Mastering Bookkeeping and Pricing for Bakers: Insights from Megan of Purple Elephant Group

welcome to this session of the summit we are here with someone that a lot of you know and love megan has been on my

podcast twice now she is a bookkeeper with background as a brickandmortar bakery owner so she knows her stuff she

is brilliant and so helpful so it was really natural for me to ask her to come on the summit and talk about some

bookkeeping things we go deeper in this on the in her podcast episode but I really wanted her to touch on pricing

and pricing for profit because I think that is a puzzle piece that a lot of us know we need and don't really know how

to how to do that as we're building businesses that are profitable and built to last so Megan I am so glad you're

here we are just going to get right in and get tactical and if you want to real quick briefly introduce yourself and

then we'll jump right in sure so I'm glad to be back of course and on the summit and I'm Megan with Purple

Elephant Group all right so good and your links are going to be over in your speaker profile so people can connect

with you there we're just going to get right in here and I want to know from you i know you've seen a lot of behind

the scenes what are the top three mistakes that you commonly see with bakers microbers specifically that

they're making with their money and what should we do instead yeah so behind the scenes of course I

see a lot of different things with either from personal friends clients and even my own experience when it comes to

bookkeeping and doing the baking so of course the mistake number one which I talk about this in the podcast is mixing

the personal and business finances a lot of times you when you're mixing them you're like "Oh man i'm not making any

money where's all my money going every month and if you're mixing them chances are all of that money is going into your

personal account and you are making money because you're utilizing that business card or that business account

to do your Target run or purchase new clothes online or oh I'm going to go grab a coffee let me just use my

business card all of that is your profit and you are utilizing it you're just not tracking it so keeping of course your

business and personal accounts separate is a great way to get a handle on your finances and another mistake I see is

not doing the food cost correctly so whenever we're talking about pricing you want to talk about your admin stickers

packaging any overhead cost software that you're paying for websites your cleanup time all of those things need to

be accounted for in your pricing some of them of course you can just chalk it up to oh that's the cost of doing business

but not everything is the cost of doing business right some of this is actually needs to go into your pricing and then

mistake number three is avoiding all of your numbers until tax time one tax time is already very busy whether you're a

baker have bookkeeping and accounting we are so slammed so that whenever you wait until the last second and we have to go

back to let's talk about January of last year and you're like I have no idea what happened we have to sift through it and

it takes just so much more time than it really needs to if you just tracked it from the get- go those are so powerful

and I can absolutely say I have done all of those at least a little bit this is the first year that I'm really taking

ownership of my numbers and working with you to do better and you have been so helpful so I know a lot of people are

going to relate to that and feel seen and also not feel like they there's a great and powerful way to move forward

and not to feel guilty about the way that they've operated in the past yeah and hey I've done it when I had my

bakery I made all kinds of bookkeeping mistakes and that's how I know how to be like "Okay this is where we need to stop

and let's change gears and move forward." That's so powerful that's the one of the magic pieces that you have

that makes you such a great partner for us let's jump into pricing so when someone says something like "I don't

know if I'm charging the right amount." Where should they even start so you really need to start of

course with all of your costs a key indicator is and I'm sure that you have heard this when someone says "Oh you're

really cheap." Or "Oh man that's not as expensive as I thought it was going to be." That's probably a indicator just

from your customer that it's time to increase your pricing because that means that they're already going somewhere

else and paying a higher price so that's just starting off right there and then when it comes to what you include again

ingredients packaging your time overhead equipment and an hourly wage you need to be able to pay yourself as well one of

the things that I like to use is just there's some free pricing tools online like Kost and you want to use those but

you do need to use them correctly a mistake that I do see is when it comes to cake cost they're just putting in one

batch of ingredients on there and then zero for overhead zero for labor and then 50% 99% profit margin that's really

going to skew your numbers so what I like to do is let's say for 1 hour so you take that 1 hour and you say "Okay I

should be able to make in a perfect world i have all my trays ovens turned on everything in a perfect world I can

make 10 batches of bread right in 1 hour and that's from your prep time your mixing time and all of your touch time

not like the baking time but just the act time that you're actually touching on something packaging stick stick doing

all the stickers labels and everything and then you batch that out so if that's 10 batches you put 10 batches worth of

ingredients into your cake cost that's 10 batches of that's what your serving size is and then when you go into your

overhead you want to add in anywhere from $50 to $100 for overhead that's going to be for software electricity

water any other type of tools that you're using your website phone anything like that and then your hourly wage i

always tell people to at least start at about $15 an hour that's just a really good just even number across all states

across all baking things is if you're especially if you're doing bread and you were to go and work somewhere on average

you're going to be baking about $15 an hour now you can go up from there of course but at least starting at that

point and then when you put all of that information in you're going to put between 10 and 15% for your profit

margin and then that is your number that you're supposed to be charging that's so interesting that you say to put in a

large batch cuz I've used cake costs and put in just one batch what is the reasoning behind it so it's what you can

do in an hour so for me I was a cookie baker right so if when in 1 hour if I'm from my prep time to what it takes for

to dough everything out to put it on the tray put it in the oven and then take it out package it sticker it label it i

used to be able to do probably about five dozen cookies at a time okay but that's again in a perfect world that's

that I have five trays that I have everything that I need to be able to do so the reason why I do it that way is

because when you're going down to your overhead cost your labor cost all of those things it's a lot harder to be

like "Oh this one little recipe takes me 15 minutes versus just doing it by a whole hour." And same thing with the

overhead the smaller that you're doing your overhead the more you can get caught up versus doing a bigger batch

and that's also to say if you're like "Oh I could be doing 10 batches an hour but I can't because I don't have the

supplies." Then that's a good indicator as well that hey it's probably time to invest in more equipment so that you're

not just doing two batches an hour you're able to get to that and then you're maximizing your efficiency as

well m so for those of us who are baking bread which is probably pretty much everyone listening

our timeline is very different from cookie baking we can't sit down in an hour and mix up dough roll it out bake

it and package it it's spread out over two or three days for most of us mhm do you have any insight into how we could

capture like an hour or do is there any other way that we should approach that when we're looking for a similar number

to what you've just broken down sure so you can actually just do whatever it is that you do during the week and what

you're going to do is you're going to time your touch time so if you are you know doing all of your measurements then

you're doing all of your mixing and then you're putting you know it into a container to proof that whole portion is

a touch time you'll want to calculate keep that added then when you're taking the dough out and you're doing I see you

guys doing the rolls and all of that stuff putting in your inclusions that's another touch time and so you just add

it up for however long that it takes you and then that would become your hour so even if it's three hours right you put

on there okay I did 10 batches within this three-hour time frame this is everything this is how long it took and

when you were to go into cake cost then you would do let's say $45 for the labor right because you're doing a threehour

batch instead of a 1 hour batch okay okay i think that makes sense that is I know I'm like do a video on that one i

that would be amazing because I'm picturing it in my head and I think that is a much more effective way of using

Kost and just makes so much more sense but to see it walked through would be really helpful

so it's kind of a mindset shift probably for most of us i love it because a lot of people are like "Oh like you said oh

it takes three days to do this." And I'm like "It does but the time that you're actually working on it is not three days

right you could be working on it for 3 to four hours a day but it's not consistently across." And so that's

where you want to find that sweet spot especially when it comes to your labor of what that should look like now once

you have that pricing that's where you can also gauge not so much copying like your competitors but let's say you're

like "Man everybody in my area only charges $12 for a loaf of bread and mine's coming at about 15 or 16 or

mine's coming at about six or seven." So then you can see what fluctuation you need to do maybe you need a change of

ingredients or if you're on the low end then you see oh I can charge $12 instead of $6

that's so powerful i have little like magnetic big just plain white magnets on my fridge and I'm not super consistent

but I do like to track my touch time and that even includes like the 15 minutes that I spent last night feeding my

starter all of those contacts that we have to keep track of like the full amount because it's so easy to just do a

little bit here and a little bit there and not keep track of it so I love the tangible kind of strategy of tracking

every touch to break down that number yeah make it a lot easier for you i think once people get more clear on

their numbers then they that filters down into all of their business in terms of their

confidence can you talk a little bit more about confidence and how keeping better books helps bakers feel more

confident in what they're charging of course yeah so whenever you do get a handle on your books that's

where you can actually see the data the money the actual big picture of your business and then that will tell you if

you're doing a really good job hey my pricing is good my costs are very low or you'll see on the opposite end oh I

really need to increase my pricing if I want to have a business not just an expensive hobby and I see it all the

time especially when I'm onboarding a new client where they're just like "Oh we just we don't want to know we don't

want to know." And nine times out of 10 once I actually break down all of the numbers they're doing really well and

it's just a matter of being like "Okay yeah I am stepping in the right direction i just need to focus on my

pricing or my cost a little bit more so that we're not guessing anymore." That is really encouraging i love hearing

that when we talk about really as bad as you think it is

it's probably just a weight lifted off of a lot of people as they hear that i that is so interesting i when we talk

about pricing too I think that tends to bring up a lot of emotions there's the avoidance emotion when we just talk

about numbers as a whole pricing brings up different emotions too there's the fear of overcharging the worry of what

people will or won't pay there's the thought of I wouldn't actually pay that much sometimes there's even some guilt

do you have any advice for bakers who are struggling with their mindset around pricing i do so that's a really good one

that you mentioned when you said "Oh I wouldn't pay that much." You are paying that much because you have invested in

your equipment learning this skill how to do it so if you really think about it you are paying you know that much to do

it you're you're eating your product you're investing all of it and so I love when people say that cuz I'm like man

you really don't realize that you are your customer you learned how to do it so you weren't purchasing from somewhere

else but at the same time you are your customer um and so that's a really good just like mindset shift that I think a

lot of business owners should have because for me personally I am a baker i'm not a bread baker i'm not a cake

decorator so I would pay somebody to do those and I even still pay people for cookies like I don't it doesn't bother

me at all i pay everybody for anything but you still do at the end of the day and then when it comes to of course with

your pricing it's just I don't know you get to see if maybe there's one thing that you need to increase on or you know

where maybe one you're doing really well in so the pricing guilt is real of course but you are your own customer and

you have time in it and your pricing should reflect the amount of effort that you've put into learning that that is

powerful it is so easy as small business owners to totally forget about the cost of our time yes the amount that we've

invested just in time in like you said in learning the skills and investing in the equipment and all of that i had

never thought of that that's definitely a light bulb moment in a mindset incredible yeah you didn't just know

overnight how to make sourdough it took a couple of times it took maybe a couple of dud lows where you were like I had to

throw that away that that was a cost absolutely wow so interesting i'm curious you work with a lot of clients

and you're always in their numbers do you have a story of a client who with your help adjusted their pricing and saw

results yeah so I do this with everybody that comes in we always go over their pricing and so I have one in particular

she's not a baker but she was doing these like glass cups and she would etch them and she was only charging between

$8 and $12 I think depending how much laser engraved was in it and I was telling her I was like "You really need

to charge a lot more than what you are." Like "This is a really custom thing." And so now she's charging between 18 and

20 and no one is complaining about the price they're just like "Oh this is cool i can custom engrave all of these cans

just right on the spot." And so that was interesting too because she had that same kind of mindset oh I wouldn't pay

for this but it's again you are you paid for the machine you paid for all these materials you paid to learn how to do it

so charge for it yeah that's huge i love that she actually executed on your advice and did actually change her

prices even though I'm sure that was so scary it never feels great to raise a price but she's probably able to just

read a little easier and have more margin and something as well to keep in mind is it is always better to start

high and you can decrease as you need to versus starting very low needing to increase this isn't somebody that I was

a who was my client but just talking online on Facebook i am in a lot of groups and there was someone who was

charging $10 for a dozen chocolate chip cookies that were like 3 oz cookies and I was like there is no way you are

making any money on those cookies and so she did she had a really hard time she had to just increase slowly her dozen to

get to a point where she actually was making money versus if she had just started it in the beginning maybe her

market isn't that verse to have that type of high dollar cookie but you can decrease it but it is always to increase

later on yeah totally do you have advice for people who get down in their numbers and realize yes I absolutely need to

raise this price any favorite ways to do you talk about raising do you just raise it how do you do it just you just raise

it you'll get more push back if you say "Oh I'm going to increase my pricing or I'm going to do this versus just doing

it." And I've seen that over the years just cuz I've had super big fluctuations when I have the bakery and any time that

I ever said "Oh I'm gonna increase my pricing," I always noticed a dip in sales for a couple of months and then

things would go back versus if I just increased it it was just like nothing ever happened people especially they

understand that yes you have to increase the pricing you have to do what works best for your business they just don't

want to be reminded that now they're paying more for something yeah that makes sense one of my favorite ways to

raise prices and it's not always possible but it's just to raise to introduce something brand new that

hasn't been on my menu before and let that kind of be the new price for like muffins i recently had to raise prices

on muffins a lot and so if I bring in a new flavor and kind of introduce them at a higher price people are less likely to

fill the sting i was paying $18 and now I'm paying 21 and they don't see quite the same contrast

that's a really good idea i like that but you're also not telling them like say "Oh I'm going to increase my

pricing." That's a that is a good way that's a good idea yeah and I think another thing you would probably say

this too is to not apologize yeah your price is your price and if they if you want to stay in business that is just

Yeah that is one of those it's the cost of doing business you have to increase it and your customers like your real

customers they're going to follow you they're going to they already love you they love your product it's not really

going to matter to them that it's being increased that's so true when you're speaking to the right people and they're

loyal and dedicated and keeping coming back they Yeah we go to the grocery store and we pay more for eggs every

single week and we got it but we do it and isn't telling you they're not putting a big sign hey we increased all

of these no they're just increasing it i'm sorry we had to raise the price they're just doing it this is such an

encouraging conversation obviously we could just keep on talking you have so much to share we always learn so much

from you is there any final advice anything that maybe you haven't shared that pops into your mind that you feel

the baker should know from you oh man yeah I could talk about pricing all day so I think that was a pretty good little

overview of everything and of course anybody can send us a message on Instagram or shoot me an email if you

have any type of questions but just charge charge what you need to charge so that you can stay in business okay so

helpful so wise and your links are all all in your profile so people can find you connect and you are you work with

bakers all over the US right i do yes okay perfect and I'm working with Horizon as a bookkeeper now so highly

recommend this is not we're not here just to pitch your services but you are a resource that people can take

advantage of if they needed help in this area so I am so thankful for you thanks for this conversation we are going to

move on to the next session but thank you so much for being here Megan of course bye