When you review the costs to run your bakery, it is important to identify your variable costs separately from your fixed costs. Variable costs are those that increase and decrease in direct proportion to how much food you bake and sell. Fixed costs remain constant. In general, the higher your proportion of variable costs to fixed costs, the less revenue you require to generate profit. Knowing your bakery’s variable costs can help you price your food products and prepare your small business’s budget.


Ingredients are the food items you use to make your baked goods and are the most easily identifiable variable costs. Examples of ingredients include flour, sugar, yeast, wheat, barley, salt, spices, flavoring, seeds, butter, eggs and oil. For instance, assume your small business spends $10,000 on ingredients this month. If you bake 10 percent more food next month, the cost of your ingredients can be expected to also rise by 10 percent, or $1,000.

Supplies and Packaging Materials

The costs of materials and supplies used to make and package your baked food are variable. Such items might include bags, twist ties, labels, stickers, ribbons, tape, boxes, plastic wrap and foil. For instance, if you spend $200 on packaging and supplies to make and package 1,000 cupcakes, you would spend double that, or $400, to make 2,000 cupcakes.


Labor costs are variable only if the amount you pay your employees changes with their production. If you pay bakers based on the amount of food they make or pay commission to a sales team based on their sales, these costs are variable. If you pay your staff a set salary, this labor cost is fixed. For example, assume you pay your bakers a salary, but pay a sales force a 10-percent commission on the bread they sell to grocery stores. Only the commissions are variable.


Electricity is an example of a cost that is only partially variable. The cost of electricity to run the equipment on which you prepare food -- such as ovens, mixers and fryers -- is variable. As you bake more food, you use this equipment proportionately more. The costs to run other electrical items – such as lights and air conditioning -- are fixed. You run these independently of the amount of goods you bake.

Other Variable Costs

Your bakery might have other variable costs, depending on your business setup. If you accept credit cards, the transaction fees you pay are variable. If your small business is a franchise and you pay a percentage of your sales revenue to the company that grants you franchising rights, this cost is variable. Also, some real estate lease agreements require a retail store to pay a portion of its sales revenue to the property owner. If your lease is structured this way, this portion of your lease is a variable cost.