I've been toying with the idea of starting a cupcake business out of my home, legal of course. Starting a business is very foreign to me and I need a lot of information. So far I've just started running numbers. In order to reach an annual income of $30,000/yr I would have to sell 1250 dz cupcakes. This is based off of 1dz cupcakes =$24. Then I realized that this number does not include the cost of ingredients, supplies, etc. So then I calculated a $10 profit (went with the least number) for each one dozen sold. The number then became 3000 dz!!!! 8 dz/day!!! That seems like a lot of cupcakes and a lot of hard work for just one person. Are my calculations off??? Is there something I'm missing??? How are other homebased cake decorators able to do this??? Also is there a site with home based business info that I can go to?
This is not looking good so far ..........
There's a difference between the annual income you receive based on your hourly wage earned by performing services for your business, and the profit margin earned by the business itself.
Price = ingredients + labor + per-order overhead + 20-30% profit. Let's look at a dozen cupcakes priced at $24, and we'll estimate the cost of ingredients and supplies at $8, with overhead an additional $2 per order. Let's say a dozen cupcakes takes you one hour to bake and decorate, and the hourly wage you pay yourself is $10. Your cost for those cupcakes is $20 ($8 + $10 + $2), and a $24 price would result in $4 in profit. This means that for every dozen cupcakes you sell, you would be making $10 and an additional $4 would flow to the business as profit (before taxes of course).
Since you are the only owner of the business, the additional $4 profit could also be considered your income. So to make $30K you would need to sell about 2150 dozen/year, or 43 dozen per week (with 2 weeks vacation). This corresponds to a 43-hour work week (assuming each dozen takes an hour of labor), which is perfectly doable for one person as long as you have enough orders.
It sounds like a lot because cupcakes are relatively inexpensive compared to cakes, and $2/cupcake is on the low side for a custom shop. If you were able to charge $3/cupcake, each dozen would bring in the same $10 wage for yourself, but profit to the business would be $16 instead of $4. This means you would only need to make 1155 dozen/year to reach $30K, or 23 dozen per week.
It will probably be difficult even hitting 23 dozen cupcakes per week on a consistent basis without wholesale partners (grocery stores, restaurants, coffee shops, etc.).
Wow, Jason!!!! That's some really good advice!!! It definitely sounds like a lot if work.......and a lot of missed family time. I will definitely take this info into consideration when making a final decision. Thanx for taking the time out to respond. Enjoy the rest of your day
Don't forget your friends at the IRS and state tax dept. Plus additional self-employment taxes if you are used to a paycheck.