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Today, you will learn how to work out the variable costs (ingredients, materials and packaging) for your product.

But this is not just theory; I'm breaking it down by showing you exactly how I work out the cost of one of my recipes. Then I'll invite you to download the free workbook and do the same for your products.

Let's get started!

VARIABLE COSTS
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What are variable costs?

Variable costs are the cost of the materials to make your product (so not your time or re-useable tools/equipment)

It's everything that is used up when the product leaves your hands. So for a baker it would be the ingredients used in the cake, plus any dowels, disposable piping bags, cake boards, cake box, etc. If you are a painter it might be the canvas and the paint, but not the brushes.

Variable costs will vary depending on what product you are making, the size and the quantity:

If you bake 300 cakes, you will use more ingredients than if you bake 3 cakes.

If you make a big cake, you will use more ingredients than if you make a small cake.

If you use luxury ingredients in your cake, they will cost more than basic ingredients.

In this segment you will learn how to work out your variable costs for one of your products. I will show you how to do this using a small birthday cake as an example. I'll base the costings on a very simple design with just a name plaque on the top.

Example: Variable costs for a small cake

Here, I'll explain exactly how we work out the variable costs, however in the paid version of this guide you will also be given a spreadsheet to do this for you automatically.

Let's work out the variable costs for a simple 12 portion cake like these.

To do this, we need to work out what materials will go into making this product and how much those materials will cost to buy.

To make a cake like this I would need the following:

Cake: 240g flour, 240g butter, 240g eggs, 240g sugar, 15ml vanilla extract

Buttercream: 250g powder sugar, 250g butter, 15ml vanilla extract

Filling: 50g strawberry jam

Decoration: Plaque with 'Happy Birthday' which uses 25g of modelling paste

Packaging: 1x cake card, 1x box

Let's pop this in a chart:

Now let's work out how much each of these items will cost. We will use flour for the example.

Firstly we need to remove the sales tax. To do this, you can use the calculator in the yellow box below.

Flour costs €0.90 for a 1kg bag. In the Netherlands, sales tax is 9%.

For this example we would type:

0.90 into the first field

9 into the 2nd field.

You should get the result €0.83

That is how much the flour costs without sales tax*

You can use this calculator to help you work out your prices when you complete task 2 at the end of this section.

Use this calculator to remove sales tax

So without tax, the flour costs €0.83 and it comes in 1kg (1000g) bags. We want to know how much 240g of flour will cost.

The flour costs €0.83 for 1000g, so we divided 0.83 by 1000 to find that flour costs €0.00083 per gram.

0.83 ÷ 1000 = 0.00083

We need 240g for the cake so we multiply €0.0083 by 240 to get €0.1992

0.00083 x 240= 0.1992 (we can round that up to €0.20)

So for this recipe, the flour will cost €0.20

I will add this to the chart.

*Note on sales tax:

There may be different tax percentages for different items. For example in The Netherlands, food is taxed at 9% while non-food items like boxes and boards are taxed at 21% (correct at time of publishing)

If you live in a country where you are allowed to claim back the sales tax on business purchases, then remove the tax. If you can't claim the tax back (or are registered for KOR in the Netherlands) then use the full purchase price you paid for the product.

Sales tax is called VAT (Value Added Tax) or BTW (Belasting Toegevoegde Waarde) in The Netherlands.

Here, the costs of all the ingredients have been added to the chart.

Note: In the paid version of this guide, you will get a spread sheet that will do these calculations for you automatically.

Total:

€10.98

When we add up the cost of all the individual ingredients, cake board and packaging we can see that the

total Variable Costs for this cake are €10.98.

For this example I would type 10.98 into Field 5 of the Cake Pricing Calculator

Batch production

If you make batches of items that will be sold individually (such as croissants) you can use this same method. Include the materials needed for the whole batch in your variable costs. Mention the number of products made into Field 7 of the calculator. It will then give you the selling price per item.

If you make a batch of cupcakes but sell them all together to one customer. You can enter '1' into Field 7 of the calculator.

Time

On your variable costs worksheets, you will find space to note down the time it takes you to make the product.

Don't guess this. Instead, set a timer next time you make it. Only count the hours that you are actively working on the product. So don't count the time the cake is in oven if you can spend that time working on another project. But do count time spent washing up.

If you make standard cakes (like the ones above with the simple plaques) you can include the time the decorations take to make.

If you make custom designed cakes, the time spent making decorations will vary considerably per cake. In this case it can be more useful to make a separate variable costs sheet for just the decorations.

Read the section below for how to include this.

Time Decorating

It's impossible to know exactly how long a design will take to make when you've never made it before. The best you can do is make a well educated estimate.

To do this it's helpful to build a good understanding of how long it takes to make sugar decorations by timing yourself while you work.

Start keeping a record in your phone (or on an extra copy of the variable costs sheets in your workbook) to record this. Save a photo of your work alongside how long it took you and the amount of modelling paste / flower paste you used.

You can photograph and record the times for individual items (such as a sugar rose, a unicorn, etc.) and/or you can photograph the complete cake with all its decorations.

Over time you will have your own database of timing information. You may also find that your work speeds up over time. So it's useful to repeat this exercise after a year or so.

Use you database to help you make a more accurate estimate of timing when defining the price of a new cake.

Before using the calculator, remember to add together the variable costs and times to make both the cake and the decorations.

Task

Download the workbook and work out the variable costs for one of your products.

Download

TIP: In the paid version of this guide, you will be given a spread sheet to collect your variable costs and it will do all the calculations for you automatically.

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