Structure Your Cottage Food Business

Shared From MOTHER EARTH NEWS  – Written by: John Ivanko and Lisa Kivirist

Selling your story

A wide range of different elements go into defining a great product, including the uniqueness of the recipe, the quality of the ingredients, the packaging, perhaps the specific small-batch production process, and even the messaging you’ve created to promote your product.

Marketing covers everything from developing your product, its packaging and label to sharing the story you create around it on a website. While the tendency is to focus on the product – say your family’s favorite salsa recipe – when you’re selling to the public, what you sell must ultimately satisfy the needs of your customers. Understanding your customers increases your likelihood of success.

As we write about in Homemade for Sale, there are seven Ps of Marketing (not just four such points covered in some marketing textbooks): Product, Price, Place (distribution), Promotion, People, Partnerships and Purpose. The most effective marketing efforts are those that combine all seven Ps into one cohesive, integrated and clear plan that can be effectively implemented. Making a great-tasting product is only the start.

Homemade pickles are one of our specialties.

Product

Most cottage food operators should start with their product, testing their recipes. Besides taste and flavor, you’ll want consistency. Often, the product is made in small batches, with specialized or unique recipes and with real ingredients. Added to this are the growing issues more Americans have with respect to what they eat; allergies or sensitivities to peanuts, soybeans, gluten and dairy products have exploded. Cottage food enterprises sometimes address these growing trends.

Determine what makes your product different – and better than others. In some cases, if your ingredients are from your apple orchard, you’re using a cherished ethnic recipe passed down several generations, or you have a unique product you’ve developed and perfected, these may be reason enough for a successful launch in your community.

Your target market is the audience or potential customers you want to reach, serve and satisfy with your products. They’re often defined by demographics, like age or geography, as well as psychographics, which are attitudes, beliefs and values. Your product will occupy a niche in the larger market, and you’ll need to “position” your product – the expression of differentiation. For example, a gift-oriented jar of jam attractively packaged is quite different than the same product sold as a staple for the pantry when it comes to the price you can charge.

The cottage food law for your state will dictate exactly what must be on the label of any canned products. In addition to a list of ingredients in order of greatest to least used and by weight, along with a processing date, most states require a sentence with your name and contact information, plus a statement like “Manufactured in a home kitchen” or “Not prepared in a state-approved commercial food facility”; the exact wording is usually specified by your state. Exceptions exist, of course, like if you make any health claim. So keep it simple and avoid making health claims. For any product, packaging should be chosen to ensure the product’s safety, quality and compelling presentation. Remember, we eat with our eyes first.

Price

Price can appeal to a customer on a limited budget, or deter an upscale clientele that might happily pay a premium for an item made with organic ingredients or one fresh from the oven. For many impulse purchases, convenience, comfort or hunger may drive the exchange; customers may pay a premium for any of these qualities.

Setting a price for your product can involve comparing it to your competition, establishing a market value for it, or calculating a cost-input value that captures your ingredients and time. It can also be a combination of these approaches.

Place

Clearly defined by your state’s cottage food law, where you can sell your product often includes farmers’ markets, community events, and other venues that allow you to sell directly to customers. Only certain states permit indirect sales or wholesale distribution.

Promotion

You need not empty the bank to promote your product to let potential customers know your product exists. Depending on your skill set, comfort with a computer, time and budget, there are many free or nearly free promotional opportunities. Promotion includes both advertising and public relations (PR). Advertising is purchased, perhaps in the form of promotional posters or flyers, while PR, whether solicited or unsolicited, is free, but it will take time and effort.

Most cottage food operations quickly set up an attractive website; you can set up one for free on Wix, Weebly or WordPress. Everything you do is about sharing your story. Don’t overlook ways to let your customers do this for you as well. To build awareness around your product, you’ll need to get people to try it, love it, and share what they like about it with others in your community. Social media, including Facebook and Twitter, provides free options to build relationships and reach out to potential customers.

White No-Knead Bread was on the menu for a local bread baker.

People, Partnership and Purpose

One way or another, your food product must satisfy some need of your customers in a delicious way. Customer referrals and word-of-mouth endorsements remain the most powerful form of promotion, which is why many food entrepreneurs follow the 80-20 rule, recognizing that 80 percent of their business comes from 20 percent of their customers. Go out of your way to keep them happy and engaged; throw a private “tasting party” for them.

Partnerships can be magnified by cottage food operators, especially if you’re able to connect with like-minded organizations. If you sell fresh bread, connect with a jam and jelly maker at the market – or vice versa. Collaboration can go a long way in boosting sales and taking better care of customers.

Finally, let your passion for your products sing through everything you say and do. Your sense of purpose is a part of your inspiring story and helps you put a face to the food item that your customers then savor, one bite at a time.

Organize your kitchen

You already know your way around a kitchen, but now it’s time to operate an efficient production facility where you pump out your pickles and pound cake like nobody’s business.

Take your kitchen setup seriously and take the time to organize systems that ensure food safety. As much as you can, separate personal use from business use; in some states, this separation is required by law. Items that are definitely business-only – such as product ingredients – need to be stored, labeled clearly, and tracked separately. You don’t have to go out and buy a bunch of new equipment, though. Under cottage food laws, you can use what you already own.

When starting out, get a handle on your equipment and ingredients. Determine how you will use your kitchen space most effectively to access these items when you’re in production flow. Next, focus on efficiency, cleanliness, ease of use, and food safety when determining your layout. Clear clutter, set aside business-only storage areas, and set family boundaries for times when you’re in production. Most laws need the cook to keep children out of the kitchen when food items are being made; some laws have stringent regulations related to pets in the home. Again, consult with the laws in your state for specific requirements.

Most important of all is food safety. You wouldn’t poison your own family, so why would feeding the public be any different? State food safety requirements may be as simple as practicing basic food handling procedures, like sanitizing counters, washing hands, and keeping a thermometer in your refrigerator. In some states, there may be a specific requirement list and a mandatory on-site inspection; in these states, however, such regulation is balanced by a greater opportunity for sales.

Business and bookkeeping basics

Just as with any business, you’ll need to keep track of what you sell and the expenses associated with doing so. Income minus expenses equals profit, and it’s this profit that the Internal Revenue Service wants to see at least three of every five years for your business to be legit. Some basic registrations you’ll need to complete to legally operate as such a business include getting licensed by your state’s Department of Agriculture or a similar agency handling cottage food enterprises, and securing a business license.

Setting up your business can be as simple as a sole proprietorship. Look at adding some liability protection as a limited liability company (LLC) or corporation, both of which are more involved and costly. Additional insurance, while not required, should seriously be considered, if what you do is not already covered under your homeowners’ insurance policy – some cottage food enterprises could be covered as “incidental to the home.” Keep in mind that, in nearly all cases, cottage food laws by their very definition apply only to non-hazardous food products.

Recognize that the cottage food movement represents more than an enjoyable way to secure a new income source. You’re helping to grow the local food movement in your community by providing “direct-to-the-food-artisan” connections.

“Home cooks often start these businesses to make more money, but many ultimately find that it’s the personal connections they make that matter most,” Crabill says. “Cottage food businesses have the opportunity to positively impact their communities in so many different ways.”

Best of all, thanks to cottage food laws, “fresh from the farm” and “homemade” on the label means exactly what’s written.

To continue reading about John Ivanko and Lisa Kiviristr’s home based business, check out Create a Home Based Business with Your Baked Goods on MOTHER EARTH NEWS.