Dogs

Ive seen some great advice here and would have to agree that raising your price is not a scary thing to do. I not only sell Nathans all beef 1/4 pound dogs for $3.00 i also self brats, hot links and philly cheese. Last yr i was selling my phillys made with beef brisket for 4.50 and was using a cheep cheddar, but this year i went with less expensive italian beef, so i cut cost there but i am using cheez wiz instead which is more expensive and raised my prices to 5.50 but i am also more focused on the ideal customer experience for them. Everyone try not to limit your hotdog cart to hotdogs sell it all if you have the room. Next yr i am also adding on grilled chicken breast, and extending my hours. This years been a great yr.

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Jim & Kay

a little advice from an old man we work in Minnesota 5 months and a small town in sw Arkansas in the winter months I looked and found a smaal meat market that makes their own recipe weiners . I asked them to modify it a little to please me and my taste. i tried Nathans and Vienna Beef But
ours are so much better and the only place you can get them is at our CART. i read everbody always uses the big names I use the sall guy they even cut the price when we do a big venue. they are so grateful to have our business.
Jim & Kay

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Tim/Get Grilled Foods

GO Mad Dogs! Can’t wait to see the cart when your done!

Jim & Kay, I also use a small, family owned, local meat company that has been making specialty meats for about 135 years. I will put it up against anyone’s links, anytime! You find it, and it is good stuff, the name becomes a matter of pride! my guy gives me a huge break on cost also. he also appreciates the biz. And he knows it provides more sales for him.

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Jim & Kay

Tim i like the idea of using a small co I like your set up someday when I get our scanner fixed so we can show some photos I will we have a great set up also.
JIM & KAY.

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Joe (Firedogs Inc)

I opened a push cart back in 1999 and upgraded 4yrs later to a converted cargo trailer.After some issues on my regular job I took a few years off to relax a bit. Being a firefighter I recently went back into business converting a rescue truck into a great hotdog truck.One of my final tasks to opening the truck was to establish a price list.The 2+ yrs that i was out of the business everything went up in price. I almost felt guilty when I had to raise prices however I realized that my customers were still excited about me being back in business an the price issue has not even been brought up. Smooth sailing now and its great to be back!

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