In the bakery business, setting prices for your baked goods is a tricky task. Ultimately, pricing is a delicate balance between the amount of money you need to make a profit and the amount of money your customers are willing to pay for your goods. With so many different costs coming into play, it can be overwhelming to know where to start!
Making a Profit
The most important part of ensuring you make a profit is understanding your income and expenses. Spreadsheets can be an effective and efficient way to track what you are spending on your orders in terms of money and time. You can make a spreadsheet for every step in the process and pull all the numbers together to give you the total cost to make an order:
- Time. Time is money! Track the wages and hours worked for yourself and any employees. Account for every minute spent working on an order, including time spent meeting with customers, designing, material ordering, ingredient shopping, baking, decorating, packaging, cleaning, and delivering. As you would expect, the items that take the most time to make will end up being the priciest items.
- Ingredients. Your ingredient costs can be split into two spreadsheets—one for the raw ingredients and another for specific recipes. The ingredient spreadsheet will help you track the cost to use specific quantities of each ingredient (e.g., cost per cup of flour, cost per gram of chocolate). Once you have an ingredient spreadsheet, you can create a recipe spreadsheet that combines the ingredient costs to make specific items. Keep your recipes very specific to ensure you use the same amounts every time, so you don’t shortchange yourself or end up with inconsistent goods. On the recipe spreadsheet, you can even include the average amount of time it takes you to complete an order for quicker pricing.
- Decorations. Don’t forget the cost of decorations! Create another spreadsheet where you can price out the per-order cost of decorations like cake boards, ribbons, fondant, and packaging materials.
- Overhead. All your utility costs should be factored into the pricing of your orders as well. This includes rent, utilities, cleaning products, equipment maintenance, Internet, phone, registration fees, and marketing costs. The best way to account for these costs is to price them out on a monthly basis for an average amount to include in your pricing for overhead expenses.
- Unexpected costs. Prepare for the unexpected by factoring in some buffer for unexpected or emergency costs.
- Profit. Finally, consider your profit margin. This is the most flexible component and will likely be driven by your customers’ budgets.
Considering Customers' Budgets
Determining what your customers are willing to pay will likely take experience. However, one of the best ways to get a sense of what customers are paying is by shopping the competition.
When doing this, choose competitors who are both well-established and of similar quality. Why? The well-established bakeries will likely have solidified their pricing via trial and error over time, and bakeries of similar quality will give you a sense of what the market is willing to pay for your products’ level of quality.
When visiting these bakeries, determine their unique selling propositions (USPs) and consider how they compare with your own. This will help you determine how you can differentiate yourself from the competition. Then, knowing what the competition is charging and their USPs, you can start experimenting with profit margins.
In the end, setting the right prices is a game of trial and error, so it may take some time. Throughout it all, remain confident in your work, don’t sell yourself short, and never lose sight of the value you are bringing to your customers!