I have a friend who really likes the cakes I make and would like to try to make cupcakes to sell in her neighborhood. The fabulous chocolate cakes I make are a labor of love and no expense is spared. When I told her how much I spend on butter, sour cream, cream and chocolate, it was clear that there was no way she could sell it at a price people would be willing to pay. (And I would never tell her how much it costs me in the States using organic products!) But I liked the challenge of trying to meet a price point and still come up with a quality product. I know this is the basics of small businesses, but it is not an area I have explored much in my life. Upon discussion we decided 5 cords (25 cents) would be the very most people would be willing to pay. As a starting point, we were aiming for less than 2.5 cords in expense per unit. We were not adding in labor, figuring that the 50% profit would cover it.
Basically I have three models of chocolate cake in my repetoire – Sour Cream Fudge which I make for grown-up birthdays, Devil’s food, which I make when it has to be quick and Dairy-free Chocolate cake for cupcakes to bring to school. We started with the Dairy free which I had to look up on line because I didn’t bring my
Joy of Cooking cookbook with me, which was a big mistake. It has the fewest and cheapest ingredients. I did a little more research and we went to work. We used cacao paste because it is the cheapest chocolate option and as Diana Brement just pointed out to me, full of antioxidants. We aren’t just making cupcakes, we are making anti-oxidant cupcakes! In fact, that is such a good idea, I just might pursue it in real life.
As I was entering the ingredients into my spreadsheet, I was impressed that Silvia could tell me how much a pound of anything costs. It is a universal Nicaruguan skill as far as I can tell. Whenever I ask someone how much something is going to cost, they can tell me exactly. Like I say, I need 2 ½ pounds of chicken, a pound of tomatoes and three bananas and Moni will say, give me 115 cords. I am starting to be able to do it, too. But I couldn’t remember how much I pay for a pound of flour or a quart of oil. But back to cake. We entered our numbers and discovered that the total cost per unit of our cake was only 2 cords! That left us 3 cords of profit per piece or cupcake.
We were thrilled with our profit margin until we realized that selling 24 pieces would mean that we only made a 72 ($3.50) cord profit for spending all morning cracking cacao beans with our fingers. We must expand sales to make it worth our while.
The cake was really yummy…and so inexpensive…and so full of antioxidants. Further research is needed.
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You've got a nice little business administration seminar going there. The exercise of starting with price and working your way backwards is called target based pricing, and a very typical assignment for managerial accounting.ReplyDelete