Pricing Your Products to Ensure a Profitable Dessert or Bakery Business

When starting a home bakery or dessert business, it's easy to focus on attracting customers and increasing orders as the top priority. After all, creating delicious recipes and bringing joy through your desserts is at the heart of your passion. But is that enough to ensure long-term success? The truth is, mastering the art of pricing is just as crucial as perfecting your culinary skills. Pricing your products correctly not only covers your expenses but also ensures that your business is profitable and sustainable. Are you setting prices that reflect the true value of your work and allow your business to grow? Let's explore how to price your desserts to build a thriving home bakery.

As a new business, you might believe that offering the lowest prices will help you quickly build a large customer base, with plans to raise prices later. However, the reality is that many customers who are initially drawn in by low prices won't accept a significant price increase. Additionally, lowering your expenses to keep prices low can make it difficult to maintain the consistent high quality of your products. That's why setting a fair price from the start is the best approach to achieving profitability.

There are several pricing strategies you can use, depending on your business goals, target customers, and competitors, to determine what works best for your business. Here are some common pricing strategies that you might consider testing.

Pricing strategies

• Cost-Plus Pricing
  Cost of ingredients + Cost of labor + Overhead costs + Desired profit margin. It is relatively simple to calculate and ensure that all costs are covered.
  
  
• Value-Based Pricing
  Price based on the perceived value to the customer rather than just the cost. You can potentially charge more if customers see high value, but this strategy requires a good understanding of your customers’ perceptions and can be harder to determine. This strategy can be applied to special products like gluten free, dairy free, or eggless pastries, for example.
  
  
• Competitive Pricing
  Set prices based on what competitors are charging for similar products. This strategy might help stay competitive in the crowded market, but lead to the slim profit margins.
  
  
• Penetration Pricing
  Set lower prices initially to attract customers and build market share, then gradually increase prices. As mentioned above many home bakers tried this strategy and found it highly ineffective for this particular type of business.
  
  
• Premium Pricing
  Charge higher prices to position your products as premium or luxury items. This strategy requires a strong brand and high-quality exclusive products to justify the price. This might work well for the custom made to order cakes, for example.
  
  
• Bundle Pricing
  Offer a set of products at a discounted rate when purchased together. This strategy encourages customers to buy more and can increase average order value. It might lower overall profit margins, but bring enough profit based on volume sales.
  
  
• Psychological Pricing
  Use pricing techniques such as setting prices just below a round number (e.g., $4.99 instead of $5.00) to make prices seem more attractive.
  
  
• Seasonal Pricing
  Adjust prices based on the time of year, holidays, or special events. This strategy can help to profit off the higher demand during certain times of the year. This strategy requires careful planning and flexibility.
  
  
• Promotional Pricing
  Offer discounts or special deals for a limited time to drive sales. This strategy might work better than penetration pricing strategy and help to achieve the same goal - attracts customers and can boost short-term sales. This approach might not be sustainable long-term.
  
  

When choosing a strategy, consider factors such as ingredient costs, labor, packaging, and overhead, as well as market conditions and customer expectations. It's also helpful to experiment and adjust your pricing strategy based on customer feedback and sales performance. Let's take a closer look at the Cost-Plus Pricing strategy as it is considered the most effective for the starting the home baking business. You can use some software like CakeCost: recipe costing calculator for home bakers and cake decorators for example, or do it manually using spreadsheet software.

Here is a sample template structure you can follow.
Create a master tab as a template and duplicate it to start new tabs for each item on your menu.

1. Ingredients Cost Columns
   A - Ingredients
   B - Recipe Weight (grams)
   C - Package Weight (grams)
   D - Package Cost ($)
   E - Price per Gram ($) - Formula: D/C
   F - Ingredient Recipe Cost ($) - Formula: B*E
   
   
2. Packaging, Labor, Decor, and Overhead Costs
   Use a similar table structure to calculate each of these costs.

Let's take a closer look at the calculation details for each section.

Calculate Ingredient Costs

• List Ingredients
  Write down all ingredients used in each product or batch (flour, sugar, butter, fruits, chocolate, nuts, spices, flavorings, etc).
  
  
• Determine Quantity Used
  Measure the amount of each ingredient used in a batch of your product. For example, if a recipe uses 2 cups of flour, you need to know how much flour you use per product.
  
  
• Find Ingredient Prices
  Check the price of each ingredient. Use the cost of the packaging or bulk purchase price and divide by the amount to find the cost per unit. For example, if a 5-pound bag of flour costs $3.00, and you use 2 cups for a batch, calculate the cost per cup.
  
  
• Calculate Total Ingredient Cost Per Product
  Multiply the cost of each ingredient by the amount used in a single product. Sum these costs to get the total ingredient cost per product. For example If your recipe uses 2 cups of flour ($0.40 per cup), 1 cup of sugar ($0.25 per cup), and 0.5 cup of butter ($1.00 per cup), your ingredient cost per product is:
  (2x0.40) + (1x0.25) + (0.5x1.00) = 0.80 + 0.25+0.50 = 1.55
  
  

Calculate Decor Costs

• Determine Decor Materials
  Identify all decor materials used (fondant, flowers, rice paper, beads, cake toper, edible print, etc.).
  
  
• Find Decor Costs
  Calculate the cost of each decor item. If you buy packaging in bulk, divide the total cost by the number of units to find the cost per piece.
  
  
• Calculate Total Decor Cost Per Product
  Add the cost of all decor materials to get the total cost per product.
  
  

Calculate Packaging Costs

• Determine Packaging Materials
  Identify all packaging materials used (boxes, bags, labels, ribbons, etc.).
  
  
• Find Packaging Costs
  Calculate the cost of each packaging item. If you buy packaging in bulk, divide the total cost by the number of units to find the cost per piece.
  
  
• Calculate Total Packaging Cost Per Product
  Add the cost of all packaging materials to get the total cost per product.
  
  

Calculate Labor Costs

• Determine Time Spent
  Estimate the time it takes to purchase ingredients, do clean up, prepare, bake, decorate and package each product.
  
  
• Calculate Hourly Wage
  Decide on an hourly wage for your time (consider market rates or what you would pay an employee).
  
  
• Calculate Labor Cost Per Product
  Multiply the time spent per product by your hourly wage.
  
  

Calculate Overhead Costs

• Identify Overhead Expenses
  Include utilities (electricity, water), kitchen supplies and cleaning products, mileage, equipment maintenance, and other recurring costs.
  
  
• Determine Overhead Allocation
  Calculate the portion of overhead costs attributed to each product. This can be done by dividing total monthly overhead by the number of products made in a month.
  
  

Determine Sales Price

• Determine Total Cost per product
  Add up ingredient costs, packaging costs, decor cost, labor costs, and overhead costs to get the total cost per product.
  
  
• Set Desired Profit Margin
  Decide on a profit margin you want to achieve. This is usually a percentage of the total cost.
  
  
• Calculate Selling Price
  Use the formula:
  Selling Price = Total Cost + (Total Cost x Profit Margin).
  For example If you target a 20% profit margin and product total cost is $10 the selling price = 10 + (10 x 0.20) = 10 + 2 = 12
  
  

Regularly Review Costs

• Monitor Costs
  Regularly update your cost calculations as ingredient prices, packaging costs, and overhead expenses change.
  
  
• Adjust Pricing
  Monitor the competitor prices and your weekly sales data. Adjust your sales prices as needed to maintain profitability.
  
  

By following these steps, you can ensure that your home bakery products are priced to cover all costs and generate a profit.


We are building a dedicated platform for home bakers to help them run their businesses efficiently, allowing them to focus more on the strategic and creative aspects. Join our waitlist, and we’ll reach out with onboarding instructions when the time comes and we’re ready to welcome you to our platform.

Join our waitlist

Photo by micheile henderson on Unsplash