For anyone new to the bakery business, figuring out how to price baked goods can be tricky.

While some wedding cake bakeries might manage to charge hundreds (if not thousands) of dollars for layers of cake and frosting, most have more modest pricing.

We know it might be tempting to simply compete with other local bakeries on pricing. And while it may seem relatively safe, it’s not a recipe for success. As a bakery owner, what you should be focusing on is unique and delicious baked goods — and pricing reflects a part of that. But, if you’re struggling with how to price your delicious treats, check out our 3-step guide for a few tips of the trade.

Figure out what makes your bakery unique

Will your bakery be a destination for seasoned foodies, high-end wedding cakes, or the next Cronut? Maybe you’ll only serve gluten-free or vegan cookies. Or, maybe you’re adamant about serving affordable, home-made pies. You’re not just selling pastries, you’re selling an image. Depending on what your business is baking up, your customers will expect different pricing for different items. Understand your value proposition, letting it guide your entire menu strategy and how you price baked goods.

Crunch your numbers

Whether you’ve opted to go upscale patisserie or small-town bakery, your menu pricing needs to make financial sense. After all, you’re running a business and need to make a profit. To help you accomplish this, start by identifying the following:

Direct costs

This category includes ingredients and food waste associated with each menu item. Using a POS system that tracks your ingredients and baking materials will help you accurately determine your direct costs. It’s not only important to track when every cookie, cake, or pastry is sold, you want to understand the cost of those items down to the ingredient level.

Overhead costs

This includes rent, utilities, payroll and other overhead costs.

SEE ALSO: How BakeHouse Turned their iPad POS into a Profit Machine

Preparation costs

While salaries for bakers will be accounted for in your overhead costs, consider pricing baked goods according to how labor intensive they are. Excessive labor requires more preparation costs than those that can be whipped up quickly. Take into account seasonal or volatile food costs. Are any of your ingredients subject to wild price swings? Do their costs vary due to seasonality? Consider using market price entry for items with large price swings. Or, go with seasonal menus which allow for greater flexibility when pricing baked goods.

Indirect costs

These include any costs that aren’t directly related to the production of your baked goods. Indirect costs can include your laundry service or any marketing expenses. If it didn’t go into your cookies or cakes and wasn’t used to make them directly, then it can be considered an indirect cost.

Menu pricing ranges

Factoring in all of the above, determine your break-even cost per item. Now, what’s the absolute lowest price you could charge for your baked goods and still break even and earn a little profit? What’s the highest price your customers will be willing to pay? This is your menu pricing range.

Choose the most appropriate price in your range

Do this without cutting your profit margins too thin or gouging your customers. This is a fine line to walk, and you may need to tweak prices periodically before getting it just right.This all might sound complicated and overwhelming, but it doesn’t have to be. Using a cloud-based POS system can simplify the whole process. From tracking ingredients to engaging customers and managing employees, automating steps in the process will reduce human error, cut down on time, and help you develop a more accurate pricing strategy for your baked goods. Once you find the sweet spot for each of your items, make sure to promote what makes your cookies, cakes, and donuts worth every penny. Just like baking, figuring out how to price your baked goods is a science as well as an art. We hope we’ve taken the mystery out of menu pricing.

Sara Sugar

Sara Sugar

As Managing Editor at ShopKeep, the #1-rated iPad Point of Sale System, Sara Sugar uses her distinguished journalism background to boil down small business and point of sale topics.