Originally Posted by jason_kraft
If you add up all those costs you're at $2100/year, which is in the right ballpark for a home-based business considering you don't advertise (although you didn't include the labor cost of doing the accounting yourself). I doubt many new home-based business owners would consider $2100+/year "virtually" no overhead.
If you have a decent order volume it does reduce to a small amount when allocated out, but it's still necessary to work that cost into the price of your cakes. Ideally all your customers would contribute a small percentage to your overhead, so you can earn a fair wage and a profit margin (which includes marking up your overhead) on every cake.
Let's say you have 2 orders per week, so your overhead would be $21/cake. Each cake has an average cost of $320 (including overhead) with a 25% markup to $400. If you fail to include overhead, your cost would be $300 with a price of $375. This reduces your true profit margin from 25% to 17%, which means almost a third of your net profit is gone. That's not insignificant.
It's also important to cost out labor separately, since setting a fixed multiplier based on ingredient costs will result in overpricing cakes with simpler designs and underpricing more complicated cakes. That pricing model works well when you make the same product over and over again, but it fails when applied to heavily customized products.
Well, Jason, I believe i mentioned in my first post, that is not how I price my cakes. If my cake cost $300, not including overhead, at the very least
, I would charge $1200. If I did that 2 times a week, that would be $2400. That would leave me $1758 at the very least
to pay myself and put back into the business. I do think the $41 is pretty insignificant, when dealing with 4 figures. I don't even care if I forgot a time or two and actually paid taxes on it, Lord knows Obama and the rest of the government can find a way to spend it. (My calculator and I don't even know how to figure up how many times we would all have to overpay our taxes by $5 a week to pay off the $16,000,000,000,000 we are as a nation.)
And I do have my pricing per hour worked out, (I would like to give a shout out to KellyM and cakeBoss!) Thank you for your concern....
FYI, You have entirely too much time on your hands. I hope you aren't neglecting your wife and child. While a small portion of your posts are helpful, and I agree with you much of the time, if my husband spent 1/10 as much time meddling in other people business on the internet as you, I would have to hang my head in shame.