Muddy’s Journal

Dollars & Cents: a Peek at Bakery Finances

Dollars & Cents: a Peek at Bakery Finances

Who here loves discussing money?  I’m probably not the only one who gets a little squeamish when it comes to talking about the dollars and cents.  Whew...
But Muddy’s practices Open Book Management and I strongly believe that it’s important to talk- and be transparent- about money with my team, even when it’s uncomfortable.  At the end of the day, “healthy profits” (one of our three bottom lines) means that we provide value for our customers, staff, community, suppliers, and ourselves-- our financials should be win-win-win-win-win!  So, in true “open book” spirit, I’m getting into the nitty gritty not just with my squad of gnomies, but with you, our Muddy’s community!  

Effective July 1, prices on some of our cupcake flavors as well as oatmeal cream pies, cake slices in the shop, and scones will increase a scooch and we want to be super up front about what’s increasing and how “the money” works.   

To begin... Here’s a peek into the financial inner workings of the bakery business, using a $22 pie as the avatar for the whole biz (a pie chart, get it?). 

 

finance pie chart

"What’s included in these costs?" you may ask...

Labor:
wages, training, taxes, workers’ comp, staff perks, etc to compensate the folks who mix, stir, whip, frost, and shape all of our baked goods from scratch as well as the gnomies who serve you at the counter, take preorders, make coffee, wash dishes, and keep the shops & kitchen clean.  Obviously, without these hardworking folks, we wouldn’t accomplish much of anything!

Supplies:
all our delicious ingredients (butter, sugar, flour, organic milk, free range eggs, pure vanilla, Callebaut chocolate... and more!), coffee beans, and merchandise items, as well as packaging, paper napkins, to-go cutlery, sugar packets, toilet paper for the bathrooms, etc.

Administration:
our website maintenance (and e-news and social…), menu printing, office supplies, insurance, licenses, software, and wages for the gnomies whose work is managing and maintaining these shared support duties.  This also includes our donations and community efforts. (we have never paid for advertising but it does still cost time and therefore money to manage social accounts, etc)

Facilities:
rents, utilities, furnishings, equipment repairs & maintenance, small-wares (think whisks, spatulas, plates, mugs), recycling & compost services, trash removal, handyman labor, and necessary property improvements at our two shop locations and the kitchen.

Operating Profit:
this is what we invest in the future-- today’s profit is how we pay for tomorrow’s mixer or oven-- and of course we use some to pay an income tax to Uncle Sam!

Financial Services:
maybe the least sexy sounding of all the categories… about 3% of our total sales go directly to credit card fees (businesses basically pay a commission to Visa, Amex, etc for the convenience of accepting credit cards) plus interest fees, our CPA, etc.

Personally, I love the pie chart example!  I am an artistic, visual person and having a clear and colorful graph helps me  really see and understand the bigger picture. 
On the theme of “Summer Reading” and “Back to School”, it could be a really fun idea to work with the kids in your life to build something similar to explain how your family finances work or how they’d like to budget their allowance or dog-walking money.  


Ok, so let’s talk about this increase… 

Pricing is important to being profitable. We want the business to stay financially sustainable (we want to stick around for a long time!) but also stay accessible to a broad community of Memphians.  This naturally creates some healthy tension. We also are committed to using high quality ingredients, creating a positive work environment, and contributing to local community organizations in meaningful ways-- cutting corners in these areas might show some short term gains but ultimately would be detrimental to the business AND the community.  

For those of you still with me, here's some nerdiness of what else goes into prices changes and some ingredient context...

2009

2013

2019

pure vanilla

52.00 gal *

55.04 gal

277.00 gal

butter

1.80 lb

2.50 lb

2.86 lb

peanut butter

2.32 lb

2.55 lb

3.07 lb

cocoa

3.69 lb

5.00 lb

4.39 lb

eggs

1.86 doz

2.53 doz

2.87 doz

*I couldn’t find our vanilla invoices for that year for our exact cost, but from my research online of commodities, it should’ve been only slightly lower than 2013.  It hit its high point in 2018 at 292,00 a gallon!

Just about everything has increased in cost, but there are a few things (ie: cocoa!) that spiked sharply 2013-2014 and have decreased a bit since then, which helped us put off an increase for a bit. (In case you were wondering which ingredient has the wildest up and down swings, it’s chocolate. It’ll practically double almost overnight, then come back down for a bit, then up again-- best we can do there is average it out over time!)  

And it’s not just ingredient prices that increase… rents, utilities, and employees are certainly costlier now than when we first opened.  

Of course, our prices haven’t stayed entirely stagnant either.  We have rolled out some small price bumps over the last 4 years to adjust some products that hadn’t been audited in a long time (and we discovered were actually costing us heavily!) and as we’ve developed new menu items, we’ve been more diligent in ensuring that we are thoroughly assessing “what is a sustainable and fair price?” on those items.  The July 2019 price bump is to adjust some baseline items to bring them in line with current material and labor costs-- all to ensure that we are running the business responsibly and with the goal of serving Memphis for a very long time.

Not everything is changing-- we're scooching the baseline on most cupcakes and adjusting oatmeal cream pies, crinkle cookies, scones, and cake slices in the store (whole cakes aren't changing.  The biggest price change is the mini cupcakes, so I do want to delve into that one a bit, as it shocked us to really dive into how much those little suckers actually cost us to make:   
It makes sense to see a mini cupcake and think, “it’s a third the size of a standard one-- it should just be a third of the price”.  However, mini cupcakes require special packaging. It takes almost the same amount of labor to measure, mix, bake, and ice a dozen minis as it does a dozen standard size. Cupcake liners (papers) cost 11 cents each for regular size and 7 cents for the miniatures… rather than a third of the price, they are ⅔ the price!  Of course we still charge less for minis than regulars, but it's not as simple as "a third the price".  While minis can be a good option for meeting a budget, the real value of the miniatures is in ease of serving, portion control for small children, cuteness… :)   


Ok, hopefully you've made it this far... I can't believe I've written this much about costing, pricing, etc... not bad for a person for whom "it's bad manners to talk about money" is so deeply embedded!  Obviously I could go on, but I'll spare ya.  However I will just say, there's real value in being this up front and open about what it takes to make really delicious food in a business.  If you want to know more or continue the conversation, please reach out and I'll happily discuss, answer questions, etc.  Also, if you would like to attend one of our staff-led Open Book "huddles", you are welcome to accompany me as my guest.  You can email me anytime at kat(at)muddysbakeshop(dot)com

Thanks so much for reading and happy eating!