How to Price Baked Goods

Can you believe I used to ball-park my prices!? I did and for quite some time...I just didn't have the time to sit down and really figure out profit margins! So, if that's you, no worries...I've been there myself.

At some point, though, you do want to figure out your pricing calculations. I ended up removing several items from my menu that were just not making me any money (I suspected it but now know for sure).

I put my Pricing Formula for you below. If you are already a Pink or Platinum Member, then definitely listen to my course "Confident Pricing" in the Pink Plan CORE tab. It will go into much more detail when it comes to ensuring your business is profitable.

My Pricing Formula:

When pricing my baked goods, I consider the following elements:

1. Hourly Wage: I first determine my desired hourly wage. For me, I always aim for twice the minimum wage in my state (that’s $30/hour). For my area, I’ve found that twice the hourly wage is my typical maximum without risking my products being overpriced. My overall goal is to earn more than that so I supplement with other non-baked items to boost my income higher. More info on this is available in the Pink Plan. 

2. Time Involved to Prepare: Once I know my hourly wage, I determine how long it takes me to make said item...for example, if 36 cupcakes takes 2 hours, my labor cost is now $60 (my hourly wage x 2).

3. Ingredients/Packaging: I then determine the cost of ingredients and packaging. Let's say that total is $15. I use an Excel sheet that has common quantities of my ingredients listed as well as the price for those quantities. For example, the cost of 1 cup of flour, 2 teaspoons of baking powder, etc. This helps me to quickly calculate the ingredient costs for an entire batch of cupcakes without having to work backwards from a 10 lb. bag of flour each time. I do the same thing with packaging costs. 

4. Total all Costs: Now I total my $60 for labor plus my ingredients and my packaging costs for 36 cupcakes. My total is $75.

5. Overhead Costs: Once I have my total cost from 1-5 above, I add 10% for overhead costs. Overhead costs are anything it takes me to operate my business. Some examples would be wear and tear on my appliances. The cost of electricity I use to prepare my baked goods, etc.

6. Business Profit: Now I do the same thing for Business Profit…I add another 10%. Business profit is separate from my hourly wage of $30. My hourly wage is what I pay myself as an employee of my business. The business profit is what I keep in my business bank account so that I can continue to grow my business. Maybe I need to invest in a new stand mixer. Maybe I want to do some advertising. My business profit is what allows me to make financial decisions that will further my business goals.

7. Total Costs of 1-7 above: Now I total everything together: hourly wage + ingredients + packaging. Then 10% for overhead and 10% for business profit to get my final number and I divide that number by 18 (the amount of cupcakes I can make in an hour). For cupcakes, I typically land right around $2.50 for cupcakes

But wait….there is one more step:

Once I’ve determine my price per cupcake, I add a cushion. The cushion ensures I can offer a sale on my baked goods, offer a discount if ordering a larger quantity (1 dozen cupcakes versus 1/2 dozen, etc.) or I'm prepared if ingredient costs increase.  is important due to several reasons:

Okay, so there you have it! 

Hope this is helpful and happy baking, everyone!  

~Tiffany