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Pricing and break-even exercise -- vegan cupcakes
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UMD Extension, Maryland Food Ventures program
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You have an idea to make vegan cupcakes in your home kitchen, to sell to parents who need an egg- and milk-free alternative for their children's celebrations. The specialty grocery store in your town sells a package of four vegan cupcakes for $6.50. The boutique bakery in your town sells a single non-vegan cupcake for $5.00. You would like to sell your home-made vegan cupcakes for $4 per single cupcake or $18 per half-dozen. You will need to calculate how many cupcakes you need to sell to pay for your fixed and variable expenses (in other words, to "break even").
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You know that your expenses are:
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Ingredients$1
per cupcake
Labels$0.20 per label
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Baking labor*$0.83
per cupcake
Cost to run oven
$0.01
per cupcake
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Farmer's market labor**$210
per month
Marketing costs***
$15
per month
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Insurance
$42
per month
Oven and stand mixer depreciation****$5
per month
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Packaging$0.16
per single cupcake
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$0.28
per half dozen
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*Assumes 1 hour labor per two dozen cupcakes, at $20 per hour.
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**Assumes 6 hours per week during market season, May through November, at $15 per hour
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***Includes boosted social media posts and farmers market fee
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****Think of this as saving to replace your oven and mixer when they eventually wear out.
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Sort out the expenses into variable and fixed expenses:
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Variable expenses:
Fixed expenses:
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ExpenseCost per single cupcakeCost per half-dozenExpenseCost per month
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Total variable expenses: Total fixed expenses
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$0.00$0.00$0.00
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What is the selling price of a single cupcake?
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What is the selling price of a half-dozen cupcakes?
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The "contribution margin" is the selling price per unit minus the variable expenses per unit. It represents how much is "contributed" from each unit of sales toward paying for fixed expenses and profits.
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What is the contribution margin per single cupcake?
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What is the contribution margin per half-dozen cupcakes?
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Next page…
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Fixed expenses ÷ by the contribution margin equals the number of units it will take to "break even."
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Let's say you sell about 50% packages of a half-dozen cupcakes, and about 50% single cupcakes? How many of each would you need to sell to break even?
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What are your total fixed expenses for a month?
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What is half of your monthly fixed expenses?
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What is your contribution margin per single cupcake sold?
÷
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How many single cupcakes would you need to sell to pay for half of your monthly fixed expenses?=#DIV/0!
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What is your contribution margin per half-dozen cupcake sold?
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How many half-dozen packs of cupcakes would you need to sell to pay for half of your monthly fixed expenses?#DIV/0!
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Do you think you could realistically bake that many cupcakes per month?
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Do you think you could realistically sell that many cupcakes per month?
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What happens if you remove the farmers' market labor from your fixed expenses?
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If you don't have the farmer's market as an outlet, how would your customers find you and purchase the cupcakes?
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