Setting retail prices for baked goods

[Caroline923]

Finally decided to "sell" my desserts after over 10 years of doing it for a hobby.

Have no idea how to price...will be boutique operation, hand delivered - not shipped - no store front. Desserts are created by the order - customized. Use only the finest ingredients - European chocolates and butters...Help on pricing - location is in Texas.

[Tri2Cook]

Add up the costs... ingredients, time, packaging, delivery expenses, office supplies, waste, advertising, etc. Add in your profit margin. Then squeeze in as much above that as your market will tolerate because there always seem to be costs that don't occur to you until they've nipped into your profits.

[etalanian]

First, remember that if you decide at a later time to expand and get your own retail space that you will need to cover the costs of that overhead. It is very difficult to raise your prices once you have set them - you need to be sure you are charging enough now; then if you decide to expand you won't have to worry about raising prices. If you are baking very small quantities, it is extremely difficult to make a decent amount of money for your time. The real savings come from the economies of scale as you grow.

People have different ways of determining their prices. I used to try to keep my food costs (cost of all of the ingredients in a product) to 20-25%. To use that method, determine what the ingredient cost is for each product - include everything - and then multiply that by 4 (if your food costs will be 25%) or 5 (if your food costs will be 20%). That will give you the target price of each item.

Then list all of your products and their price as determined above. Should some be decreased? Can others be increased? Use your best judgement, but try to keep control of your overall costs, and keep them between 20-25%. Even lower is better, if you can get away with it.

If you were doing this in a brick and mortar store, you would have insurance, rent, utilities, staff, taxes, etc., so you would need to cover those. That's why the ingredients are at that percentage.

Also, when you are using the best ingredients, remember that there will be people who will compare your high quality baked goods to lower quality trash. Don't take offense; when you make a high quality product, not everyone "gets it." Just make sure you have a way of getting your story out to your target market.

Whew! That was longer than I expected! Sorry for the wordy explanation, but I hope it helps.

Feel free to PM me if you want more information. And good luck!!

Eileen

[gfron1]

What I recently re-learned was the importance of packaging. I've been selling my cookies (and other stuff) for a couple of months. Two weeks ago I ran out of my labels and just put a label above the cookies on a basket. I went from daily sell-out to a slow trickle. I put the labels back on and they flew out the door again. And, in the early days when I added the label, I was able to go up an additional 50 cents each. My labels are dirt cheap - just run them through my color laser (which only cost me $150US).

btw - this is my old price.

[CanadianBakin']

A very timely topic...

I've just got my first customer to supply mini's for the sweets tier of their afternoon tea service. I am able to use their kitchen but will supply ingredients. I'm not sure how the use of her kitchen should affect what my price is. I'm also not sure if each type of mini should have a different price or should I group them? We talked about pricing a bit although didn't make any firm decisions yet. We both were thinking an average of $1.00 per piece. Of course ingredient cost and time to make vary considerably. I have a meeting with another tea shop owner coming up so I'd like to figure out what I'm doing.

This job was a bit of a suprise. I was hoping to start working again in September and was just meeting with her to find out about her experience, did she do catering, if she knew of gaps in the food service in our city, etc. to see where I might fit. Before I knew it she wanted to buy from me and I'm not prepared yet. I'm just at the research stage but accepted the job since it's exactly what I like best.

[etalanian]

If you price them all the same, just be careful...it could turn out that the most popular are the ones for which you get the least margin.

Eileen

[Linzerbear]

Eileen, is absolutely correct, i used to have an old chef who would say the customer will always find the value of your menu, meaning they will always find the most expensive/labor intensive item you have that is the cheapest, and that is what they will always order the most of.

what we do at my shop for mini's is we have several tiers of offerings, six kinds for a 1.00 a piece six kinds for 1.50 a piece etc. and always charge more for fresh seasonal fruit. So we always make sure we are in profit. Mini's can be labor intensive, so always cover your butt.

[artisanbaker]

there is no formula imo; whatever the market will bear. work backwords from there. i'm a big fan of the work backwords club; although banks aren't fond of that philosophy.

Good advice there about starting out slightly higher than your target price; you can always reduce but it's hard to increase without rocking the boat. Only thing is I've had one experience where I was involved in a company that positioned themselves as high end (complete with corresponding pricing structure) and they could not make the volume necessary simply because the market was too small. People were also put off by the "prestige" image and found it to be prententious. So, they had to back down and "dumb down" things a bit (if you'll excuse the expression) in order to reach a greater audience. I was recently told by the owner that they don't even try to make the "best bread" anymore because there are so many customers that won't appreciate the difference; she said that she knew that I could "improve" her products but "if it's not broke, then why fix it?" We are talking P&L here.

Know your demographic, their education level, and how well travelled they are. Don't assume that people with the discretionary income to buy the product will actually buy; some folks have actually found that people with slighty less discretionary income spend more on gastronomic items. In other words, one needs to have the money but it does not guarantee the "sale."

Thoughts? Feedback welcome and I certainly don't don't mean to come across as a "know it all" because that is most certainly not the case!

Edited August 1, 2008 by artisanbaker (log)

[CaliPoutine]

I've been selling my baking at a local flea market. I packed up my squares 6 to a package and charged between 4-4.50. I had someone order a whole whack of stuff and these are the prices I came up with. Keep in mind that butter/dairy is expensive here which is why I priced the Tres Leches cake the way I did.

Do you think these are fair prices?

Pecan squares 9x 13 pan- 18.00

Coffee cake (qty. 2) 9.00 (2 loaf pans)

Caramel brownie squares 18.00 9x13 pan

Foccacia 12.00 sheet pan

Banana Bar w/ cream cheese icing 15.00 9x13

Black magic cake 15.00- bundt cake

Cookie dough (I will bake them during week 2 of their visit) 12.00- oatmeal choc. chip

Tres leches Cake 22.00

[CaliPoutine]

Know your demographic, their education level, and how well travelled they are. Don't assume that people with the discretionary income to buy the product will actually buy; some folks have actually found that people with slighty less discretionary income spend more on gastronomic items. In other words, one needs to have the money but it does not guarantee the "sale."

I'm curious as to what education has to do with who buys what baked good?

Edited August 1, 2008 by CaliPoutine (log)

[Caroline923]

clearly this is not a simple process - the baking is the easy part - thanks for your time and assistance I do love the cookie labels - in Texas we have to have each item wrapped - so plan on using cello food grade and adding sticky label to each

[artisanbaker]

Know your demographic, their education level, and how well travelled they are. Don't assume that people with the discretionary income to buy the product will actually buy; some folks have actually found that people with slighty less discretionary income spend more on gastronomic items. In other words, one needs to have the money but it does not guarantee the "sale."

I'm curious as to what education has to do with who buys what baked good?

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higher education level->usually more income->more discretionary income->more able to buy a product like a St Honore

with respect, i find it hard to believe if you put a bakery that sells St Honores in a neighborhood of folks with an average education level of high school graduate that you could sell any significant amount...

am I making sense here?

[gfron1]

My slight twist on that is that more education - more income - more travel and world experience. That isn't a rule, just my experience. But, in my town that has a much higher than average education and income level, I can throw a croissant on the shelf and sell them in minutes, but the pain au chocolate sits because people don't know what they are. I've learned to call my cookies - Chocolate Chip and not some fancy name like I was. I originally thought that if I called it something fancier, I could increase the perceived value. In my experience, a fancy name often completely devalues the product.

[artisanbaker]

yes, i could have created a stronger argument by including the travel aspects, which i understood to be true as well.

i know it can be hard to see, but there is a correlation and i hope the above 2 posts illustrate this

[artisanbaker]

...but the pain au chocolate sits because people don't know what they are.  I've learned to call my cookies - Chocolate Chip and not some fancy name like I was.  I originally thought that if I called it something fancier, I could increase the perceived value.  In my experience, a fancy name often completely devalues the product.

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this is all market dependant. example: what is French bread? There is an ocean of right answers, because as we all know, the customer is always right!

this is why culinary apprentices in the USA need to follow the French Compagnons' lead and spend time in different geographic regions so that they can understand how to work in harmony with their specific market.

[sugarseattle]

know that labor is a HUGE factor. we just (gulp) finished our second quarter payroll taxes which resulted in a HUGE tax bill which shocked the hell out of us. we thought we were doing ok because we were paying the bills and even paying more on our loan than the minimum. but on further investigation, we've found that our labor is like 44% and then adding up all our costs, they are like 118%.

so we've made a huge switch in our labor, and have put into place all sorts of cost cutting procedures. we are also tracking our waste more vigorously, which is why it's good to target your food costs maybe even as low as 18% to account for waste.

one of the most difficult things we've found is being able to see at a glance where we are financially. for example, at what point should we send somebody home? we use quick books financial software to track our spending, but we find it very difficult to work with it to get the reports we need before our spending becomes a problem. we've tried working with accountants, but one we had was very expensive, and half the time I didn't know what she had done or not done. I've been able to enter in most of the bills, but that's about it. i think having all that information close at hand is very valuable. it was MUCH easier when I didn't have so much overhead.

so back to your question, I agree with the other posters that you are going to need to defend your prices since your ingredients are so high. the other thing to take into account is how much ingredients fluxuate. two weeks ago, jam was $10 a bucket and now it's $14. so build in a little buffer to allow for inflation.

be prepared to stand behind your products...be ready to say, this is a hand made product made in small batches with very expensive ingredients. sure, you could get a cheaper cake at the grocery store, but that is a different product than you are selling.

blah blah blah...i've gone on too long.

[Pam R]

Just because customers have a higher income does not mean they are willing to spend it on baked goods.

There are a couple of issues here. One is that you have to make sure all of your costs are covered and you've worked in some profit for yourself.

Another point is this. If you're using high-quality ingredients and do exceptional work, then people expect to pay more for it. In fact, high prices can be a selling feature in the 'oh, they charge a lot - must be worth it!' way. (of course this can backfire if the products don't live up to the costs.) But if done properly, you set yourself up as a high-end exclusive boutique business where you can sell 10 cakes at $100 instead of 20 cakes at $50.

[etalanian]

If you want to maintain your product quality, you need to make sure you reach your target market. It's true that the more well-traveled your customer is, the more they will appreciate high quality - for instance, most mainstream consumers have been conditioned to believe that Pepperidge Farm is the benchmark for fine quality cookies. It's all a matter of marketing. Know your market and understand how you are going to reach them.

Eileen

[BaldDaddys]

Good day to all of you.. while I have been appreciating all of your insight for a while now I figured this is a great topic for my first post.

For those of you selling on both a wholesale and retail level, is there any "rule" regarding margins? I know in the apparel industry, it is pretty much standard that the customer will pay double what the store paid for it. A pair of sandals cost you $18, the store paid $9. So, for example, I am selling a 4oz Crumb Cake for $2.75 retail, what would you charge a local coffee shop who wants to carry your product. I know, quantity means a lot. Just looking for some insight/prior experience.

Many thanks.

Edited August 3, 2008 by BaldDaddys (log)

[CanadianBakin']

Wow! I really appreciate everyone's input. I have another question...

How should my using her kitchen affect the pricing?

She is open to bartering. From other threads I've seen that kitchen rental ranges between $8 - 20 per hour. She doesn't have a commercial oven just two regular ovens. It's a reasonable size but not huge by any means. I think I'll bring my own machines but probably use her bowls. Should I reduce my price per item slightly or give her a certain amount free in leiu of paying or should I just pay rent and keep it separate? I am also allowed to use her kitchen for my other jobs after hours. (the tea shop closes at 3 pm) Any ideas or advice?

[prairiegirl]

Wow! I really appreciate everyone's input. I have another question...

How should my using her kitchen affect the pricing?

She is open to bartering. From other threads I've seen that kitchen rental ranges between $8 - 20 per hour. She doesn't have a commercial oven just two regular ovens. It's a reasonable size but not huge by any means. I think I'll bring my own machines but probably use her bowls. Should I reduce my price per item slightly or give her a certain amount free in leiu of paying or should I just pay rent and keep it separate? I am also allowed to use her kitchen for my other jobs after hours. (the tea shop closes at 3 pm) Any ideas or advice?

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Keep it separate.

[JeanneCake]

CanadianBakin: Are you leaving your equipment there when you are not there? Will you have a locked area to put things away? Will you be keeping anything there? If so, you need to think about the possiblity of them being borrowed or broken and how to handle that. As well as what would happen if something breaks while you are using it....

[Truffle Guy]

Finally decided to "sell" my desserts after over 10 years of doing it for a hobby.

Have no idea how to price...will be boutique operation, hand delivered - not shipped - no store front.  Desserts are created by the order - customized.  Use only the finest ingredients - European chocolates and butters...Help on pricing - location is in Texas.

←

My suggestion is to look at the value of the product you produce and price accordingly. Just because your fixed costs are high doesn't mean a customer will or should pay more, it is what the market will bear. I use Valrhona for my chocolates...not the cheapest couverture by any means and yet my price is $1.50 each. It is in line with other chocolatiers that produce similar product. The key for us is to figure out what our ingredient cost is and then to determine if we can sell enough to pay for all the other expenses. Quantity has a quality all it's own so you really need to find a way to increase your sales volume and not your sales price. To be honest, I'm happy so many chocolatiers charge $2.00 and higher for their pieces as it helps me to gain customers. I saw a shop recently that was reselling Norman Love's pieces for $3.50 each "because people will pay for it" and I just don't get that line of thinking.

It is a very simple program but you can actually use Mastercook 9.0 to help with your pricing. Just be sure that it is calculating correctly (you need to enter liquid ingredients as such). This will at least give you an idea of the ingredients cost. Also, you can play with using other brands to see what difference it makes. My previous job was metrics and analytics and I toyed with making my own spreadsheet/database but this can do the job to start an all for $19.95.

Packaging can really hurt you (or sell the product). Don't forget to calculate all costs (shipping etc.) of packaging in the price and mark it up a bit. There also is the labor cost but my suggestion is to first see if you can make money just on the cost of the ingredients. If you are making $1.00 on each chocolate and selling 1000 per month....you may not be able to stay in business. However, if you are making $.50 on each chocolate but selling 10,000 per month...things might start working for you.

Something you also may want to consider is when to use only the finest ingredients. There are cases where it really is just not making a difference. For example, I do a Passion Fruit bon bon with white chocolate and the fruit overwhelms the chocolate and to put Valrhona in the ganache doesn't really make sense, you could never tell the difference. I still use it on all my shells but if I'm using a particularly powerful ingredient, I only use product that enhances the taste and if the chocolate is not going to be the main flavor, I may use another brand. I still use quality chocolates but a little further down the price lane such as E. Guittard, Felchlin, El Rey, Cacao Barry or Callabaut (I'm not saying these are inferior products...they are just cheaper).

Just my 2 cents but your business and pricing should be based on the value of your goods, not what you need. Hopefully, things will work out but you should know ahead of time the key factor in the pricing formula....how much do you need to sell. Good Luck!!!

[Truffle Guy]

Finally decided to "sell" my desserts after over 10 years of doing it for a hobby.

Have no idea how to price...will be boutique operation, hand delivered - not shipped - no store front.  Desserts are created by the order - customized.  Use only the finest ingredients - European chocolates and butters...Help on pricing - location is in Texas.

←

I know I just had a long post but there are a few things I noticed in reading the thread and your post again.

First, if you are hand delivering your product you need to have a minimum or a delivery charge. I have to drive across town for Lemongrass and so my $3.00 of Lemongrass ends up costing me another $4.00 in gas ($10.00 if you use the IRS equation). It sounds like this may be a first step and just a way to make some extra money so you can get away with some losses if it is still a bit of a hobby but now with some revenue potential.

Second, What makes you special and how will your customers know what you have? Do you have a website so they can see your products and pricing or a brochure. The big advantage we have with our retail storefront (besides much better margins than wholesale) is that our customers can see what we have. Also, I'm able to "educate" them by letting them sample the items they are unfamiliar with and would never order without an understanding of the product. My Pate de Fruit are a good example or a product that took off after letting people sample it. How can you let customers "sample" what you can do so you can broaden their horizons and your sales at the same time.

Third, don't underestimate your location or the demographics. I've seen a few questions about education and disposable income but in the restaurant business the familiar phrase was always location, location, location. I make mainly artisan chocolates and where I'm located, nobody really even blinks at the prices...if they even ask. If I moved over just a few miles, things would be totally different. Make sure "your" customer is close enough to reach you. You also might consider partnering with a local French restaurant or similar establishment on some projects to create a better awareness of your talent.

Fourth (and last I promise), word of mouth is great and will bring you the best customers but without a retail location it may be more of a challenge. You might consider offering some of your product to some local fundraisers to "wow" potential customers. Treat it as a charity donation or marketing cost. What I always ask when making a decision on where my chocolates go is "Are my customers there?". Sounds simple but you need to really know who your customer is...because they are not everyone. Here is my customer, I'm sure yours is different but you should sketch out what you think he/she looks like:

1. Top 5% of incomes (others too but this is the bread and butter)

2. Likes Wine (the kind in bottles, not boxes)

3. Likes to Fly (their own planes)

4. Likes to Impress (loves to give unique, upscale gifts to friends)

5. Likes Knowledge (my customers love to learn little tidbits about chocolate)

6. Quality Focused (would rather have 1 of the best than 4 of average)

7. Wants to Help (Might surprise you but if you are selling to successful people and they like you...they will want to help you and will)

8. Likes Fine Dining (French, upscale and trendy restaurants)

9. Like samples (they are less impressed with a discount and like to have you tell them about a piece and they try it)

10. Like Consistency (They know when you change things....if you do be upfront with them if they ask...don't try to fool them)

11. Travel (They have been all over the world and like to tell me about places where they enjoyed chocolate)

12. Love to be remembered (May not be a big deal without retail but when I can remember their name and details about when they last came in and what they got...and why, it makes them very loyal. I'm only open on Monday's because 1 customer can only come in on that day and when she does, like today, I always say "just chocolate" because she likes the pure pieces best.)

13. Watches the Food Network (Keep up on it so when they want to talk about something similar to what you do.....you can have a conversation).

14. Have Opinions (Know what they like and dislike...ask them, they will tell you)

15. Knows Everyone (my customers know each other and all the other important people in the city...and they want to tell them about you)

16. Live nearby (may sound silly....but once you become a known quantity you might want to be more aware. For me, that means stop being the worst driver on the road. It was pretty humbling to have one of my best customers inform me I'm a bad driver....of course I laughed and said "the worst, sorry did I cut you off" but it makes me think. You NEVER know who is watching you at the grocery store, at a movie theater, at a restaurant, on the road and you can lose a customer by not considering that in some ways, you are now a public person.

It's late and another long post but in my first 10 months I'd say knowing my customer has been the most important thing. You MIGHT change some people's opinion about your product but that is an uphill battle, start by finding the one's who already are looking for you.

Edited August 5, 2008 by Truffle Guy (log)

[artisanbaker]

EXCELLENT INPUT Truffle Guy!