How many kolaches should we bring?
“We sold out!” they say proudly after the farmer’s market.
Like it’s a good thing.
Is it?
One really easy way to sell out at the farmer’s market is to just bring 1 kolache. But I’m pretty sure that’s a bad strategy.
If there’s a demand for 100 kolaches, let's assume the optimal amount to bring is 100 units.
But let’s say you’re going to be off by 10:
Is it better to bring 90? (sell out)
Or is it better to bring 110? (have 10 units of waste)
Say the market demand is for 100 kolaches. They sell for $5 at the market. Your cost per unit is $1.60.
If you bring 90, you’ll make $450-$144 = $306 (worst)
If you bring 100, you’ll make $500-$160 = $340 (best)
If you bring 110, you’ll make $500-$176 = $324
Selling out is the worst option in this completely contrived scenario.
How much would you have to overproduce by to make the same profit as the sold out case? 121.
You’d rather (with these made up unit economics) over produce by 20% than underproduce by 10%.
~
(There are all sorts of other reasons why underproducing might be better: can’t produce more, team is overworked, don’t like wasting food, appearance of scarcity, etc. but they don’t show up in the P&L)