When it comes to calculating and analyzing the profitability of a small bakery business, many people taking into account the fixed costs. However, it is equally important to factor in the variable costs in order to make sure that the profitability of your small bakery business is resilient to the fluctuations in variable costs.
In this post, we help you understand the different types of variable costs that are associated with a small bakery business. We've also shown why several variable costs are temporary/short-term and how they can convert into fixed costs for the business.
Which of the following will be variable cost in a small bakery?
Variable costs that come into play often vary from one bakery business to another. This is because your bakery may have slightly different offerings as compared to other bakeries in the location you choose to operate. But particularly, if you operated a small bakery which of the following would be a variable cost in the short-run?
Initial startup cost
If you are planning to start a small bakery business from the scratch, there are several initial costs that you need to bear. One of the most important primary expenses is buying different types of equipment and machineries you need for preparing the baked items you plan on offering in your bakery.
Registering your business and licensing it is another important expense that adds up to the initial variable cost. Furnishing the interiors of your bakery, buying or renting a CRM software, and planning an initial marketing budget are the other variable costs associated with initially starting up your bakery business.
Ingredients and packaging materials
If you are just starting out running a small bakery, ingredients and packaging materials are one of the primary factors that are variable expenses. When you are in the primary stage of establishing your bakery business and nurturing a brand image, sales flow is not highly stable. As a result, the ingredients and packaging materials you need will vary month to month to a significant extent.
When initially starting up a small bakery business, many people outsource a delivery system to efficiently fulfil online orders without necessarily having to spend a huge amount of money on having an in-house delivery capability.
Outsourcing a third party delivery system is often a short-term variable expense for many bakery owners as it's possible to scale up the business over time and have an in-house delivery capability.
If you have plans to hire one or more employees for the initial start-up of your bakery, payroll will be a short-term variable expense. This is because payroll, as an extra expense, will often outweigh the profitability of the business.
But with time, the increase in profitability will shape employee payroll as a fixed business cost. Also, with time, you can set employee payroll standards such as joining salary, annual increments, and additional perks.