Originally Posted by ajwonka
Question: Do you assign overhead based on a percentage of the total or a flat rate per order? For example, I'm charging each order $10 for a portion of my insurance, accounting, advertising, etc. That seems steep, though, for a $40 8" cake and too low for a 4-tier wedding cake. Interested to hear how everyone does it! TIA!
We assign overhead based on a flat rate per order, since it covers fixed costs that have very little to do with the size of a specific order. Overhead is supposed to be steep for small orders, that's why we price smaller cakes at a higher per-serving price than larger cakes.
If you do mostly smaller orders you will probably fill more total orders per year, meaning you can lower the overhead component of each order. Conversely, if you focus on larger orders you will have a smaller number of annual orders meaning each order will need to contribute more to overhead.
For example, let's say you have $5000/year in overhead. If you focus on large wedding cakes and you make 50 per year, each cake will have an overhead component of $100. But if you make mostly smaller cakes and have 300 orders per year, the overhead per cake is only $17.