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Let’s Talk Pricing – Part 1

Hi everyone!

Update –
Here’s the Part – 2 of this post with an actual EXAMPLE of costing – https://smritisspecial.in/lets-talk-pricing-part-2/

Costing is a long and complex subject, this is just my attempt to simplify some things for a beginner in this business.
The post is long, but trust me, you will have to do these calculations, ONLY ONCE IN AN YEAR (will differ for bigger businesses).
But it will help you in the long run.
You will exactly know how much you’re making, and whether your business is profitable or not.

I know the popular pricing choice that people make is –
(Cost of ingredients) x 2 or 3.
But this is absolutely absurd. While it might work for some scenarios, most of it will change according to where you live, work, bake and sell.

Disclaimer –
Terms mentioned below ARE NOT technical terms. This is just my way of breaking it down to make you understand, if you’re already an established Baker, please feel free to add any helpful pointers in the comments.

While pricing your creations, you have to consider the following :-

DELIVERABLES –

  1. Cost of ingredients
  2. Cost of additionals – cake boards, wrappers, packaging, candles, knife, Ribbon, Tissue Paper, note everything.
  3. If there’s any cutters, tools or stuff you had to specially purchase for a particular order, you charge in actual. Eg. Elephant Cookie Cutter.
    If you think, you’ll be using the cutter many times in future orders then you can only put a % of the cost. But if you think you won’t use it much, but the actual cost.
  4. Delivery charges

HIDDEN COSTS –

  1. % of Electricity.
  2. % of Water
  3. % Rent of the place (if any – be it home or studio)
  4. % of Wastage involved.
  5. % of the cost of equipment that you have in it’s depreciated value.
    This means everything that you’ve got (mostly the major things, but if possible everything) – Oven, AC, Fridge, Freezer, Stand Mixer, Hand Mixer, Tools, Bowl etc.
    It will help if you kept the bills for everything related to this.
  6. % of income you give to your staff (if any – even if it is a maid who washes your utensils)

On to the above calculated cost, you add the following :
Finally comes YOUR PART –

  1. Your labour cost per hour that you put into the creation. (depending on your skill level, Years of experience)
    This is NOT profit by the way. This is just the cost of your labour.
  2. Now your Profit %

And then Taxes over and above your final cost. If you are eligible to Levy
………………………………………………………
⬅️ Here’s a small example for a home baking business. This will be simpler for a commercial setup.➡️

Average Electricity bill per month –
₹10,000/-
Electricity per day –
(10,000 ÷ 30) = 334/-

Average orders per day – 2
In simple maths, you will add 334÷2 = 167/- to each order.

If there is an order that takes longer than a day to make, let us presume 3 days to make.
And in those three days, it is the only order you’ve done, then,
334 X 3 ~ 1000/-

Now you can cut this value down by two scenarios –

  1. When you have other businesses in the same place.
    Then you divide this electricity, water, rent etc. In the calculations of both businesses.
  2. If you have another earning person in the house who pays the bills.
    Then the electricity gets divided between the number of people paying the bill.

Let’s say you and your husband pays the bill, you divide it 50-50%.
So you are paying an effective bill of 5000/-
This division is subjective if you want to do 60-40 or 70-30. That is your choice.

Then the rest of the calculations will be the same as above.

You can also choose to put a percentage of the bill in your orders instead of the whole 10,000/- and pay the rest of the bill with your income (profit). That is your choice.

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