What's this?
Each segment of the Pricing Foundations for Creatives Course has been designed to help get results as quickly as possible.
But sometimes, you may want to know more or still have questions. That's what the Extra Details section is for, it's where we go into a bit more depth on the topic.
So, at the bottom of each segment you'll find buttons that allow you to dive into the extra details or move on to the next segment.
Not all of you are bakers, so in the extra details area you'll sometimes find information that's relevant to crafts people and artists.
and if you still have any questions email me at info@kmcakes.nl
VARIABLE COSTS
extra details
Note: In the full version of the course you'll begin by learning about fixed costs, so by the time you read this segment you'd understand all about them. I still wanted to share this Extra Details segment so you can see what's included.
Fixed or variable? How to decide
How do you know if a cost should be registered as fixed or variable?
Sometimes you'll have an item where it's less clear where to register it. It may be helpful to know that there isn't a right or wrong, it's your choice. You can choose where is the most convenient place to register a cost. The main thing is that all costs are registered somewhere.
One example is how to register sugar sprinkles. You can choose to register them as a Variable Cost or as a Fixed Cost.
In my business, I would use 15 or 20 tubs of sprinkles in various shapes and colours each year, which could amount to as much as €100. So although the amount used per cake may seem insignificant, it's still important to register this cost.
Sprinkles as a fixed cost:
In my business I would often decide to add a little shake of sprinkles as a finishing touch. The amount used was usually under half a gram.
In order to avoid wasting time weighing and calculating the cost of tiny amounts of sprinkles, I found it more efficient to include sprinkles in my fixed costs. This not only saved me time, but also allows me more freedom in design decisions. I don't have to predict how many I will use at the design stage before preparing a quote for a customer. Instead, I have the freedom to add whatever I feel is needed when the cake is finished.
In my business, I included the following in my fixed costs: sprinkles, food colouring, dusting powders, piping bags, cling film, baking paper, rejuvenator spirit, confectioners glaze, pan spray.
Sprinkles as a variable cost:
If sprinkles were needed in a specific shape or colour for an individual order and any left-over sprinkles wouldn't be useful for future orders, then the cost of the whole tub of sprinkles could be included in the variable costs for that order.
If you need to use a whole tub of sprinkles for one order then the cost of the sprinkles should be included in the variable costs for that order.
If you make a standard cake design many times, you can weigh the amount of sprinkles you use and include them in the variable costs.
How can I know how much I will use?
For a custom order, it can be wise to always take complete payment up front (before you start making the order.)
This means you need to decide how much to charge before you've made the order, which can sometimes be tricky.
We've already worked out the cost of the ingredients and have discussed how to handle things we may use in tiny amounts like sugar sprinkles.
However, it can be more tricky to know how much icing/frosting you will need to coat the cake or how much modelling paste would be needed to sculpt, a specific topper. (for example, a mad scientist.)
Here are a few ways you can work out how much you will use for these situations.
Keep notes
We can get around this issue by keeping a record of how much material is used in each project. Over time, you will build up experience and knowledge to be able to estimate material usage accurately.
Keep a clear record of material use alongside a photograph of each project. When you get an request for a new commission, you can refer back to your notes to see how much material you used in a similar project to use for your quote.
Turns out that a mad scientist uses about the same amount of modelling paste as an astronaut, a pony or an anime girl.
Gauge
So how do we figure out how much material we used in each project? We weigh, measure and count.
If you've bought this guide as a producer of hand-made or craft items, I've used some non-cake examples below to help you gauge your material costs.
Here are some examples of weighing, measuring and counting to help you decide how to work out your material use.
Weigh:
To work out how much buttercream is needed you can weigh a cake before and again after the buttercream is added. If you do this a few times noting down the size of the cake and the amount of butter cream used, you can quickly build up a record to help you price accurately in the future. Buttercream is a Variable Cost.
The same applies to other industries. If you are a Jewellery maker, you could weigh your final product to find out how much precious metal you have used (minus the weight of any stones used).
Crochet or knitter: You could weigh your balls of yarn before and after your project. Making stuffed toys? Weigh the shell, add the filling and weigh again. Now you know how much filling you used.
Measure:
If, for example, you make laser cut items, you could measure how much of the base material (wood/metal/plastic/card/etc) you use in cm². Often the cutting programme will be able to calculate this for you. Can you re-use the off-cuts for a smaller project? If so, subtract this from the amount used, if not, make sure you include this wasted material too.
Seamstress: If you are using patterns you will probably be able to measure the amount of fabric you will need at the beginning of the project and include it in your Variable Costs.
However, it may be more difficult to calculate how much sewing thread you will use. In that case, it might be better to record thread under the Fixed Costs. Should you have a project that requires you to buy a whole new roll of a particular coloured thread that you may not use again, then include this in the Variable Costs.
Count:
This doesn't really need explaining, you know how to count. Things like buttons, packaging bags and boxes, tags, zippers, stickers, labels, etc, can all be counted and addedto the variable costs.
Details of the calculations used
In order to work out the cost of the amount of each ingredient used in your cake, your spreadsheet uses some automatic calculations. If you prefer to understand these calculations in more depth, here is an explanation with flour used for the example.
Firstly we need to remove the sales tax. To do this, you can use the calculator below.
Flour costs €0.90 for a 1kg bag. In The Netherlands, sales tax on food is currently 9%.
So, for this example we would type:
0.90 (flour) into the first field
9 (sales tax) 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.
÷
=
x
=
Simply fill in the chart with the 'product price', 'whole quantity' and 'number of units needed' then the calculations are simple and follow on in a logical order.
*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.
Build your business on solid foundations
with pricing knowledge
that will last a lifetime
How great will it feel to :
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Build a successful business so you can continue doing what you love (and be your own boss.)
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Have more time to spend on the fun part of your craft; creating, baking and decorating.
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Know you are charging fair and accurate prices that will cover your costs and earn you a profit.
