Published on

12 June 2020

Gareth Busby

When I opened a bakery, I didn’t understand how to price bread. It caused significant problems with my business as I had no idea if I was charging enough to make a profit. I knew there had to be a way to calculate the price of bread correctly. I just didn’t know how!

Business coaches recommended costing formulas used in other industries, but they didn’t work for me. Months later, I developed a complex formula that factors every cost required to make bread and sell it. It worked well, so I’m here to share my homemade bread pricing guide to ensure you remain profitable when selling your own bread.

**A quick way of calculating the price of homemade bread is to take the cost of the ingredients used (flour, salt, yeast, butter etc.) in the recipe and multiply the total by 5.**

To set expectations, it was pretty tough to write this bread costing guide. Every baker reading this has different intentions, from selling a couple of loaves to neighbours, a micro-bakery, an occasional farmer’s market, to several delivery vans!

After several re-writes, I included all the details for bakers looking to sell bread. If a cost doesn’t apply to you, skip it. My ambition is that you use these methods to create ** your **costing formula for

Here is a __download link to the costing spreadsheet__. It’s free to use, so you can save a bit of time by copying my calculations and tweaking them to suit your needs. The spreadsheet can be used in various bakeries, from small sourdough bread operations to commercial bakeries producing store bought bread.

Before considering how much to sell bread for, you’ll need to determine how much each loaf costs to make, otherwise called the “cost price” or “break-even price”.

To find the cost price, you need to find the following three pieces of information:

**Production costs** – Dependant on the ingredients and labour used for the individual bread

**Supply costs** – How much it costs for your customers to receive your bread

**Fixed costs** – A “per-loaf” cost based on your non-variable expenses

**Then use a formula to find the cost price of a loaf of bread:**

Production costs + Supply costs + Fixed costs = Cost price

This figure gives us the price it costs to make your homemade bread. You’ll then need to determine how much to charge for your homemade bread and price it accordingly. For this, we’ll use what I call, The Profit Index:

**Profit index **– A predetermined multiplier that constitutes the profit margin of the loaf.

Cost price x Profit index = Selling price

Keep this number the same throughout your business. It should be linked to your business plan as it determines how much profit you intend to make.

You can change the profit index to suit your business model, but I suggest you start with 1.7 – which adds a 70% margin to the cost price of your bread.

**The calculated cost price is multiplied by the profit index to provide the selling price of your bread. If you have a profit index of 1.7, the full formula to find the selling price of your homebaked bread is:**

( Production costs + Supply costs + Fixed costs ) x 1.7 = Selling price

The rest of this article explains how to find your production, supply and fixed costs, as well as selecting the right profit index.

Labour cost + Ingredient cost = Production cost

Without considering the time it takes to make your products, you could be baking complicated and expensive bread but selling them at a loss. Your time costs money, so if you are the only person in your business, you should still charge an hourly rate for your work. If you expand your business in the future, you can replace yourself with a baker without adjusting your prices.

In its simplest form,** labour cost is the time used to produce a product multiplied by the amount paid to the staff member.**

As you won’t be baking a single loaf at a time, calculate how long it takes to produce a batch of bread. We’ll convert that into a labour cost and later split the cost across the number of loaves made. The recipe I’m using is similar to the one in my how to make bread course.

1) Make a batch of the recipe and record how long it takes to complete each task. A timer like this one is going to help! Include only the time spent completing physical tasks. The time the dough spends in a dough mixer, bulk fermenting or baking etc., can be ignored as you can complete other tasks during this time. Add a few minutes for cleaning after each batch and at the end of the day.

Here’s what I found:

Batch size – 24 loaves

- Weighing and mixing: 7
- Stretch and fold: 1
- Dividing: 4
- Shaping: 3
- Baking 3
- Cleaning 2

Total time: 20 minutes

2) Use the hourly rate you’ll pay a baker/yourself. Look at local job adverts on Indeed if you don’t know your local rate. I’m using $12 for this example.

Bakers rate @ $12 per hour

3) Divide the hourly rate by 60 to provide the rate per minute

12 ÷ 60 = 0.20 per minute

4) Multiply the baker’s rate per minute by the number of minutes it takes to produce a batch.

20 minutes x 20c = $4.00

5) Divide this number by the number of loaves made in the batch to get your labour cost per item.

$4.00 ÷ 24 = 17c

**Labour cost to make each loaf is 17c**

Here it is in a formula:

(Production time x Baker's rate) ÷ Batch size = Labour cost

(Ingredient weight x Ingredient cost) ÷ Batch size = Ingredient cost

To find the cost of ingredients in each of your breads, you’ll need your recipe and the cost of your ingredients. Total the cost of ingredients used to make a batch and divide by the batch size to find the ingredient cost per loaf. This is much easier to do in a spreadsheet, so click here if you haven’t downloaded it already:

1) Open sheets or excel and import the file to a new spreadsheet

2) In the first column, enter the recipe’s ingredients. I’m using the same recipe throughout this example.

3) Input the price of the ingredient in the second column and the weight of the packet in the third. Repeat for all ingredients.

4) In the fourth column, enter the ingredients’ weight per the recipe.

The raw flour cost is populated on the fifth column’s top row, with the other ingredient costs below. Change the batch size if required. The total product ingredient cost is shown at the bottom, which **in this example is 56c.**

Note:Enter more rows for additional ingredients when required

Labour cost + Ingredient cost = Production cost

For the total production cost of your bread, add the ingredient and the labour costs together.

0.17 + 0.56 = 73

In the case of my white loaf, I have a **production cost of 73c per loaf.**

Delivering a product from oven to customer will take up some of your time. Even if you don’t plan to leave your doorstep, processing orders, wrapping bread and giving it to your customers is time-consuming.

If you sell larger quantities or have a shop or bakery counter, you’ll need to employ staff to serve your customers.

Many micro-bakeries also deliver to their customers.

Although these costs can be small, as you expand and sell more and more bread, selling the stuff will take up a lot of time, so account for it in your costing plan.

I categorise these expenses as supply costs, broken into:

**Service –**Customer interaction time, including processing orders, slicing, wrapping and payment.**Distribution-**Delivery of bread from the bakery to a customer, typically in a van.

Service cost + Distribution cost = Supply cost

If you sell from one location, you can skip the distribution costs and just factor in the cost of supply.

Similar to how you worked out the production cost of making the bread, note how long it takes to process the sale of a product. Stages might include:

- Taking the order
- Answering any questions (especially important if you offer custom products)
- Taking payment
- Packaging and giving the order to the customer
- Table service and cleaning time
- Saying goodbye

I work this as around 1.5 minutes per order. With this figure, we can work out how much it costs to serve the customer by converting the hourly wage into a wage per minute and multiplying it by the time spent:

Wage per minute X Time spent = Labour cost of service

If the staff wage is $10 per hour:

10.00 ÷ 60 = 16c per minute 16 x 1.5 = 24

The **labour related cost of service is 24c**, but there can be further expenses in the supply cost. There might be a transaction fee to pay card merchants, which can be pretty high if you use a card reader or PayPal to take payments.

There is also going to be a packaging cost. Unless you use some fancy boxes for packing your loaves, this cost is probably going to be less than a couple of cents, so we’ll include it in the fixed costs later on. If you use expensive packaging for specific items, include them as part of the service cost here instead.

The full formula to calculate the cost of supply is:

Labour cost of service + Transaction fee + Packaging (if using) = Service cost

In our example, it costs me 5c per transaction, so I have a **cost of supply of 29c.**

0.24 + 0.05 = 0.29

Driver cost + Mileage cost = Distribution cost

If you are using a car or van to deliver your bread, you’ll need to account for paying a driver’s wage, as well as the cost of fuel and maintaining a vehicle (mileage cost).

Driver rate x Time = Driver cost Mileage rate x Distance = Mileage cost

Costing this for each customer is a nightmare! Assuming you’re going to do several deliveries at once and not return to base after each one, calculating your delivery costs per customer is not viable.

The solution is to determine how much it will cost to make your daily round and divide that expense by the number of deliveries made.

Let’s say we’ll make **10 drops in 2 hours over 15 miles**.

Driver rate x Time = Driver cost

Let’s calculate the driver cost first. As with the baker and the customer service roles, you’ll need a rate per hour to calculate this cost. I’m going with $12 an hour for 2 hours.

Drivers rate @ $12 per hour 12 x 2 = 24

For 10 deliveries, I’ll pay my driver $24.

I use the latest government mileage expense rate (US mileage rate), but you can increase the price to cover the recent price rise of fuel if you wish. The national mileage rate in the UK for 2022 is 45p. In the US, it is 58c. Check your government’s website if you’re elsewhere.

Mileage rate x Distance = Mileage cost 0.58 x 15 = 8.70

**A daily mileage cost of $8.70**

With the cost of the driver and milage found, add them together and divide by the number of drops made:

(Driver cost + Mileage cost) ÷ Drops = Distribution cost (24 + 8.7) ÷ 10 = 3.27

**Making my cost per delivery $3.27**

You can factor in costs for delivery in your product’s price or charge a “delivery fee” with every order. If you sell mainly to consumers, including the delivery fee in your pricing can make you look expensive.

Charging a delivery fee shows transparency to the customer and can also encourage people to spend more too. As you pick up more customers in close proximity, you’ll drive up profitability.

A “spend $x for free delivery” promotion will also encourage larger sales values.

If selling to businesses (B2B), you might want to absorb delivery costs in your pricing. Most commercial food suppliers don’t charge a delivery fee in my area. I think it’s an accountancy thing, as it’s annoying to split invoices into ingredients and delivery. It could also be to offer better customer service – with the acceptance that the occasional unprofitable order is ok if the client is happy.

Research how your local target market pays similar suppliers before you decide on the best option.

If you wish to absorb the delivery cost into your price, divide your distribution cost ($3.27) by your average order size. For example, if I have an average order of 6 loaves per customer:

3.27 ÷ 6 = 0.55

**Instead of a delivery fee, include 55c to the cost price of every product.**

Returning to the formula I shared earlier:

Service cost + Distribution cost = Supply Cost

If our service cost is 29c, and we are going to include the distribution cost of 55c in our products, so we add them together:

29 + 55 = 84c

**The total supply cost is 84c**

All of your products will have the same supply costs. So once you’ve worked it out once, unless you charge extra for slicing or any other personalisation, apply the same supply cost throughout your range.

Production cost + Supply cost + Fixed cost = Cost price

We have found two of the three costs and have a running total cost of $1.57 for our homemade bread:

Production cost = 73c Supply cost = 84c 0.73 + 0.84 + Fixed cost = Cost price

Now, we need to find our fixed costs to get our “cost” or “break-even” price.

Monthly fixed costs ÷ Monthly volume of bread = Fixed cost per bread

The fixed costs are expenses that remain roughly the same each month. These are essential for your bakery business but not dependent on how much you produce. Costs such as rent, rates, basic supplies, ink for the printer, and WiFi are fixed costs.

Sharing out the price of your fixed costs between all of your products ensures you’ll generate enough revenue from your sales to pay your monthly bills.

The same fixed cost is applied to all of your products, so you’ll only need to do this once and then review it every year.

Find the monthly cost of each fixed expense. Accountants classify most fixed costs as net expenses, but there are a few adaptations here. Common fixed costs include:

- Packaging
- Rent
- Business rates
- Utilities
- Equipment
- Management wage
- Insurance
- Cleaning, office costs & sundries
- Maintenance
- Marketing
- Accounting
- Business loans/finance*

*

In accounting termsfinance agreements are not a fixed cost but should be included here in your costing forecast if you expect the business to return the investment.

- Many of these bills will be paid yearly or quarterly, so you’ll have to work out their monthly expense.
- Avoid double expensing your costs. If you’ve already included the cost, don’t add it again.
- For a new business, get quotes, and speak to an accountant and other business owners.
- Even when using your home kitchen, charge your business a small amount for rent.
- If your bakery premises is your home, you will have to estimate how much utilities increase when baking.
- Ovens and mixers are high-powered equipment that uses a lot of energy. To make this costing formula easier, we won’t be expensing energy costs to individual products. Instead, an average cost is acceptable for small operations. If you’re producing over 100 loaves a day, consider factoring it into the production costs. I explain how to do this in the advanced pricing model.
- A business that sells food must have indemnity insurance. If you are planning to deliver, vehicle insurance must be factored in.
- The cost of cleaning and sundries will be tiny in a home set-up but likely to run into thousands in a commercial kitchen.

When investing in a piece of equipment for your bakery, it should:

- Increase your efficiency (lowers production cost)
- Improve the quality of your product (charge a higher price)
- Be essential to produce a product (an oven or pastry sheeter)

Once you buy the equipment, you’ll need to cost it into your product pricing. If you have equipment paid for on a loan or equipment finance, don’t expense it twice. Just remember to include it in the finance section.

For the equipment you’ve bought without finance, take its current value and divide it by 36. That’s 36 months of payments to pay it off.

You are effectively providing a loan to your business! The purpose of doing this is to protect yourself. If you decide to replace your equipment after three years, you’ll either have some cash saved up to purchase it or (if you’ve spent it) at least you won’t have to drastically increase your prices to compensate for getting finance. You’ll also have a bit of wriggle room if any of your equipment breaks down.

Mixer $1500 Oven $1100 Bannetons & utensils $250 Fridge $250 Total: $3100 3100 ÷ 36 = 86.11

**Monthly equipment cost $86.11 **

Regarding product-specific equipment, cost it against the products it will make. For example, the cost of a baguette roller could be added as a separate costing charge against baguettes.

Once you have your monthly fixed costs, add them together to produce your total monthly equipment costs:

Rent 340 Rates 0 Utilities 100 Equipment 86.11 Insurance 18 Cleaning & sundries 10 Finance 51 Packaging 10 Total 615.11

Find out how many loaves of fresh bread you sell each week. If you are a start-up, using the same figures when you worked out your distribution cost, estimate how many loaves of bread you’re planning to bake each week:

8 customers x 6 products x 6 days trading = 288 units per week

Then, per year:

288 x 52 = 14976

Divide by 12 for monthly bread sales:

14976 ÷ 12 = 1248

This gives us **1248 loaves per month**.

Monthly fixed costs ÷ Monthly bread sales = Fixed cost per product

To get the fixed cost figure per loaf of bread, divide the monthly fixed costs by the number of units you expect to sell each month:

615.11 ÷ 1248 = 0.49

**The fixed cost per product is 49c**

So we now have all of the information we need to produce our cost price!

Here’s the formula I shared earlier:

Production cost + Supply cost + Fixed cost = Cost price

So, to find the cost price in this example, we enter:

Production cost = 73c Supply cost = 84c Fixed cost = 49c 0.76 + 0.97 + 0.49 = 2.06

__Our cost price is $2.06__

This is the price I could sell my loaves of bread and break even. But something is missing – **profit!**

You should start any business to make a profit. Not doing so is going to cause problems! Making a profit is the reward for your risk and supports expansion, but is a bakery business profitable? Well, it can be if you can provide a large enough buffer between your cost price and your selling price whilst remaining affordable.

The profit you make on each loaf will act as a buffer for extra costs or sudden cash-flow demands. You’re inevitably going to burn a few products, forget the yeast or have customers not pay you after making an order.

You should also note that the cost price was produced with the expectation of producing and selling a batch each time, which won’t always be the case.

There may also be tax to pay.

See how to improve your bakery’s profit guide to learn about unexpected costs and cost management.

To cover these costs, a buffer should be added to your cost price. To do this, we use a profit index of 1.7 which adds 70% to our cost price:

Cost price x Profit index = Selling price

So in this example:

2.06 x 1.7 = 3.50

So despite including a profit margin in each product’s selling price, it doesn’t always end up as profit!

Adding the 70% buffer means **my beautiful bread should be sold for $3.50**. A fair price, I think, considering the quality of the bread and door-to-door delivery! In reality, undervalued the wages and cost of ingredients slightly when I did this!

If I was to sell the bread without factoring for delivery, it should be sold for **$2.57, with a $3.27 delivery **fee applied to each order. Of course, this delivery fee might be a little expensive, so you might want to include 50% of the delivery cost in your price.

You can increase or lower the profit index. Your buffer directly relates to your profit margin, as the buffer rises, so should your profit.

If you produce high volumes and have a reliable order base, you could lower the buffer.

If you don’t expect to sell high amounts, a higher profit index will help your business, but if too expensive, you might struggle to get customers.

Consider baking less popular loaves as daily specials to keep your range fresh and exciting. See my how-to improve bakery profitability guide for more tips.

As a product’s price rises, expectations build too. So if you increase your profit margin, your homemade bread must match, if not exceed your customer’s expectations.

Consider what extra value you can add to your bread, such as classy packaging, memberships or clever branding/marketing.

Lower prices lead people to believe the product will be low quality, even if it sometimes isn’t. Getting your pricing right across your range of products is essential in how your bakery attracts its target customers.

To learn more, read how to increase sales in a bakery.

You calculate the price of sourdough bread just as you would for yeasted bread. The challenge with making sourdough bread in larger quantities is they take up a lot of space! Whilst you’ll easily find space if you have a few loaves proofing at a time, if there are dozens of sourdough loaves proofing overnight, you can easily run out of space (and bannetons). Investing in a proofer is sensible if you make a lot of sourdough bread.

This has been my guide on how to price bread. I hope that you’ve found it helpful, and even if you don’t copy it completely, you’ve understood how to factor your expenses when pricing bread. Doing your costing correctly will save money in the long run by enabling you to concentrate on selling bread instead of balancing accounts.

It’s a tough gig to open up a micro-bakery or small bakery business, especially when following cottage food laws. Whatever price you charge, if you exceed expectations, you’ll attract customers in droves!

If you would let assistance with setting up your costing, drop me a message. Getting someone else to your admin gives you more time to spend on making homemade bread!

If you have a commercial bakery, read my guide on costing bread in larger operations.

Disclaimer: I am not a financial adviser and take no liability for your business!

Should every product be costed individually?

Every product you produce should be costed individually and have a separate selling price. Once you’ve worked out your fixed costs once, it’s a doddle to do it again!

How long does this costing plan take to do?

Organising your spreadsheet and calculating your fixed costs will take an afternoon. Once set up, you’ll be able to find the price of your bread in a couple of minutes.

How important is accurate costing in a bakery?

The more expenses you include when calculating your costs, the more accurately you’ll be able to price your bread. The bonus of accuracy is knowing that your business is profitable. Taking a less accurate approach to costing can lead to unexpended expenses.

Do I need a cash flow forecast for my bakery?

If you expect to grow your bakery business, you should also create a cash flow forecast. One allows you to make further checks on the profitability of the business. Run the sums if you are 30% busier than expected, then 30% quieter. Then try 50% and see if your business idea is still viable.

How much to charge for bread at a farmer’s market?

If selling bread at a farmer’s market, your supply costs will be the time it takes to load the car and get to the market and the hours spent serving multiplied by an hourly wage. Add any extra costs like stall fees and divide by how many units of bread you expect to sell. Add this to your production costs and any fixed costs, and multiply by 1.7.

If you’ve enjoyed this article and wish to treat me to a coffee, you can by following the link below – Thanks x

Hi, I’m Gareth Busby, a baking coach, lecturer and bread fanatic. My goal is to help you become a better baker.

- The easiest way to calculate the price of bread
- How to calculate the price of bread
- How to calculate the production cost of bread
- Total production costs
- Supply cost
- How to produce your total supply cost
- Here’s our running total:
- Fixed costs
- Calculating the cost price
- How to prevent losing money baking bread with the Profit Index
- How much to charge for homemade bread?
- Increasing the profit margin for your bakery
- Is price important for brand image?
- How to set the price of sourdough bread dough?
- Ending thoughts on bread pricing
- Frequently asked questions about pricing homemade bread

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