If a dozen cupcakes with buttercream cost me $15 to make including the box, what do you think I should charge for them. Right now I am charging $28. All input is appreciated!

You need to price and taste every one of your competitors' cupcakes, find your correct spot in the market compared to them, and price accordingly. If that is not enough profit, you need to up your skills or lower your expenses. Pricing by adding your expenses and markup is not the correct way to price anything.

I live in the northeast. Large cupcakes go for $3.75 each. More or less.

There are many ways to figure out pricing. Knowing what your competitors charge is essential, but not always enough to arrive at a price where you're making a profit. The restaurant industry uses the percentage method and tries to keep costs between 28% and 33%. More or less. In the baking industry, a standard practice is to multiply costs (ingredients only) 3x for wholesale price and 4x for retail price. (Add more if you can get it.) The final cost will include enough of a cushion to cover overhead plus profit. I've used the bakery method with excellent success. It's more straightforward than percentages.

I never said take their number and charge the same. You may be better and you may be worse. You find the market price and work down. For example, the best scratch baker charges $3.00 for an iced and filled cupcake. Another baker has ok cupcakes and charges $3.00. Another has ok and charges $2.00. Your cupcakes are not as good as the first, but better than the ok's. That puts you at $2.50 (hypothetical). You say, "But I can't have a viable business at $2.50". Then you need to up your skill or lower you expenses. If you can't, you don't have a business.

You can add a percentage for profit, but that is assuming that you have your business running as a fine tuned machine and in line with market efficiency.

Jason, I think you assume that everyone runs their business as efficiently as you do. I know, even though you are on the other side of the US, that your expenses are in check, you know your competitors, that your prices are the correct market price, and they also fall within your percentages. But, if someone pays too much for rent, hires too many employees, spends too much on buildout, etc., that percentage is not going to come out to market price. Applebee's must charge market price and have their percentage of profit, but it all starts with controlling their expenses, beginning with the vacant lot.

$15 does not include my labour or overhead. Competitors in my area charge an average of $2.25-$2.75 each for a similar product.
I'm not sure what to do as I am just starting my business and I don't want it to fail already! I think I need to find a way to lower my expenses as I know I will not be able to get much more than $30 a dozen in my area.

Hi,

I can see a box being a big part of the cost if you are buying retail at a cake decorating store one at a time. How much are you paying for a box?

Can I ask how you arrive at the other costs. It is not that I question your math, it is that maybe you use expensive wrappers or retail european butter, etc... Do you buy buttercream pre-made?

Those factors could make a big difference in your costs & profit versus your competition and others on CC.

Giving the full breakdown will help us understand the situation fully and give you a better answer.

The box and cupcake insert come to $2.25. There is only one cake supply shop and it is about an hour away from me. I could buy larger quantities for all of my supplies but since I am just starting it is difficult for me to be out of pocket so much money. I also thought of ordering online but I don't think it would be any cheaper with shipping charges.

I think that you are right though and I should be buying in bulk more. It is more out of pocket to start but will save me and make me more profitable for the future.

Thanks!

I am hoping to have at least 120-150 orders my first year but not all would be cupcakes as I do cakes as well. I will be paying $10 an hour to rent a kitchen and to make, bake and decorate a dozen cupcakes it would probably take me 1.5 hours. That being said I should be able to multitask some what and make enough cupcakes and icing for multiple orders at a time for very little added time above the 1.5 hours. Does that make any sense how I explained it?
I am also considering perhaps maybe putting a minimum order on regular size cupcakes at 18 or 2 dozen. That would make them more worth my time to do.

right off the bat you're at a disadvantage when competing with businesses ordering in bulk. if you don't order in bulk, your profit margin is going to be lower. when you first start out that's to be expected. chances are they started off the exact same way.

you'll have some items that have a higher return than others due to ingredients and labour. again, that's just normal. but, were i to figure in how much money i expect to be paid per hour for my business (speaking of building trophies), i'd be sunk real fast. maybe it's not perfectly comparable, but some jobs i make $65/hr., others are practically charity work. not the best example in the world, i know, but my point is that if i priced everything out at the industy ideal (which is $65/hr for what we do), i wouldn't have any customers. and quite simply sometimes you do a little better than break even (particularly when you can't buy in bulk as by doing so would be foolish) in hopes of repeat business, which obviously a bakery thrives on. so i personally think that any formula involving labour costs is immediately suspect until you get the experience behind you enough to know how long it *should* take you, not how long it actually does. if you have to raise the cost on a product so much more than your competition's then you're not doing something right, and that probably has to do with your overhead.

i don't think it's important to know your competitor's pricing ~ i think it's crucial! trust me when i say the customer could really care less about your cost, they care about the quality and the price. if you're unable to be competitvely priced these daze, it's going to be rough paying the bills. that's another reason i'm not a huge fan of outdated formulas when you're first starting out. besides, how many people do you know that's getting paid what they think they should? lol. i've seen where a company gets in trouble and as a way to prolong the inevitable ruin will raise the price of a product and use cheaper ingredients. that's the perfect recipe for disaster, and you'd think just saying it aloud would be enough to deter some business owners from doing it. and i'm pretty sure those people sat done and did some math to come to that terrible conclusion, when the fact of the matter was (in my experience) their product sucked and was overpriced to begin with.

something else: i don't think someone starting out in any business should expect a typical salary, and if they're not making x amount of $ it's a failure. that's the life of a salesman, it's often feast or famine. if someone wants a steady paycheck, go to school for the medical field. i say that again because figuring in labour costs into the price of your items isn't always a great idea, at least until you're at the level of your competitors. that is, of course it's going to take me a lot longer to make a certain item i've never made before, but that's not an excuse to pass that added time on to the customer.

i know my profit margins are going to be lower in part because i won't buy everything in bulk, but i know what my overhead is so i'll be saving more (which is no different than earning more) than even established bakeries paying leases or rent. but, i have my overhead under control, so my actual profit margins will wind up being greater even if i'm paying more for not buying everything in bulk. the key for me is cheap rent.

that's just my opinion, and my circumstances are a lot different than everyone else's. i think it's entirely fair to ask yourself how many cupcakes you need to sell to pay for everything as you're operating now, then figure out how much you can save by buying in bulk.

So what do I do?

If you can cut your labor time from 90 minutes down to 30 minutes, the total cost would be $27 (assuming your wage is $0). That's a start, but you may want to focus on higher-end products instead of cupcakes until you get a high enough volume to start multitasking.

For example, if you can sell a wedding cake for $500 that uses $100 in ingredients and takes 10 hours to make, you can pay yourself $20 an hour and the cost would still be only around $400, leaving an extra $100 profit that can be reinvested in your business.

Or you can start baking in bulk in an assembly-line fashion freezing your products in their packaging. If you can bake, decorate, and package 20 dozen cupcakes in 3 hours the numbers start to look a whole lot better. This approach is a little riskier, as you need to make sure you have adequate freezer space, oven space, and prep space to make an efficient operation work, not to mention making sure your products can freeze well.

I do make cakes as well, usually party cakes and I haven't done more than a couple wedding cakes so far. I can definitely do dozens of cupcakes at a time and most people stick to just a few flavours of the cake portion anyway (chocolate, vanilla etc). I can also premake the buttercream in large batches and freeze into smaller portions. I am starting to get onto the right track? I appreciate your help.

Apart from being more efficient in your production, you've got to get the cost of your ingredients way lower too. I have no idea how much butter/sugar/eggs/flour/milk costs in the US, but are you sure you are spending $12.75 on ingredients to make 12 cupcakes?

It just seems really high, but again, it could just be your prices are way higher over there. Or are you buying at the expensive local supermarket or specialty store? A breakdown of one of your recipes or how much you pay for your ingredients will help us help you more.

I actually live in Canada but you're right the cost does seem really high. I am going to have to search out some good bulk prices. I am already buying at discount stores but I should be able to get the cost down.

Oops sorry, I mostly assume people on here are from the US unless it states otherwise You don't necessarily have to start buying 50lb bags of flour and sugar, especially if storage is a problem, but definitely shop around and check out other places to buy your main ingredients.
Also, tweaking your recipes can bring your costs down. In my case, of those 5 basic ingredients I stated earlier, the most expensive for me are butter and eggs (I only use free-range which are hard to get here in Spain). I now use a recipe with half as much butter and eggs as I was using originally, and more flour, sugar and milk instead. The cupcakes turn out nicer too - clearly I would not make changes to get an inferior product otherwise I will have 0 customers.

thanks, jason, for providing a simple formula even i can get behind. i've seen some whoppers. my favourites are the ones that looks like backwards chinese calculus, when it's really not that difficult. ya just gotta know your costs. the proof of a good businessperson is how you can bring your costs down without sacrificing quality. not as easy as it sounds. the first step is to ask people and not assume you know everything there is to know, so you're at least on the right track.

OP, I can't really add to the wonderful advice that people here have already mentioned about lowering the price of your ingredients, but you also mentioned you are spending almost 3 bucks on packaging alone.

My 2 cents, but those big boxes with those inserts that don't really hold your cupcake very well is the biggest waist of money even if you do buy in bulk. Sure, they look pretty, but your customers don't care - they are looking at your cupcakes. Plus, you have to have inserts for 2 different sizes (regular and mini). Well guess what I figured out? A dozen cupcakes or 2 dozen mini cupcakes fit perfectly inside a 9x9x3 pie box, and those are cheap! If you pile on the buttercream (like I do) then switch up to a 10x10x4 so the lid of the box doesn't smoosh your buttercream. Your cupcakes won't tip because they are holding each other up, and you can get one sized box for everything you do.

I bought my 1st 50 boxes at Restaurant Depot ($.60/box), I now order them from http://www.brpboxshop.com/ because they are higher quality and cuter. You can buy them in batches of 10 to start with free shipping (works out to about $1.80/box or less). But if you have the room to store a pack of 50 you can bring your cost down to under $.66/box. These are also self locking so I no longer have to mess with tape either (which also costs money).

I also get all my packaging labels thru www.Vistaprint.com, I get the return address labels which they advertise as free plus shipping. I get 180 for under $4. They are glossy, pretty, and the cheapest I've found.

Hope this helps!

Jen

Very helpful Jen, thank you.

You really need to look into buying everything in larger bulk.
I run my business from my home and while I dont have a ton of orders, I know I will eventually use the items I purchased. I purchased all my boxes, cupcake inserts wrappers and ingredients in bulk.

My cost breakdown is .49 per cupcake baked, decorated and in a box with insert.
I sell my cupcakes for $1 each. now if you had a store with more overhead you would want to adjust for that overhead in the cost of each cupcake.

I was using the boxes with the inserts too. Over $2.00 and the cupcakes fell over half the time - what's the point of decorating if they're just going to tumble? Then---one day my cake store ran out of the boxes. I had about 50 orders for Valentine's Day cupcakes and I was frantic. (My fault for not purchasing in advance, I know. ) I went to Walmart, found a manager, batted my eyelashes and he GAVE me 50 plastic hinged cupcake boxes. So just when I'm thinking my customers will be disappointed not to get my pretty white box, they ALL commented on how much they like the clear boxes. They could see them and they didn't fall over. Those are the ones I will now be ordering. (Can't count on Walmart forever!), but their generosity saved me over $100!

Where in Canada are you? I'm in Atlantic Canada and for 36 cupcakes, with a box, with boxes would run me about $22, just for my ingredients, power, and box. And around here they charge about $2.50 per regular sized cupcake. Just trying to figure out where you are that it's so expensive.

Thanks everyone for your help. With lots of research of packaging and finding a new and delicious lower cost recipe I have figured out how to get my cost of ingredients and box down to about $.55 per cupcake. A huge improvement! Maybe I will be able to turn a profit after all!

Awesome! So glad for you!