Pricing Baked Goods (Perishables)

When pricing baked goods or any perishable at your coffee shop you need to consider them very differently than any other product you sell. If, for example you have 10 coffee makers on the shelf, it is likely you will continue to sell them until all of them are sold. You may wish to discount them as stock gets old, but you will eventually sell through all of the coffee makers.
With baked goods, sandwiches, anything with a very short shelf life, you may not have the opportunity to sell all of your daily stock because you ordered too many, it was a bad weather day and traffic was reduced, or any one of a thousand reasons cafes have slow days. For this reason you need to think of them very differently, and price them differently.

Use this equation to determine target price from a known target margin.
Target Price = unit cost/((100-target margin)/100)

Example 1:

one dozen muffins:
purchase $12
re-sell $1.50 each
Break Even 8 x $1.5 = $12
Target Price = $1/(100-33)/100 = $1.50

Therefore our coffee shop does not make a single penny on any one of the first 8 muffin sales, it only pays back what we paid for them. All of the profit lay in the final four muffins. If we have a quiet day and we fail to sell at least 8 of our 12 muffins, we lost money on our muffin sales that day. As the day gets on towards 4pm and our baked goods sales slow, we may choose to discount, which further reduces profit especially if we are reducing more than the last 4 muffins.

Example 2:

one dozen muffins:
purchase $12
re-sell $2 each
Break Even 6 x $2 = $12
Target Price = $1/(100-50)/100 = $2

In this example we only need to sell 6 of our muffins to break even, pricing being the key factor. By moving the price up from 33% margin to 50%, we have set up conditions to make it unlikely that we will fail to profit from our perishables.

If our margin is: 25% we only break even when we sell 9 of 12 muffins
33% we only break even when we sell 8 of 12 muffins
50% we only break even when we sell 6 of 12 muffins

Remember, when dealing with perishables we calculate profit not on a per unit basis, but as a group because at the end of the business day, they are worthless if unsold.

Let me know if this is helpful, and if you have any pointers that you'd like to pass along.