How to Calculate Prices for Your Baked Goods Home Business
More people than ever before seem to be turning to home-based business ideas like baking, but figuring out home bakery prices isn’t quite as cut and dried as they might seem. If you’re a natural at baking and dream of turning it into a business, it’s one thing to sell some bread to folks you know, but it’s quite another to leap into a proper business.
There’s a pretty typical formula for hashing out retail prices for products – cost plus overhead plus time plus profit equals price. But the problem some would-be businesspeople forget is that just because your math checks out doesn’t mean it’s a real-world price people will pay. It doesn’t matter if it takes a $4 price tag to make a profit on that yummy pretzel you turn out if the public scoffs at such a price.
So, before you start dreaming up desserts to sell at the farmer’s market, you’ll need to visit bakeries and markets nearby to see what comparable local products are being sold for. Think of that as your bakery pricing guide, especially when you see expensive-but-beautiful baked goods still sitting on the display shelf at the end of a day.
Cookies, pies, cakes and tarts are glorious, but they’re also a splurge, so they’re hard to gauge for sales. They’ll spike for holidays like Easter and Thanksgiving, but they’ll drop precipitously at other times. On the flipside, bread is essential in most homes, but it’s also something people can adjust their spending on as their disposable income allows. (Like buying a basic white loaf on sale versus fancy bakery bread.)
One consideration with pricing baked goods, of course, is loss. Products that go unsold are a loss. Luckily for bread bakers, bread can be turned into croutons or crostini and made sellable for a further six months or a year because their shelf life is so long. Try doing that with a blueberry Danish.
People love sourdough but don’t like the headache of keeping the starter active and healthy. Sourdough’s upside is that it has no high-cost ingredients like butter, but its downside is the time invested in each loaf – 12 to 48 hours. Each “boule” or loaf of sourdough is typically made with about a pound of flour. A 50-pound bag of bread flour can make approximately 45 loaves, which comes out to about a dollar a loaf. Salt and water are pennies per loaf. In theory, sourdough bread costs about $1.25 per loaf to make.
Say your goal is to sell 50 boules per week at the farmer’s market where a booth costs $25 weekly to rent. You’ll need a sign, maybe a website, bags and packaging (say 35 cents per loaf) and so on. Then there’s electrical and water bills for breadmaking, vehicle gas plus wear and tear, a blender, etc. What about insurance in case someone gets sick? The list of expenses is long.
Hypothetically, let's say 200 loaves at $1.25 each, bags at 35 cents each, the booth for $25 weekly, $125 for energy and gas each month and website hosting and email newsletter costs for $25 monthly. That adds up to $570 minimum in costs for 200 loaves monthly, or $2.85 a loaf just to break even.
What about your time? Sell each of those loaves for $5 and you get just $430 monthly to cover your profit and the time spent –about six hours a week just selling at the farmer’s market, let alone the time needed to bake 200 loaves – and that’s if people will pay $5 for bread.
The long story short is, sure, you can make bread for $1.25 at home for your family, but once you turn it into a business, the logistics get complicated.