How to Price Baked Goods for Your Bakery
Pricing baked goods can be challenging for bakery owners. This is because there are so many variables and factors to consider. Do you want to know how to price baked goods?
The correct prices will help you meet your customers’ expectations while still making a decent profit margin. In this article, we will go over how you can successfully price your bakery’s menu.
The Importance of Pricing Your Baked Goods Appropriately
Pricing your baked goods correctly is crucial to the success of your bakery. If you overprice, it will have a negative perception on customers. On the other hand, if you underprice, it can jeopardize the profitability of your business.
Factor In the Cost of Making Your Baked Goods
The first step to pricing your baked goods is figuring out how much it costs you for each item. You’ll need to factor in:
- Cost of ingredients: such as eggs, flour, and sugar. How much did it cost to buy them?
- Recipe yield: how much can you acquire from one batch?
- Cost per serving.
- The time it takes to make a batch:
Factor In Your Overhead Costs
This includes leasing, utility bills, equipment maintenance, and marketing costs. The two kinds of overhead expenses are:
Variable costs are those that grow as your business grows. For example, you might find yourself ordering more and more ingredients to meet the increased production demand. Similarly, hiring additional employees may be necessary to meet increasing needs.
You may need to consider some startup costs if they are large and will be paid off, quickly. For example, you might have to pay for filing an LLC or buy kitchen equipment.
Calculate Your Cost of Goods Sold
When you’re deciding on a price for your product, it’s important to take into account the cost of goods sold (COGS). The formula for calculating COGS is:
COGS = Cost per serving + Labor cost per item + Fixed Costs + Variable costs + Startup costs.
Find Your Profit Margins
Once you’ve calculated the cost of goods sold for each item, be sure to add on an additional amount that will ensure your business makes a profit. That is your profit margin for baked goods.
Profit margins may vary, but generally speaking, a 5% margin is low, 10% is average, and 20% is good.
The key to success for your business depends on balancing what you want as profit versus how much customers can realistically afford.
Leave Wiggle Room for the Unexpected
What 2020 taught us is that unexpected events can happen at any time. For example, if your kitchen equipment malfunctions and you don’t have a backup oven or food processor, this might cause revenue losses.
It’s difficult to predict when these events will happen, but you can try your best by setting aside enough money in the budget for emergencies. This way, if something unexpected comes up, then you won’t have to worry about it.
What to Avoid When Pricing
When starting the bakery, there’re some things that you have to avoid to make sure that your business is profitable and the sales keep rolling in.
Never undervalue your skills
When you’re selling baked goods in your bakery, it is important to value what you do. If customers are requesting special orders for items such as wedding cakes, they care about the quality of your work and will be willing to pay a premium price if the product looks good and tastes great.
Don’t underestimate the importance of your products and services
You are providing a valuable service to people by making their lives easier. They buy your goods because they can’t make them themselves, or if they do have the skill, it’s not as good quality.
Don’t price based on your competition
No two bakeries are the same. It’s tempting to base your pricing on what you see in the market, but it might not be a good idea because every bakery has different labor and ingredients going into their products.
Avoid “emotional pricing”
Just because a certain price feels right, doesn’t mean it is. Do your research to back up the pricing you choose for baked goods.
Final Thoughts on How to Price Baked Goods
When determining how to price baked goods, it’s important to take certain things into account. Once you’ve established what these are, monitor how they affect sales and adjust accordingly.