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Mike's (more or less) Weekly Baking Tips Logo2018-07-30 So, you want to have a home bakery, part 5

Market Math

And that brings us to another topic... when is working a farmers market worth it? Everyone has their own motivations, and money isn't the only motivation. Still, there are times when money IS a major driver. To a teacher in some underpaid state like Texas or Oklahoma, additional revenue is a big motivator. Paying the rent, paying for food, getting out of bare subsistence mode is very important. To a person in a better paying profession, the equation is different. A doctor or successful lawyer might value their time off more than a few hundred extra bucks coming in every week.

However, the doctor or lawyer might value the happiness that their baked goods bring people, and thus be willing to bake for that good feeling. We all have our own motivations.

Right now, however, we're going to talk about money. And we're looking at our local community market, with a few side comments about other markets we've been in.

Sales tax is a monetary and procedural consideration, but luckily for us in Texas food that is sold for consumption off premises is generally exempt from sales tax. That would be us. People buy a loaf of bread and take it home. A wrinkle here is cookies. If your cookies are not wrapped, it is assumed they are for immediate consumption and are subject to sales tax. If they are wrapped, it is assumed they will be consumed elsewhere and are thus exempt. Same applies to cupcakes and other treats. Many health departments simplify the discussion by insisting all foods be packaged. So, the bottom line is we can avoid sales tax altogether! At least, in Texas. Your mileage may vary.

Now, let's look at fixed costs. These are the costs you incur because you have a business, whether you sell anything or not, whether you sell for one day, or 365 days a year.

First, insurance. You REALLY should have product liability insurance. Bread is generally regarded as safe, so the rates are usually low. We haven't priced this lately, but let's guess $200 a year. While I am not a fan of big insurance companies and while I am sure I won't make anyone sick, the potential costs of not having insurance are astronomical. Not having insurance is just too risky.

Second, market fees - our market charges a $125 a year membership fee and a $15 per market fee. Some markets charge a percentage of sales, so the better the vendor does, the better the market does. The market fee covers the site, the entertainment, and marketing. If they are doing a good job, it is worth it. Some markets let you pay in installments, which can reduce your up front costs.

Next, you need a place from which to sell. If you don't have this gear yet, you'll need a shelter, weights to keep the shelter from blowing away, some tables, some chairs, and a cash box. The price here can range from a few hundred for a bare bones shelter to over a thousand. We are interested in low starting costs, and we are partial to the ez-up brand of shelter as we've seen them last longer than the competition. Some of their products are quite affordable. Some markets want you to have a banner identifying your business which is another expense. A cloth banner printed with your name and logo will probably be around $100, but you can use a piece of paper you printed from your computer, at least at first. We already have all that stuff from our previous market adventures, but for the sake of discussion, let's say it will cost you $300. (My guess is the range is from $250 to $350, though you can easily spend more.)

That leaves us with overhead of $200 + $300 + $125 or $625 for insurance, market membership and a shelter, table and chairs for the first year. In subsequent years, the shelter, table and chairs can be reused at no additional cost, so the overhead is just $325. Our market has 34 market days, so the overhead is $19 per market day the first year, and $9.55 in subsequent years. You can use these sales tools at other venues, like festivals or gatherings in your area.

Again, in addition to this, there is a $15 per market day fee.

Let's assume you can bake 50 loaves per market, and will charge $6 per loaf. That is a potential gross revenue of $300. The usual rule of thumb is the ingredients cost about 1/3 of the sale price, or about $100. At this point, our best net return is $300 - $100 - $19 - $15, or $166 per market day the first year, and $300 - $100 - $9.55 - $15, or $175.45 per market day in subsequent years. This works out to an estimated $5,644 the first year and $5,965.30 after the first year. We look at variations on this in the spreadsheet at the end of this blog entry.

We'll be putting in about 20 hours in preparing the breads, another 8 hours getting to the market, setting up, selling, taking down and going home. So, the hourly wage works out to $5.93 an hour the first year and $6.27 an hour after that. Somehow, I'm not thrilled with this math since it isn't enough to get us above the minimum wage. We'd be better off getting a greeter job a Walmart (it they still hire greeters).

We can improve this by selling things other than bread, selling more bread, and/or raising the price we are charging for the bread.

Both of the booths we saw last weekend were selling other things as well as bread. Preserves and produce in both cases. Preserves are attractive to the seller because they popular and they aren't terribly perishable - you can make a bunch and sell them until you run out. You could also sell arts and crafts and other things. A food vendor has a major advantage over an art vendor. Every week people need a new loaf of bread, but that usually isn't true of photographs, statues, paintings, jewelry and so on. Still, the margins are probably better on art and jewelry than on bread.

Selling more is attractive, but it is self limiting. Each additional loaf of bread we sell increases our wages by $0.14 an hour. An additional 10 loaves increases your hourly take by $1.40, an additional 100 loaves, $14.00. However, it isn't easy to make that much bread in a home kitchen. From 50 to 60 loaves is achievable, but going from 50 to 100 in a home kitchen is probably not.

If you can increase the perceived value to the customer, you can charge more for a product. People are willing to pay more for organic and heirloom products. When we switch from mass market white flour to organic heirloom flour our costs do go up, but since we're raising the price to keep the cost of ingredients around 1/3 of the sale price of the bread, we're going to make more money.

I've put together a spreadsheet, see below, that shows what happens with different loaf prices and production quantities. At $8.00 a loaf, our net return for the upscale breads $232 per market day the first year, and $242 per market day in subsequent years. This is about $66 a day improvement with no real increase in labor. On an hourly basis, this is about $8.31 or $8.65 an hour on the first and subsequent years. Hey! At least we've broken the minimum wage!

Also, the annual earnings for the pricier loaves are up to an estimated $7,911 the first year and $8,232 after that. Again, if you can kick your sales to 60 loaves per market day, things look even better. The obligatory brush with reality reminds us that these numbers assume you'll sell all your bread every week which isn't all that likely. Rainy days, competing events and many other things may impact the number of people coming to the market. So, this is very much a best case estimate.

Still, if your market will support the pricier loaves, it is worth going that route. As mentioned in the previous emails about farmers markets, in one market the customers had trouble justifying $5.00 a loaf. In the market in the next town, people bought four loaves at a time. When we raised prices because we switched to organic grains, people grumbled in the first market, but sales were unaffected in both markets.

This doesn't enter into the question of how much of a bread appetite does your market have? If you are dealing with a bunch of gluten phobic, carb phobic, keto-diet people, you may not sell as many as you are hoping. On the brighter side, you will probably find that demand increases as the market year proceeds. Word gets out that there's good bread at the market and demand goes up.

And that leaves us still trying to decide if its worth the effort. Whether its worth it for you is up to you - how much do you need the money, how much do you want the praise, how much are you able to deal with the people who will complain often for no good reason, how much will you miss 34 weekends a year? Also, how much do you like interacting with people? Remember, it's not just the baking at this point, but also the marketing and selling.

How much money can we make at the market? (Just click it to make it larger)

Until next time, may your dough always rise, rise enough to help you cover your expenses, and a whole lot more!
-Mike

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