Figuring Out Prices for Baked Goods

by C. Taylor, Demand Media
Several variables contribute to the cost of baked goods.

Several variables contribute to the cost of baked goods.

Michael Blann/Digital Vision/Getty Images

Ultimately, the market dictates the price of your baked goods, and what successful competitors are charging indicate a reasonable expectation of fair market price. However, you shouldn't follow these prices on blind faith. Instead, calculate your actual costs per item and add in a profit margin. You can then compare this figure to the market price to see if you can compete in this business venture.

Step 1

Divide the weight or volume of each ingredient by the recipe's requirements to calculate the number of batches you can get from the bulk ingredient. As an example, if the recipe calls for 16 fluid ounces of milk, divide a gallon's 128 fluid ounces by 16 to calculate 8 batches. Repeat this calculation for each ingredient. For some measurements, such as a "dash" or "pinch," you might need to estimate.

Step 2

Divide the cost of each ingredient by the number of batches the ingredient supplies. Continuing with the example, if a gallon of milk cost $4, divide 4 by 8 to calculate $.50 per batch for that one ingredient. Repeat for each ingredient.

Step 3

Add each ingredient's per-batch cost to calculate the total cost of ingredients for a recipe.

Step 4

Divide this total by the number of servings the recipe provides. If the example recipe totaled $3.60 in ingredients and made 12 servings, divide $3.60 by 12 to calculate a per-serving cost of 30 cents. This total only considers ingredients, so you'll also need to factor in other costs, such as equipment, supplies and operating cost.

Step 5

Divide the cost of any single-use items, such as cupcake liners or bags, by the number of servings the package covers and then add it to the previous total. As an example, if you bought a 100-count box of cupcake liners for $3, divide $3 by 100 and add the resulting 3 cents per item cost to the total. Repeat for each single-use item.

Step 6

Divide the cost of any equipment by the estimated number of days in its useful life, and then divide by the average number of servings you produce per day. Add this figure to the previous total. As an example, if an oven costs $800 and lasts a year of heavy use, divide $800 by 365 days to get $2.19. If you could bake 200 servings per day, divide $2.19 by 200 to calculate 1 cent and add this to the previous total. Repeat for each piece of equipment.

Step 7

Repeat the previous calculation for operating costs, such as utilities, printer ink, storage space, license, rent and advertising. As an example, if your electricity bill averages $200 per month, divide by 30 days and divide again by the estimated 200 servings baked per day. Add the resulting 3 cents to your total. Repeat for each operating cost.

Step 8

Divide your per-serving cost by your anticipated percentage of servings sold. Because baked goods are perishable, if you can't sell them within a certain period of time, you'll lose that inventory. This loss needs to be rolled into the per-serving cost. As an example, if you realistically expect to sell 80 percent of your 50-cent per-serving inventory, divide 50 cents by 0.8 to increase the per-serving cost to 63 cents.

Step 9

Add 100 to your desired percent profit margin, divide by 100 to convert to decimal format and multiply by your total per-serving cost. Continuing with the example, if you wanted to make a 250 percent profit, add 100 to 250 and divide by 100 to get 3.5. Multiply 63 cents by 3.5 to calculate the per-serving price of $2.21.

Step 10

Compare this per-serving price to what others are charging for comparable baked goods. If the price is considerably less than the market price, you can probably increase your price and still be competitive. If the price is considerably more, you might need to reassess your business model. Try to cut costs or specialize by creating a novel recipe to justify the elevated price.

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