The five Ps of the lemonade stand: pricing and how to determine cost
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EmailWhen youth run a lemonade stand, they are learning and practicing the important concepts of the 5 Ps of marketing. This article focuses on the first step of pricing, determining cost.
The lemonade stand is a great starting point for young entrepreneurs. It helps them to learn about and understand the importance of pricing concepts and strategies like cost, profit and break even. Engaging in a lemonade stand allows youngsters to start grasping basic mathematical abilities such as calculating change and checking their sales numbers. These competencies are crucial building blocks for financial literacy.
The first step in a lemonade stand is determining the product. Next, one must determine the price. Pricing product for a lemonade stand can be a tricky undertaking. Questions you will want to answer include:
- What are customers willing to pay?
- What are your costs?
- What is the break-even point?
- How much profit do you want to make?
- What is your competition charging?
Determining cost (expenses)
In determining the price for your product, it is important to use the cost of production as a base. To figure out your cost, write down all your expenses.
In this simple scenario, we will anticipate the production and sale of 100 cups of lemonade using the following expenses:
- Cups: a 50-pack of 10-ounce cups purchased for $2.22
- Juice mix: a mix that makes eight quarts purchased for $3.05
Of course, you are going to have to do a little math to determine how much you need and to break down your costs, per glass.
Cups
You will need two packs to serve 100 different 10-ounce glasses.
- Two packs x $2.22 = $4.44
- Cost per glass calculation: $4.4 4÷ 100 = $.045
Juice mix
An eight-quart container makes 256 ounces. Use an online conversion calculator and make sure you are converting to fluid ounces. To produce 100 10-oz. glasses, you will need to make 1,000 ounces of lemonade (100 cups X 10 ounces = 1,000 ounces).
Divide 1,000 ounces needed by how many ounces each container of juice mix makes (1,000 ÷256= 3.90625). Using this number, you will need four containers of juice mix to make 100 cups, with a little left over for spills and taste testing!
- Cost: Four containers X $3.05 = $12.20
- Cost per glass calculation: $12.20 ÷ 100 = $0.122
Total cost
Total cost to make 100 glasses of lemonade = $16.64
- Cups: $4.44
- Juice mix: $12.20
Total cost per glass (rounded up) = $.017
- Cups: $.05
- Juice: $0.12
Adding flavors, garnishes and even ice can increase your sales and your expenses. If you are going to add additional flavors or a garnish, you will need to experiment with how much you want to add to make a good recipe and calculate those costs as well. You may also want to add the purchase of utensils and pitchers you use to make your lemonade to your cost.
In this example, we have determined our total cost to make 100 cups of lemonade and the cost per cup. To continue exploring pricing your product for a lemonade stand, check out the next article in this Michigan State University Extension youth entrepreneurship series. It will explore profit, break even, profit margin and competition.
Want to learn more? Lemonade Day offers more information on essential lemonade stand supplies. National Lemonade Day is celebrated on the first Sunday in May to promote the entrepreneurial spirit in youth across the country.
