Pricing: How to Price Your Baked Treats Accurately
When I started my baking journey, I quickly realized that the number one reason home bakers fail is a poor understanding of their financials and the unit economics of their products. Pricing is critical, yet so many bakers undervalue their time, overlook essential costs, or fail to consider the scalability of their business.
Luckily, I had help. My husband, a retired U.S. military veteran turned MBA graduate and investment banker, shared an important insight with me: pricing isn’t just about covering costs—it’s about building a scalable, profitable business model.
The formula below is a great starting point for pricing custom orders, but it has its limits. It’s static and doesn’t adjust for how labor costs decrease as you scale production or how batch sizes impact per-unit profitability. Scaling your batches allows you to lower prices while maintaining the same profit margins, making your products more appealing to customers and driving business growth. Unfortunately, a static formula doesn’t highlight these opportunities or offer the clarity needed to evaluate unit-level profitability. As my husband often says, just because a product sells doesn’t mean it’s generating the profit required to sustain and grow your business.
To help you get started, our Rose Membership includes a pre-built, digital spreadsheet version of the static custom order calculator based on the formula below. This tool ensures accuracy for smaller, one-off orders. For bakers looking to take their business further, the Gold Membership offers both the static custom order calculator and the advanced SmartBake Calculator.
The SmartBake Calculator is a game-changer. It adapts to scalability, batch-level profitability, and real-time labor cost adjustments, providing insights that go beyond static formulas. While the formula below is ideal for custom and event orders, the SmartBake Calculator is the ultimate tool to take your pricing—and your business—to the next level.
Meghan's Basic and Custom Order Pricing Formula
Here’s a step-by-step guide to calculating the price for a custom order. In this example, we’ll price a cake and divide it into slices for sale. Each step includes a detailed explanation to help you follow the thought process.
Step 1: Calculate the Cost of Ingredients and Packaging
Add up the total cost of all the ingredients used to make the cake plus any packaging costs.
- Example: We’re pricing a chocolate cake.
- Ingredients include:
- Flour: $1.50
- Sugar: $1.00
- Cocoa Powder: $2.00
- Eggs: $2.00
- Butter: $3.00
- Milk: $1.50
- Vanilla Extract: $1.00
- Total ingredient cost: $12.00
- Packaging:
- Cake box, grease paper, decorative wrap and labels: $5.25
Total cost for ingredients and packaging: $12.00 + $5.25 = $17.25
Step 2: Determine Your Production Time
Estimate how long it takes to mix, bake, decorate, and package the cake. This step helps calculate your labor costs.
- Example: For this cake:
- Mixing the ingredients: 20 minutes
- Baking time: 40 minutes
- Decorating the cake: 30 minutes
- Packaging: 15 minutes
- Total production time: 1 hour and 45 minutes (1.75 hours)
Total production time: 1.75 hours
Step 3: Calculate Labor Costs
Multiply your production time by your hourly wage rate. This accounts for the value of your time spent creating the product.
- Example: If your hourly wage rate is $20:
- Labor cost = 1.75 hours × $20/hour = $35.00
Labor cost: $35.00
Step 4: Calculate Cost of Goods Sold (COGS)
Add the total cost of ingredients, packaging, and labor. This gives you the total cost of goods sold (COGS), which is the baseline cost to produce your cake.
- Example:
- COGS = $17.25 (ingredients + packaging) + $35.00 (labor) = $52.25
Total COGS: $52.25
Step 5: Factor in Overhead Costs
Overhead covers business expenses like electricity, tools, insurance and maintenance. Multiply your COGS by your overhead rate to account for these costs. For a home bakery, we recommend between 20-25%.
- Example:
- Overhead = $52.25 × 25% = $13.06
Overhead cost: $13.06
Step 6: Add Desired Profit Margin
Add a net profit margin to the subtotal to ensure your business is profitable. A profit margin of 10–20% is a good starting point. The higher the better but every incremental percentage directly increases the price so it’s a balancing act.
- Example:
- Subtotal before profit = $52.25 (COGS) + $13.06 (overhead) = $65.31
- Desired profit margin = 10%
- Profit = $65.31 × 10% = $6.53
Subtotal with profit: $65.31 + $6.53 = $71.84
Step 7: Adjust for Tax
Multiply the subtotal by your local tax rate. For this example, where Meg lives in North Carolina, the local tax rate on baked goods is 2%.
- Example:
- Tax = $71.84 × 2% = $1.44
Total price with tax: $71.84 + $1.44 = $73.28
So, $73.28 would be the price of the entire cake if you were selling it as a single custom order.
Step 8: Determine Per-Unit Price
If the cake is divided into slices, calculate the price per slice by dividing the total price by the number of slices.
- Example: If the cake yields 12 slices:
- Per-slice price without tax = $71.84 ÷ 12 slices = $5.99 per slice
- Per-slice price with tax = $73.28 ÷ 12 slices = $6.11 per slice
Why the SmartBake Calculator Is a Game-Changer
The custom order calculator is a great tool for one-off orders, but it has limitations: it doesn’t account for scalability or batch-level profitability. That’s where the SmartBake Calculator excels.
Key Advantages of SmartBake:
-
Real-Time Adjustments: Labor costs scale dynamically based on batch size, showing how profitability improves as production increases.
Example: Making 48 cookies instead of 24 reduces the labor cost per cookie, increasing your profit margin. SmartBake calculates this automatically. - Batch-Level Profitability Insights: See exactly how each batch contributes to your overall profit, helping you make data-driven decisions.
- Ease of Use: Enter your ingredients, batch size, and production times once, and SmartBake does the rest, saving you hours of manual calculations.
- Scalability Analysis: Learn how changing batch sizes, profit margins, or pricing affects your bottom line without guessing.
Ready to simplify your pricing and scale with confidence?
Join the Gold membership to access the SmartBake Calculator and unlock the tools you need to grow your baking business. Let’s make pricing one less thing to worry about!