- 1). Determine what items you are going to sell. Rather than trying to provide every single item under the sun, select several choice items that you want to be your signature items. For example, if you are selling cupcakes, come up with 10 different varieties of cupcakes including one or two you feel is your "signature cupcake." By knowing what you are going to sell, you can create an ingredient list.
- 2). Price the ingredients. Skip going to the local supermarket and take a ride to the local restaurant supply store or warehouse store. Along with your list of ingredients, determine how much you would need to buy of each ingredient in order to make a batch or two of each item. Using the cupcake example, if you have 10 cupcakes on the menu and you want to bake a dozen of each, that is 120 cupcakes. According to your recipe, you need 36 eggs for those 120 cupcakes. The price of a jumbo crate of 36 eggs is $7.20. Divide 120 by $7.20 to determine that your egg price per cupcake is $0.06. Continue pricing each ingredient on your menu. Some ingredients will be universal to your entire menu, while others will be specific to certain items.
- 3). Calculate your operating costs. If calculating this strictly from home, you may need to wait to get the bills from the following month after you began your operation to really calculate the cost. For example, if your electric bill is usually $200, but since you started baking, it is $300, deduce that $100 is attributed to your business. Divide that amongst the total number of items you make per month. So if you make 1000 items, the cost is $0.10 per item.
Additional home-based operating costs might include the gas bill, your hourly salary and any other workers you hire to assist you in the baking process. Divide their total monthly cost by each item made within the month as well. - 4). Add equipment costs for your home-based bakery business. Depending on how much equipment you have, this may be nothing. However, over time, items such as mixers, baking pans, cooling racks and spatulas will need to be replaced. Exactly how much you want to allocate to this cost is up to you, however it is a good idea to at least place some amount toward equipment. If you don't end up using it, the extra money will simply add to your bottom line.
For example, allocate $200 per month to new equipment. Divide that by the number of items you are selling, which say is 1000. Your equipment cost would be $0.20 per item. - 5). Figure the waste percentage. As much as you would like to sell every single item you bake, chances are you will not. Unlike other food or products that may be kept or sold, baked items must be thrown away within a few days in not purchased. The amount of food cost waste is somewhat under your control since you are working from home. Since you do not have to fill a storefront with fresh baked items, you might just choose to bake to order. Additionally, as the business gets underway, you might get a feel for exactly what you must bake. To be on the safe side figure about a 20 percent waste cost to your calculation. So if you plan to make 1000 items, plan on receiving a profit for only 800.
- 6). Add advertising costs. Costs might be recurring, such as a monthly hosting fee for a website or they might be intermittent, such as printing menus and flyers. Total the intermittent costs for the year and then divide by 12 to get an approximate monthly amount. Add in any monthly recurring costs and then divide by the number of items produced in the month. If the bakery spends $250 a month on advertising and makes 1000 items, the advertising cost per item is $0.25.
- 7). Add up all of your per item costs for each item on the menu and multiply by how much you want to make per item. The cost per item will fluctuate based on ingredients. For example, a chocolate cupcake costs $1 to produce, while a cherry pie costs $4. Determine how much profit you want to make on each one. Typically, you want to make at least three or four times the cost. This makes the chocolate cupcake $3 to $4 and the cherry pie $12 to $16.
- 8). Calculate your monthly projected sales. Now that you know the total retail value of each item on your menu, calculate your projected sales. For example, say 1000 items over the course of a month have a retail value of $10,000. Multiply your projected retail sales by your waste percentage. In Step 5, it was 20 percent or $2,000. Subtract $2,000 from $10,000 to give you a total gross profit of $8,000. Check this against your costs to make sure it is approximately 3 times the total.
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