THE AVERAGE PROFIT MARGIN FOR A CAKE BAKERY

Bakeries use profit margins to determine the overall health of business and to price items competitively in the marketplace.

 If the average profit margin for a bakery is too low, the bakery may not turn a profit for the fiscal year. High profit margins mean high product mark-ups, which could send customers looking for cheaper alternatives.

 Average Profit Margins The average profit margin for a cake bakery depends on the overhead and materials cost of producing bakery goods.

 There are no national averages for bakery profit margins due to the lack of compiled data for that statistic. 

According to the "How to Open a Bakery Guide," bakery owners should make at least a 30 percent profit margin to cover operational costs and earn income.

 A specialty bakery that uses more labor-intensive techniques and high-quality ingredients to produce goods could make a 50 percent profit margin or more with a price markup of 100 percent.

Profit margin is calculated by dividing the gross profit made on a product by the revenue received from the product's sale. Cost Calculation Accurate cost calculation is necessary to estimate your profit margin from sold bakery goods. 

Your bakery is essentially a manufacturing business that calculates total product cost by adding the cost of direct labor, materials and overhead. 

The direct labor cost for your bakery would be the hourly-rate of your baker, while the materials cost would be sugar, flour and anything else used to make the product. Overhead is the electricity spent on baking machines, any rent for the building and administrative salaries.

 The cost per unit of a baked good is the total cost divided by the number of units produced. Considerations Any percentage markup of your baking products will yield a positive profit margin for your products. 

However, in order to earn positive income during the fiscal year, your bakery must earn a high enough profit margin to cover things like advertising costs, the salaries of any other employees, business loan interest and your own salary. 

As a business owner, you must make a budget that includes these items and calculate a profit margin that covers the cost. 

Additionally, a mark-up that is high may produce a high profit margin, but it could price your bakery goods out of the market's demand. Courtesy Aaron Marquis