How Much Should I Charge for Home Baked Foods?

cinnamon buns

Thanks to the Internet home based businesses are booming and one of the most popular ways of making a little extra dough is…well… to make dough. Home baked foods from rolls to wedding cakes are a hot commodity all over the country. You can make a nice little addition to the household income as long as you charge enough to cover your costs and make a profit.

Charging too little is probably the number one reason that any food related business goes under. Too many novice entrepreneurs estimate and guess at their food costs, fall far short of what the cost actually is, and create a financial sinkhole that they can’t climb out of.

Good thing you’re not going to do that, right?

Decide on Your Inventory

First of all you’ll want to decide what you are going to offer to your customers. At this point keep the list small with similar items – perhaps only five or so with a few variations to round out the choices without adding cost. Be sure to have a few specialty items that are amazing enough to be signature items. These should be something that isn’t being offered locally. Every bakery in town sells chocolate chip cookies but if you choose to feature something more unusual, like peanut butter cup stuffed chocolate chip cookies, people will have a reason to seek you out – and pay a bit more for your artisan baked goods!

Figure the Cost of Ingredients

Once you’ve decided on your inventory of home baked foods make a list of all the ingredients that you need. It’s best to buy as much as possible at a big box store. You probably won’t be buying enough to qualify for an account with a wholesale bakery supply but it doesn’t hurt to try. Steer clear of the regular grocery stores because you’ll pay the most there. Create a price book with the cost of each ingredient listed. If you pay $3.50 for five pounds of flour then list it that way. Once everything is listed with the cost you will need to break everything down into the amounts you would use in a recipe. For example, one cup of that $3.50 bag of flour costs about 17 1/2 cents. Round it up to 18 cents. The equation looks like this -

5 pounds of flour = $3.50

20 cups of flour in 5 pounds

$3.50/20 = .175 cents, rounded up to 18 cents.

You will break each ingredient down in a similar manner. Now, get your recipe out and add the cost to each ingredient like this -

  • 2 cups flour 0.36
  • 2 eggs 0.23
  • 1 cup milk  0.18

Do that with each ingredient. When you have all of the ingredients priced add them all up. For this example we’ll say that the entire cost of this recipe is $2.75. Divide the entire cost by the number of servings – in this case we’ll call it 12 cupcakes. 2.75/12 = 0.23. Always round up to the next penny when there is a fraction of a cent.

Now, you know that your basic cost per cupcake is 23 cents – but you aren’t done yet.

Estimate the Cost for Supplies

Next you’ll need to figure the cost of supplies. Cupcake liners, waxed paper, food coloring, and other supplies are a little harder to calculate. You need to know roughly how many items you will be selling on average every month and you won’t know that until you have had a couple of months in business. Just estimate for the first few months and then adjust when you have a solid number. Divide the cost of each supply by the total number of items you are selling each month. If you sell 150 cupcakes you’ll need to divide the cost of each item by 150. In some cases you will get fractions of cents so round up to one cent.

Add in the Cost for Equipment

The cost of equipment has to be figured in as well. This is a little more complicated to figure out. One way is to estimate how long each piece of equipment will last and divide the cost by the number of years, then divide that figure by 12 months, and finally divide that figure by the number of items you will sell. If your mixer costs 525.00 and you expect it to last eight years the breakdown will look like this -

$525.00/8 = $65.63
$65.63/12 = $5.47
$5.47/150 items = 4 cents per item.

Complicated, isn’t it? Luckily you will rarely need to update any of the costs except maybe the ingredients!

Include Operating Costs

Operating costs include your utilities, phone, printer cartridges, and other essentials. You will figure those costs by estimating the yearly total and dividing like you did for the equipment. Don’t forget advertising, web hosting, and other possible expenses. At this point you also have to decide whether you will include an hourly salary for yourself in the cost of what you sell. Some people do and some don’t – be careful with this because it can run your price much higher than it should be at this point. When you are established you can consider adding salaries for yourself and any employees you may need to hire.

As long as you are baking to order you won’t have to figure in the cost of unsold products – an expense that commercial bakeries have.

Plan for Profit

Once you have all of your costs broken down per item add them all up. This is how much it costs you to make each item. In order to make a profit you have to make more than the total cost. On average this is done by multiplying the cost times three or four. So, a cupcake that costs you $1.25 to make should be sold for at least $3.75 in order to make a profit.

Before you absolutely decide how much to charge for your items check the bakeries and other home bakers in the area to get an idea of what they are charging. You should not charge too much more or less than the going rate.

Time consuming? Yes, but the hours you spend on pricing your inventory to ensure a profit will pay off in the long run. If you have sold baked goods from your home what are your best pricing tips?

image:  © 2013 Marye Audet

- Marye Audet

Marye Audet is an author, freelance writer, and editor. Cooking, baking, and recipe development have been a major part of her life since she baked her first loaf of bread at age 13. Luckily, with a husband, eight children, a son in law, and three grandchildren she has enough test-tasters to handle the steady stream of experiments that come from her kitchen.

Comments

  1. Jessica

    This is a great article! Many friends including my husband say I should start selling my baked goods but I always wondered how much I would charge and how to figure it all out, this article answered just that. Thank you!

    • Marye Audet

      Jessica, you’re welcome! I know that when I was baking years ago I constantly undersold and I really didn’t make a thing. This isn’t a perfect formula but it is a good one. Good luck on your new endeavor!

  2. Aunt Tine

    WOW…thank you so much. I have been baking since I was 8 years old at my parents bakery. I’ve been told time and time again that I should be selling what I give away. People have even offered to pay for things, didn’t matter what I made, they just wanted something from my kitchen. I had no idea how to figure it out…………..TILL NOW!! Thank you so much for this.

  3. amanda

    If I wanted to start selling my baked goods to another store..like a mom and pops store what licencing do I need to do this..just a dba?

  4. Excellent overview of the process for pricing baked goods. I especially appreciate the fact that you brought all the ‘hidden’ costs of baking – i.e., operating costs, equipment, and supplies – into the equation, as these are often prime areas of neglect when the fledgling baker, caught up in the excitement of the enterprise, forgets to include them as part of the cost of goods sold. Good work!

  5. Patty Tomlinson

    Hello: I am doing my first ever bake sale at an Inn….I’m not sure how to price my items without scaring people away, but at least making some profit. I will be baking cookies/breads/cakepops/mini cheescups,etc.

    HELP!!!!

    Signed

    Confused baker in Bucks County, PA

    Patty

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