Many bakery owners wonder how much to charge for their baked goods. Even veteran bakery owners often struggle with pricing their goods, especially after relocating or expanding their business into a new area.
When you’re determining your menu prices, there are many factors to consider, and in this short guide, we’ve aimed to compile the most important of them. It’s something that you’ll become better at over time. The more experience you have, the more likely you’ll be able to make decisions that are the best for your business. The more time you spend baking and decorating cakes, the more aware you’ll become of the time and resources you invest in each piece.
While this amount may be small for simple cakes and baked goods, for more elaborate pieces, you might find that you’re spending significant amounts of time and money, as such you’ll want to ensure that your food cost percentage is lower than 40 percent, as any higher and you could be majorly underselling your talents.
As you gain experience, it’s likely that you’ll gain confidence in the quality of the products that you sell. When you see people willing to pay your menu prices, without any hint of reluctance, you’ll realize that your goods are priced reasonably and competitively.
Things to Avoid When You’re Running a Bakery
When you’ve started selling baked goods, whether it’s for the first time or you’re a veteran in the food industry, there are a few things that you should avoid to ensure your business is profitable and the sales keep rolling in.
Never undervalue your skills. When you’re selling baked goods in your bakery, it’s important to value what you do. If you’re receiving special orders for items such as wedding or christening cakes, it’s a sign that your customers appreciate your work and won’t mind paying a premium for it. Simply put, if it looks good and tastes great, people will pay for it. Keep this in mind when pricing your menu items. Valuing your goods at what you feel they’re worth can help you to maintain a low-cost percentage.
Don’t underestimate the importance of the service you provide. You’re providing a valuable service. People buy your goods because they don’t have the time to make similar things themselves, or more likely, they don’t have the skill required to create professional-looking baked goods. Baking is easy for you, that’s why your customers are choosing you. They appreciate your service, and the fact that you’re making their lives easier is extremely valuable.
Avoid miscalculating the time you spend working on orders. If you’re incorrectly judging the amount of time you’re spending on things, you could be losing out on substantial amounts of gross profit. Your prices should reflect the amount of time that you’re investing.
When working on special orders, such as wedding cakes, you should think of every minute that you spent working on it, not just the money that you spend on the ingredients. Every moment from the initial design process to the delivery should be factored into the prices that you charge.
Crunch Your Numbers
The first few years of your business’s operation are crucial to its success. Even for the most experienced of bakery owners, there are a ton of challenges to overcome, and there are always lessons to be learned that help you to become a better business owner.
In the early stages of a business, problems with cash flow or incorrectly managed finances often result in its demise. Pricing your baked goods appropriately to take into consideration your overhead costs can help you to ensure that your business stays afloat. The following are some of the essential expenditures that you should consider to ensure your business stays in profit.
Never forget the importance of overheads. Your overheads should be one of the most important things that influence your food and beverage menu prices. It’s one thing to tally up the costs of your ingredients and labor, but if you don’t include the cost of things such as your utility bills, maintenance of equipment, cleaning products, and marketing costs, you could find yourself operating with an insufficient gross profit margin.
Effectively managing overhead can help you keep cost percentages desirable. If your profit margin isn’t at a level where you can maintain the way of life you’re accustomed to, you may need to rethink your entire business model, or at the very least consider price increases on your best-selling products.
Using a POS system to keep track of your direct costs is a smart move and can help you save money in the long run. ShopKeep’s POS system can reduce the amount of time you spend managing your staff and inventory, leaving you free to focus on what you love doing the most – the baking! The direct costs associated with running your bakery include things such as the cost of your ingredients. The cost of the labor required to create your baked goods is also a direct cost that will impact the price that you should charge for your baked goods.
Preparing for the Unexpected
As you would if you were managing any business, it’s essential to budget enough money to deal with situations that arise that would need immediately rectifying. For example, if your kitchen equipment malfunctions and you find yourself without an oven or a food processor, you risk losing out on a lot of revenue if you don’t have measures in place to ensure that you can replace faulty equipment immediately.
While you can’t plan for these events or predict when they’re going to happen, you can do your best to ensure that you’ve budgeted enough money to tackle these issues should they arise. You should ensure that your baked goods are priced in such a manner that you’re making enough gross profit to allow your budget to be flexible should any problems arise with your business. If you don’t ensure you have a backup plan, you could miss out on valuable sales.
You can integrate ShopKeep’s POS system with QuickBooks Online to help ensure that your business has accurate, error-free accounting. Staying on top of your business’s finances ensure that you’re ready for anything life may throw at you.
Variable costs can impact the base price you need to charge for your baked goods, some of which, such as ingredients and labor costs, are covered above. Another variable cost to factor into the price of your products is the cost of your packaging materials and supplies.
Things such as ribbons, tape, and boxes are initially cheap, but as the volume of products you produce increases, so will the number of packaging materials that you need. In most cases, things such as boxes and tape can generally be purchased in larger amounts for a reduced price. This could allow you to increase the amount of money that you set aside to be prepared for emergencies. Or you could reflect the savings on packaging materials with a small reduction in your menu prices.
Menu pricing ranges
It’s essential to having similarly priced menu items to your competitors as if you’re offering similar products of similar quality, but for a much higher price, it’s unlikely that your customers will want to return.
Ensuring your menu items are priced appropriately is essential for turning customers into regulars. Most people will know what they’re ready to pay for baked goods before they’ve even entered your bakery. While they may not have an exact amount in mind that their prepared to pay when you surprise them by charging them less than they expected they’ll naturally be pleased and will be more likely to return.
Using ShopKeep’s POS system allows you to create discounts on the spot for specific customers. For example, you can add discounts for seniors, employees, and even for customers who have signed up to your loyalty program.
SEE ALSO: How to Calculate Food and Beverage Costs
Whether you’re new to the world of running a bakery, or this is the latest in a long line of businesses you’ve owned, now you’ve finished this short guide you should have a better idea of the intricacies of running a bakery and how best to price your baked goods.