## Let's get started

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 recipes.

Let's get started!

# VARIABLE COSTS

Segment 2

### WHAT are VARIABLE COSTS?

Variable costs are the cost of the actual material you are using to make your product (so not your time or tools/equipment, just the material itself). For me, that is the ingredients and packaging for a cake. 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 spend more on ingredients than if you bake 3 cakes.

If you make a big cake, the ingredients will cost more 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

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

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.

Flour costs €0.90 for a 1kg bag and we will use 240g for the cake.

Firstly we need to remove the sales tax.

To do this, you can use the calculator below.

Where I live, sales tax is 9% so we will use that for the example.

Type 0.90 into the first field (€0.90)

Type 9 into the second field. (9%)

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 the task at the end of this section. Be sure to use the correct sales tax percent for your country.

Use this calculator to remove sales tax

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 it costs €0.00083 for 1g (0.83 ÷ 1000 = 0.00083)

We need 240g for the cake.

€0.0083 x 240 = €0.1992

So for this recipe, the flour will cost €0.1992

We'll round that up to €0.20 to keep it simple.

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=

x

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*Note on sales tax:

If you are allowed to claim back the sales tax on business purchases, then remove the sales tax as shown above for your calculations.

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.

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.

## BATCH production

If your planned product will be made in batches (for example a batch of croissants) that will then be sold individually, you can use this same method.

Just be sure to include the full materials needed for the whole batch. So for our croissant example, you would include everything needed to make all the croissants, not just one croissant.

When you come to use the calculator, it will automatically split the costs across the number of items you made and give you the selling price per item.

## What next?

Congratulations! You just completed an essential part of pricing your products.

There are four more parts that together make your final selling price.

In the How to Price your Cakes, Bakes and Handmade Products guide I take you through each of them in a clear and easy-to-follow format. Exactly like this.

You'll collect the numbers that are relevant for your business as you go.

So if you take your baking seriously and want to earn from your skills, you're going to love it.

After completing the guide, you'll have the knowledge you need to price your products quickly and accurately, knowing for sure that you'll make a profit on every order.

You'll be able to price all your products from the simplest bake to the most lavishly decorated cake.

And to make your life even easier, you'll get access to the The Cake Pricing Calculator that will do the maths for you. Simply feed your numbers in to find your selling price.

With lifetime access to the calculator, you'll be able to prepare

all your prices and quotes quickly and easily.

The good news is you've already completed a whole segment of the guide

and are one step closer to pricing for profit.🥳

🍰 Let's make your pricing a piece of cake! 🍰

Get the full guide here👇

Got questions or feedback? Get in touch at info@kmcakes.nl