What is the fair price to charge for recipe development?

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Jonathan Deutsch

Question:

I wanted to ask about selling a recipe in addition to the time taken to make a recipe. My client hired me to produce a cookie recipe, which took a day and a half at an hourly rate of $50. How do I get compensation for the recipe in addition to my hourly rate?

– Chief; Oakland, California.

Answer:

Many chefs know how to value their time when negotiating a salary to run a restaurant or catering business. However, when consulting on new food products or developing recipes for another restaurant or packaged food company, things are not so clear cut.

A framework that might be useful is the distinction between transactional and transformational interaction. For example, a production manager responsible for baking 500 cookies a day to sell at $2 each generates $1,000 in revenue. It is a transactional scenario. The chef’s time, as well as the cost of food, hourly labor, rent, utilities, equipment, etc. can be easily calculated to determine the value of the transaction: expenses versus income.

The scenario is much murkier when the cookie is a new recipe developed by a consulting chef with the aim of having a transformational impact. Will your cookie recipe help your customer reach thousands of dollars in annual sales? Millions? Will it be boxed up and on store shelves nationwide? While $50 may be a comfortable hourly rate for a transactional interaction, it may not seem as good for a transformational interaction, if your $600 fee turns into $6 million or even $60 million in sales for your client.

In general, I have used three scenarios for pricing product development services as a consultant:

  • Work for the position. This is the hourly rate model and is by far the most common. You do the work, they get the recipe. The advantage is that you know what you are getting from the start; the downside is that you have a cap on your maximum earnings.
  • Royalty or equity model. You may want to give up some of your hourly rate in exchange for a small percentage of sales or equity. That way, if your cookie recipe is truly transformative, leading to huge sales or acquisition, you’re in.
  • Licence. In this scenario, you own the recipe but grant your customer exclusive or non-exclusive rights to use it for a fee. This scenario requires the most trust.

My advice is to have a candid conversation upfront about the business goals of the project and how your IP contributes to its success. You should have a clear contract in place using any of these scenarios before you begin. Cookies are not rocket science and if your price is too stiff, other chefs would be happy to do similar work. However, a good cookie can entice many people very happy. You should benefit from the expertise you bring to the project.

Finally, when you are doing recipe or product development as an employee, the scenario is very different. Generally, the employer owns all intellectual property that you develop at work while they are employed, unless you have negotiated otherwise. More information on this scenario here.

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