Do you want to know what the average markup for bakery items is? If YES, here is how to calculate markup and boost the profit of bakery products. According to reports, there are over 6,700 retail bakeries in the U.S. that generate about $3 billion in annual revenue. This simply means intense competition in the bakery industry, even before considering the more than 2,800 commercial bakeries that rake in $30 billion in revenue.
However, revenue is not the same as a profit margin. Knowing the difference and understanding your mark-up on items can help your business not only survive, but also grow in a world that is all about the dough. Many bakery owners wonder how much to charge for their baked goods. Even veteran bakery owners often struggle with pricing their goods, especially after relocating or expanding their business into a new area.
What is the Percentage Markup for Bakery Products?
Determining the exact mark – up percentage for each bakery product can be nearly impossible sincere there is no basic threshold regarding mark – ups in the bakery industry. Howbeit, there are many factors every bakery must personally consider when determining menu prices, and the more experience you have, the more likely you will be able to make decisions that are the best for your business.
Have it in mind that the more time you spend baking and decorating cakes, the more aware you will become of the time and resources you invest in each piece.
Although this amount may be small for simple cakes and baked goods, but for more elaborate pieces, you might find that you are spending significant amounts of time and money; as such you will want to ensure that your food cost percentage is lower than 40 percent, because anything higher and you could be majorly underselling your talents.
Additionally, as you gain experience in the industry, it is likely that you will gain confidence in the quality of the products you sell. When you see people willing to pay your menu prices, without any hint of reluctance, you will realize that your goods are priced reasonably and competitively.
Also when you’ve started selling baked goods, even if it is for the first time or you are a veteran in the food industry, there are some things that you should avoid to ensure your business is profitable and that your mark – up on products are accurate and substantial.
First things first, do not in any way undervalue your skills. When you are selling baked goods in your bakery, it is imperative to value what you do. If you are receiving special orders for items such as wedding or christening cakes, it is a sign that your customers appreciate your work and won’t mind paying a premium for it.
Do not forget that you are providing a valuable service. People buy your goods because they don’t have the time to make similar things themselves, or more likely, they don’t have the skill required to create professional – looking baked goods. The process of baking might be easy for you, but that is why your customers’ are choosing you. They appreciate your service, and the fact that you are making their lives easier is extremely valuable.
Also note that if you incorrectly judge the amount of time you are spending on things, you could be losing out on substantial amounts of gross profit. Your mark-ups and prices should reflect the amount of time that you are investing.
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How to Efficiently Mark – up Your Bakery Products in the United States
Owing to the perishable nature of a bakery’s inventory, the mark – up on product might need to be quite higher than that necessary for retailers of hard goods. Also, since mark – ups in the bakery industry are not generalised, every Baker must take into consideration many standard business overhead and production costs to effectively determine menu prices.
1. Know Your Expenses
Before you determine your Mark-up in the bakery business, you are expected to first understand two breakeven points: one covering operating costs and one also covering start-up costs. If you are a new business, you may not only need to cover your costs to run the business each day, but also the amount of money you need to pay off your initial investment.
Have it in mind that this might include money used to acquire equipment, securing licenses, pre-launch marketing, buying a store and purchasing office equipment. Always remember to calculate your cost to run the business as if you had no debt to get your operating expense.
Take time to determine how much of your initial investment you need to pay down each month, and add that to your operating expenses to learn your total expenses. Once you pay off your debt, your breakeven point will drop.
2. Calculate Your Breakeven Point
When you know your total expenses, divide your operating expenses into production and overhead costs. Note that your overhead costs include expenses such as phones, rent, marketing and debt repayment. Then your production costs comprises of those expenses you incur when you bake items. Your total expenses per month give you your monthly breakeven point. Have it in mind that you can make these calculations per day, quarter or annually.
As your sales increase, your breakeven point per item decreases, especially since each addition item absorbs more of your operating expenses, which don’t change based on how many items you sell. But when you sell fewer items, your breakeven point per piece increases, because each item must absorb more operating expenses.
3. Project Your Sales
At this point, calculate your income based on several sales levels to understand how much you will need to sell each item to cover your costs. For instance, if you sell only cupcakes and it costs you 50 cents in labour and ingredients to make a cupcake, your production cost per cupcake remains 50 cents.
If you have $3,000 a month in overhead and debt repayment expense, you will divide $3,000 by the number of cupcakes you expect to sell to get your overhead cost. It simply means if you sell 1,500 cupcakes per month, you will need $2 per cupcake to cover your overhead and 50 cents to cover your production expenses, giving you a breakeven point of $2.50 per cupcake.
4. Project Inventory Turnover
In the bakery business, it is imperative you understand that you won’t sell everything you bake and will always have to project what amount of inventory you will throw away each day. If you can sell day – old bread at a discount, you can project how much of each day’s production you will sell at full price, how much you will sell at a discount and how much you will throw away.
However, to help you reduce your losses, you might decide to sell some inventory at a loss to avoid throwing it away. If you have enough unsold inventory each day, you might be able to donate it to a charity for a write – off.
5. Set Your Mark – up
At this stage, to calculate your mark – up, you have to first project your total costs for producing each day’s inventory and for operating your business. This requires projecting how much inventory you will realistically sell at full price, throw out, mark down or donate.
For instance, if the total overhead and production costs of the baked goods you project you will sell, discard or donate each day is $1,000, and you want to make a profit of $300 per day, you will have to mark up your product 30 percent.
Don’t forget that you will need to pay sales tax on each item sold, which will raise the price your customers will pay. You will also have to pay income tax on your $300 in profits. Immediately you have some sales history, you can determine if lowering or raising your prices will change your sales volume enough to raise or lower your mark – up.
Just like it was stated above, it is nearly impossible to state a specific mark – up range for products in the bakery business. However, it is imperative to having similarly priced menu items to your competitors as if you are offering similar products of similar quality, but for a much higher price, it is unlikely that your customers will want to return. Making sure your menu items are priced appropriately is very necessary for turning customers into regulars.