AHas anyone found this formula helpful??

Cost divided by .2 = retail. It makes your ingredients 20% of the retail cost.

Also I don't really understand it and I'm new at baking and I'm trying to find a way to charge people for my work, any help please.

ADo you mean cost multiplied by .2 = retail?

To charge for a cake you should add up your cost to make the cake. This should include ingredients and supplies like cake boards, etc. Add any overhead such as liability insurance, electric, water, etc.

Then estimate how many hours it will take to complete the project. Include any shopping and clean up. Then multiple your estimated hours by what you pay yourself per hour.

Add up your cake cost and labor to come up with your finale cost. Do not forget to add 10 - 30% mark up for your profit.

I'm not familiar with that formula either. 

 

to figure your margin : 

 

Margin % = (Retail Price - Cost) ÷ Retail Price

 

a rule of thumb is to multiply your cost by 300% to get your price, and your food cost should be under 30%

I probably go about this the wrong way, so forgive me if this confuses anyone.

I take my cost of supplies and double it.  Then I figure out labor for projects, and add them together. I figure that pays me labor, and puts money back into the business, by doubling product costs.

Also, I charge family members for supplies and no labor (unless there is a ridiculous project or wedding), so they pay me supplies X2, and I still get a 'profit' to put towards business.

AIn the custom cake business, if you are setting your prices based solely on ingredients you will end up overcharging some customers and undercharging others, since the amount of labor needed can vary quite a bit depending on how complex the cake is.

If you were mass producing a single product it's a different story, since the labor will be constant.

A

As long as your per-order overhead costs are equal to your cost of supplies that formula will work if you also include markup based on local market prices.

A

No it's division :/

AAlso how can you determine the overhead charges like when using the oven? Do you go by personal electric/gas bill?

ASo if my cost is $25 and I divide by .2 that would equal $125? Think I'm lost

AIf you are using a personal oven then look at your bill to see what you are being billed per kilowatt hour. And try to estimate from there, electric ovens use around 3500 killowatts per hour. A killowat are billed at 1000 killowatts per hour.

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For a complete picture of utility costs you can look at the total portion of your monthly utility bill used to bake for your business divided by the number of orders in that month.

You can also look at the energy usage of your oven and use the baking time for specific orders. For example, if your oven uses 5000 W (5kW), you used the oven for 2 hours to complete an order, and you pay 25 cents per kWh, the overhead due to oven utility costs is 5 * 2 * .25 = $2.50 for that order.

As you can see, utilities won't amount to much. Most of your overhead will be things like insurance, advertising, license fees, accounting fees, etc. For example, if you pay $1000/year for the items mentioned in the previous sentence and you have 2 orders per week, this represents $10 for each order.

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In this context, it sounds like "cost" means only ingredients, and multiplying by 5 is an estimate to take into account labor, overhead, and markup.

This formula may work out for some products if you are lucky, in the same way a stopped clock shows the correct time twice a day.

AThanks so much everyone for the info I also have another question : D how does one decide how much to charge per slice and does that amount also cover for the overhead etc or is that separate

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I find it's best to calculate your cost for the cake as a whole (including labor and overhead) and add your markup before breaking it down to a per serving price for the customer. The customer does not need to know how much of your price is overhead.

AYou charge as stated in the previous post and you could then break that down into per Slice cost for quoting and invoicing.

Or if you know your basic cake cost. You could say I charge $4 a serving for a basic fondant cake with minimum decorations, and then up charge for more elaborate decorations, toppers, 3-D figures etc.