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Pricing Baked Goods: How to Do It the Right Way

If you are struggling with how to price baked goods, you are not alone. There is an art to confidently pricing your baked goods for selling from your home bakery. Today I am going to share with you my step-by-step method for knowing how much to sell baked goods for so that you can make a profit with every sale. This works for home bakeries, online bakery sales, farmers market, or for your retail bakery shop.

Stop guessing at pricing baked goods and get a strategy for your bakery pricing

I recently recorded a Baked Goods Pricing Masterclass where I discussed the three pillars of pricing baked goods. I talk about how to get past the psychology of pricing when you don’t feel confident with charging enough for your baked goods, as well as share my favorite tool that makes pricing baked goods quick and simple.

Check out the video below to get access to the full recording of this Bakery Pricing Masterclass.

Top three reasons you need to accurately price baked goods

Pricing baked goods correctly is the key to successful baking business. Here are my three top reasons why you should know the actual cost of your recipes.

Reason 1: guessing or pricing like your competition isn’t accurate 

There are several ways that people decide on a selling price. Here are a few examples of scenarios I have been in as a business owner.

Pricing based on your competition– Let’s say you are a gourmet cupcake store in a town with another gourmet cupcake store. The other cupcake shop sells their cupcakes for $3.00 ea. You know that your customers will pay that price because they already are at the other store. You price your cupcakes at the same price as your competition.

Pricing based on demand– You are the only cupcake store in town. People love your cupcakes and stand in line to buy them. You price your cupcakes at the highest price that people will continue to pay.

In very simple terms, you should be trying to make the right quantity of product that your customers will buy, then charge as much as you can to get rid of it. If you can’t get rid of that quantity, start discounting it and adjust your quantity the next time you bake.

In the end it really comes down to finding a balance between how much you make and how much you charge.

Reason 2: Knowing the cost will help you calculate your profit margin

Once you have calculated the cost of your recipes, you will be able to calculate the profit margin.

Your profit margin is how much money is left after all the expenses have been covered. It is always expressed as a percentage.

Looking at the profit margins of your products as percentages makes things easy to compare.

Knowing your profit margin helps you:

  • Know which items are the most profitable
  • Decide which items you should promote.
  • Make decisions about your less profitable items.  
  • Help you to create more profitable menu items.
  • Adjust your prices to maintain ideal margins. 

Reason 3: Forming good financial habits will help you be more successful

If you are just getting started, it may be hard to imagine that someday your business will grow into something much larger. You may have a bookkeeper, accountant or investors. One day you might even want to sell your business!

Understanding terms like profit margin, cost of goods sold, and gross profit are going to be important. Start now and learn as much as you can about the business side of baking so that you can build the foundation for success!

How to Price your Baked Goods

How much does your home baked goods recipe cost to make?

Figuring out how much your ingredients cost you is something you’ll want to put effort into. I recommend keeping a list or a spreadsheet of up to date ingredients and the prices you are paying for them. Here is what you need to know to calculate the cost of your recipe:

  1. Ingredient cost (what you pay for 1 lb of flour, 1 egg, 1 tsp vanilla, etc)
  2. Cost to produce the entire recipe (cost for a batch of decorated sugar cookies)
  3. Recipe yield ( how many cookies in the batch)
  4. Cost per serving ( recipe cost divided by the yield)

My cost per batch is $3.00. The recipe yields 18 sugar cookie cut-outs. $3.00/18=.16 cents to make each cookie.

How long did it take to make the recipe

One of the first things you should do is decide how much your time is worth. If you were going to work for someone else doing this work, what would you expect to get paid? Remember, the better you are, the more you can charge for your time. You can always increase your hourly rate, but to start with, just pick a realistic hourly rate.

  1. Mix the dough (15 min)
  2. Roll, cut and bake (30 min)
  3. Decorate (60 min)
  4. Package (15 min)

My direct labor is 2 hours per batch. I have valued my time at $15/hour. so my direct labor is $30 per batch. If I divide that by 18 cookies, my direct labor is $1.60 per cookie.

Adding in overhead costs to the mark up for pricing bakery goods

There are two types of costs involved: fixed costs and variable costs.

Fixed costs-This is the cost associated with running your business that doesn’t change each month, like rent for kitchen space, farmers’ market fees, website maintenance, etc. To cover the cost of my overhead, I divide my monthly costs by the number of units I produce each month.

I am a home baker selling cookies and muffins at the farmers market. My overhead costs are: website 8.00/month, farmers’ market fees $35/month, printing costs $10.00/month. My overhead is $53.00/month. I sell 400 items per month. My fixed cost is $53/400, or .13 per unit.

Variable costs– This is the cost that increases when your production increases: cupcake liners, parchment paper, etc. Remember to include the shipping cost for ordering supplies and the tax you paid on those supplies. Each cookie gets a cellophane bag, a ribbon, and a tag.

Each recipe includes everything consumable associated with that product. In my cookie recipe, I include 18 cellophane bags, 1 1/2 rolls of ribbon, and 18 printed tags. My packaging costs per cookie are .04 ea.

Put it all together to calculate the cost of goods sold{COGS}

ingredient cost per serving + direct labor per serving + fixed costs + variable costs.

My ingredient cost is .16/cookie; the direct labor is 1.60/cookie; it’s fixed costs are .13/cookie; my variable costs are .04 per cookie. The total cost is 1.93 each. This is also called the Cost of Goods Sold (COGS). My sales price, at a minimum, should cover my COGS.

Here is where you can play with the sales price a little bit. How much is the customer willing to pay for that cookie?

Your competition sells decorated sugar cookies for $3. 00 ea. You know the customer is willing to pay that price. You can increase your price to what the market will allow.

Suppose you sell your cookies for $3.00 ea. If you subtract $1.93 from $3.00 you have $1.07. $1.07 divided by $3.00 = .35, or 35 percent. This is your gross profit margin on the cookie when it is sold for $3.00.

Gross profit margin = 100*(sales price – COGS)/sales

My favorite baking cost calculator spreadsheet to understand home bakery prices

If you have BIG GOALS for your Baking Biz, but need help understanding how much to charge for your baked goods, The Perfect Pricing Calculator is for you!

Here is a list of other resources available that can assist you in the basics of recipe costing. 

https://www.lightspeedhq.com/blog/bakery-menu-pricing-strategy/

https://www.cookkeepbook.com/

http://www.bakediary.com/

https://www.pricingbakedgoods.com/

Now you can price baked goods accurately with my bakery pricing guide and my recipe cost calculator

Now you should have a good understanding of why you shouldn’t guess at your prices. I hope you find the resource list that I’ve given you helpful Let me know in the comments which method you used and what you discovered about your pricing. Did you find your big money maker product? Which items are you going to re-price? 

If you enjoyed this article, check out these: Three Sure-Fire Ways to Increase Your Bakery Sales, and How To Take Special Orders In Your Bakery, and How I Created my Dream Job.