Bakery Pricing Guide: How to Price for Profit
Hello, baking business owners! Are you struggling with pricing your bakery products? Do you want to learn more about bakery pricing for profit? In this post, we’ll walk through the steps to price your baked goods profitably. This bakery pricing guide works for home bakeries, online bakeries, and commercial bakeries. It’s time to stop guessing and price your products for profit.
Bakery Pricing Guide: How to Price Bakery Products
Pricing your baked goods can be tricky for both newbies and seasoned bakers. There are so many variables to consider, and it’s tough to know which ones to base your calculations on. The right prices will help you meet customer expectations and make a healthy profit. Here’s how to price your bakery products:
1. Know the Cost of Your Ingredients
First up on this bakery pricing guide is figuring out how much you spend on ingredients. Keep a master list or spreadsheet with the ingredients and their prices. Record the size of the package and the cost per unit. For example, if you buy a 1kg bag of flour for ₱80, the price per unit (gram) is ₱0.08. Update this list every few months to keep track of any price increases.
Having an updated list will help you see trends in ingredient prices and adjust your product prices accordingly. You don’t want to suddenly realize that the price of butter has doubled, and you’re no longer making a profit on your cakes.
Example: If you bake pandesal, you’ll need to account for flour, yeast, sugar, and other ingredients. If you buy a 1kg bag of flour for ₱80, and your recipe uses 500g of flour, that’s ₱40 worth of flour for each batch of pandesal. If sugar costs ₱50 per kilo and you use 100g, that’s another ₱5. Keep a detailed log of all these costs.
2. Calculate Recipe Costs
The next step in this bakery pricing guide is calculating how much it costs to make each recipe. Record the cost of each ingredient used in the recipe. For example:
You buy a 1kg bag of flour for ₱80.
The price per gram of flour is ₱0.08.
Your recipe calls for 200g of flour.
The cost of flour in your recipe is ₱16.
Do this for every ingredient to find the total cost of your recipe. But don’t stop here; there are other costs to consider, too.
3. Factor in Your Overhead Costs
Next on this bakery pricing guide involves overhead costs. Overhead costs are crucial for setting your menu prices. These include utility bills, rent, equipment maintenance, cleaning products, and marketing costs. Overhead costs can be fixed (e.g., rent) or variable (e.g., ingredient costs that increase with production).
Example: If your rent is ₱20,000 a month, and your utility bills add up to ₱5,000, you need to cover these costs with your sales. If you bake 1,000 items a month, you need to add at least ₱25 to the cost of each item to cover your overhead.
4. Calculate Your Cost of Goods Sold (COGS)
The next step in this bakery pricing guide involves the cost of goods sold (COGS). COGS is the direct cost of producing your baked goods. This includes the cost of ingredients and labor. The formula for COGS is:
COGS = Cost per serving + Labor cost per item + Variable Costs + Fixed costs + Startup costs (if applicable)
Make sure your prices cover your COGS at the very least.
Example: If it costs you ₱50 in ingredients and ₱30 in labor to make a cake, and you have ₱20 in overhead costs per cake, your COGS is ₱100. You need to charge more than ₱100 to make a profit.
5. Choose a Pricing Strategy
Here are the top bakery pricing strategies you can use to get off on the right track:
Food Percentage Pricing: Determine the cost of ingredients for each product, then assign a price to calculate the food cost percentage. Adjust the price as needed. For instance, if your ingredient costs for a croissant are ₱20 and you sell it for ₱100, the food cost percentage is 20%.
Gross Profit Margin Pricing: Focuses on the profit margin you want for each item. If your croissant costs ₱20 to make and you want a 70% profit margin, the selling price would be ₱66.67.
Competitive Pricing: Check what competitors charge for similar items and price yours similarly. This helps attract customers while covering costs.
Factor Pricing: Add a set percentage markup to the production cost. For example, if a sandwich costs ₱60 to make and you want a 30% food cost percentage, the selling price would be ₱200.
6. Leave Room for the Unexpected
Always budget for unexpected expenses when pricing bakery products. These include equipment malfunctions or ingredient shortages. Make sure your prices allow for some flexibility.
Remember that in 2020, many businesses faced unexpected challenges because of the pandemic. For instance, if your oven breaks down and you need to buy a new one, having some financial cushion will help you manage such crises without disrupting your business too much.
Factors to Consider When Setting Prices
Here are the top factors you have to consider when setting your prices:
Your Target Audience: Who are your customers? Are they willing to pay more for premium products, or do they prefer budget-friendly options? Price accordingly.
For instance, if you’re selling ensaymadas to office workers in Makati, you might price them higher than if you were selling them to students near a university.
The Market: Look at what other bakeries in your area charge. Make sure your prices are competitive.
For example, if the bakery down the street sells yema cakes for ₱400 each, you might price yours similarly or slightly lower to attract customers.
Other Menu Items: Make sure your pricing makes sense across your entire menu. A fancy cake should cost more than a simple cupcake.
For instance, if you sell a premium red velvet cake that costs ₱800, make sure your regular vanilla cupcakes are priced lower, say around ₱50 each.
Detailed Examples and Calculations
Let’s look at more detailed examples:
Example 1: Calculating the Cost of Ingredients for a Batch of Ube Pandesal
Flour: 1kg bag costs ₱80. The recipe uses 500g.
Cost: ₱80 / 1000g * 500g = ₱40
Sugar: 1kg bag costs ₱50. The recipe uses 100g.
Cost: ₱50 / 1000g * 100g = ₱5
Ube: 1kg costs ₱200. The recipe uses 200g.
Cost: ₱200 / 1000g * 200g = ₱40
Yeast: 100g costs ₱60. The recipe uses 10g.
Cost: ₱60 / 100g * 10g = ₱6
Butter: 200g costs ₱150. The recipe uses 100g.
Cost: ₱150 / 200g * 100g = ₱75
Total cost for ingredients: ₱40 + ₱5 + ₱40 + ₱6 + ₱75 = ₱166
Example 2: Calculating Overhead and Labor Costs for Ube Pandesal
Overhead Costs:
Rent: ₱20,000/month
Utilities: ₱5,000/month
Total overhead: ₱25,000/month
If you bake 1,000 items a month, the overhead cost per item: ₱25,000 / 1,000 = ₱25
Labor Costs:
Suppose you pay yourself ₱200/hour, and it takes 2 hours to make a batch of 50 pandesal.
Labor cost for a batch: 2 hours * ₱200/hour = ₱400
Labor cost per pandesal: ₱400 / 50 = ₱8
Total cost per pandesal (ingredients + overhead + labor): ₱166 / 50 + ₱25 + ₱8 = ₱41.32
Example 3: Pricing Strategies for Ube Pandesal
Food Percentage Pricing
Cost per pandesal: ₱41.32
Desired food cost percentage: 30%
Selling price: ₱41.32 / 0.30 = ₱137.73
You can round it up to ₱140.
Gross Profit Margin Pricing
Cost per pandesal: ₱41.32
Desired gross profit margin: 70%
Selling price: ₱41.32 / (1 – 0.70) = ₱137.73
You can round it up to ₱140.
Competitive Pricing
Check local prices for similar products.
If competitors sell ube pandesal for ₱120 each, you might price yours at ₱110 to 120 to stay competitive.
Factor Pricing
Cost per pandesal: ₱41.32
Ideal food cost percentage: 30%
Pricing factor: 1 / 0.30 = 3.33
Selling price: ₱41.32 * 3.33 = ₱137.73
You can round it up to ₱140.
Practical Tips for Pricing Your Baked Goods
Here are other tips that you can use to price your products better:
Seasonal Pricing
Adjust prices based on seasonal products and their demand. For instance, prices can be raised slightly during peak seasons like Christmas or special events like Valentine’s Day.
Specialty Ingredients
Charge more for items with premium or specialty ingredients, like organic, vegan, or gluten-free options.
Limited Editions
Create limited-edition products for holidays or special occasions and price them higher due to their exclusivity.
Package Deals
Offer discounts for bulk purchases or combo deals. For example, sell a box of 6 cupcakes for ₱300 instead of ₱50 each.
Delivery and Packaging Costs
Don’t forget to include costs for delivery and bakery packaging in your prices. If you offer home delivery, make sure to factor in fuel and delivery time.
Adjusting Prices Based on Sales Data
Once you’ve set your prices, monitor your sales data to see how your items are performing. Use your POS system to track which products are selling well and in what quantities. If you notice certain items aren’t selling, consider adjusting their prices or promoting them more.
Example: If your leche flan isn’t selling as well as you hoped, try a temporary price reduction or a buy-one-get-one-free promotion. Track the sales during this period to see if the promotion helps.
Marketing and Promotions
Don’t forget to factor in the cost of marketing and promotions when setting your prices. Effective marketing can drive sales, but it also has a cost. Make sure your prices allow you to cover these expenses.
Example: If you spend ₱5,000 a month on social media ads and promotions, this cost should be factored into your overall pricing strategy. If you sell 1,000 items a month, you need to add ₱5 to each item to cover your marketing costs.
Frequently Asked Questions
Calculate bakery prices by determining the cost of ingredients for each recipe, adding overhead costs like rent and utilities, factoring in labor costs, and choosing a pricing strategy that ensures profitability while remaining competitive in the market.
The best pricing strategy for a bakery depends on factors like your market, competition, and product differentiation. Common strategies include food percentage pricing, gross profit margin pricing, competitive pricing, and factor pricing.
Three fixed costs for a bakery include rent or lease payments for the space, utilities (electricity, water, gas), and equipment maintenance costs.
Cost of Goods Sold (COGS) in a bakery are the direct costs related to making your baked goods. This includes the ingredients, packaging materials, and labor.
To calculate sales for a bakery, multiply the number of units sold by the price. For instance, if you sell 100 cupcakes at ₱50 each, your total sales would be ₱5,000.
Conclusion
Knowing how to price bakery products right can be the difference between success and bankruptcy. By understanding your ingredient costs, factoring in overheads, and using the right pricing strategy, you can make sure your business stays profitable and sustainable.
Keep reviewing and adjusting your prices as needed. Monitor your sales, track your expenses, and stay informed about market trends. This way, you’ll always be ready to make the best pricing decisions for your bakery. Happy pricing!
About HICAPS
Over the years, HICAPS has helped bakers and businesses make delicious products by offering ingredients like ChiffonAide Cake Oil, Magic Whizk Whipping Cream, Red Velvet Flavor Emulco, and Instabake Brownie Mix. HICAPS also provides tools and resources to valued partners, such as the free “How to Increase Your Sales Amidst the Pandemic” E-book and free dealer locator that helps look for baking ingredients near me.
