How To Price Bread To Make Profit

Published on
12 June 2020
Gareth Busby
Gareth Busby

Back in the early days of opening a bakery, I didn’t understand how to price bread. I knew I should have a way to calculate the price of bread, I just didn’t know how. So I priced my loaves on how good I thought they were, and once I got my stuff together and found a costing method that worked, I realised that I had been drastically under-charging! I subsequently increased my prices which upset many of my customers! So don’t be me, understand the profit in each of your bread and cakes before you start selling loads and earning peanuts. In this bread costing guide, you’ll find a robust costing formula, plus everything you need to know to set the right price for your bread!

The easiest way to calculate the price of bread

If you are looking for a quick way of calculating the price for your bread, take the cost of your ingredients and multiply them by 5. This is a simplified calculation so I recommend that you do more research to produce accurate prices for your bread.

Before we begin with my costing formula…

To set expectations, it is very hard to write this bread costing guide. Every baker reading this has different intentions, from selling a couple of loaves to neighbours, to operating several vans a day. After months of edits, re-writes and frustration I decided to include all of the details necessary for a micro-bakery. Depending on the size of your bakery operation, you can ignore or include some of the detail. The ambition is that you should use my methods to create your costing formula, relatable to your key costs. By this I mean, you can exclude some of these costs if they are minimal, make little impact on your selling price, or if making every penny count isn’t that important to your goals. If a cost doesn’t apply to you, simply skip it.

For a larger bakery, there is a secondary costing for larger bakeries guide which you should read after this one.

How important is accurate costing in a bakery?

If you have (or intend to have) a small bakery selling a handful of loaves, you’ll have fewer costs. I prefer to include as many costs into costing as I can as this is more likely to ensure profitability. You may have heard the phrase “proper costing”, well this (in my opinion) is it!

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Should every loaf be costed individually?

Yes, every bread made in your range should be costed individually and have a separate selling price. The formula to do it is below and once you’ve worked out your fixed costs once, it’s a doddle to do it again!

The costing spreadsheet

Here is a download link to the costing spreadsheet which will allow you to use the information discussed to build your formula to calculate your own costs.

Ok, let’s begin!

How to calculate the price of bread

The selling price of a bakery product is calculated using 4 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

Profit index – A predetermined multiplier that constitutes the profit margin of the loaf. This number will be the same throughout your bakery, however, you can get fancy with loss-leaders and price perception if you wish.

The formula used to determine the price of bread

Before considering how much profit we aim to make on our bakery products, we need to calculate how much each one costs to make. This is known as the cost price, the formula is shown below:

Production costs + Supply costs + Fixed costs = Cost price

The cost price is later multiplied by the profit index to provide the selling price.

Cost price x Profit index = Selling price

The standard profit index is 1.7. This adds 70% to the cost price of your bread. You can change the profit index to suit your business model better, but I suggest that you use 1.7 to start. This means that the formula we will be following is:

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

How to calculate the production cost

The cost of labour, ingredients and energy used to make each product are based on its recipe and method. So it makes sense that more complicated or complex products are sold at a higher price.

For the sake of making this costing formula easier, we won’t be measuring energy costs for individual products. Instead, we’ll factor in an average energy cost for each product later on. This strategy is fine for a small operation, but if you’re producing over 100 loaves a day you should be taking account of it here in the production costs. I explain how to do this in the advanced pricing model.

To determine the production cost of a product, you’ll need to work out the cost of two things, the ingredients and the labour cost:

Ingredients + Production labour = Production cost

The cost of ingredients

IngredientPurchase price (£’s)Sold quantity (grams)Weight used (grams)Ingredient cost
Bread flour10.00160005000.31
Salt0.89200100.04
Yeast1.55800110.02
Butter1.49250300.18
Dusting flour10.0016000500.03
Total cost   0.59

The table above is found on the first tab of the spreadsheet (if you haven’t already downloaded it, click here). Enter each of your recipe’s ingredients in the first column, the price of the packet you bought it in the second, and the size of the packet (in weight) in the third.

To calculate the cost of ingredients used in one bread product, enter the weight of ingredients used in the fourth column. The ingredient cost is populated to appear in the fifth column, with a total price at the bottom. If the recipe you use makes a batch of bread, just enter your usual weights and divide the total cost by the number of products it makes.

Note: You can edit the spreadsheet by entering more rows for additional ingredients.

The cost of ingredients per loaf in this example is 59p

Labour cost

Now with the cost of the ingredients determined, we will find out how much labour costs are involved in making our bread. You won’t be making many single loaf batches ( I hope!), so calculate how much it costs to produce a batch, and divide by the batch size. This will give you your labour cost per unit.

NOTE: Only include the time spent actually working on the recipe. Don't include rest or proofing times as you will be able to attend to other things. Also include time for cleaning up at after each batch and a little extra for end of day cleaning down.

First, you’ll need your baker’s rate per hour. If you don’t employ a baker, decide on your rate of pay. You could look at local job adverts on Indeed to see how much one should earn in your area. Divide the hourly pay by 60 so you have the rate of pay per minute.

Next, you’re going to want to work out how long it takes to make a batch. You can approximate these numbers, but a timer like this one is going to help you be really accurate here.

Multiply the time spent by the baker’s minute rate. Divide this number by the number of products made in each batch and you’ll have your labour cost. Here’s what I just said in a formula:

1) Baker's wage ÷ 60 = Pay per minute

2) Batch time x Pay per minute  = Labour cost per unit
         Batch size

Here’s how it works in this example:

White farmhouse bread labour cost

Batch size – 24 loaves

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

Total time: 20 minutes

To calculate the cost:

Bakers rate @ £12 per hour
12 ÷ 60 = 0.20 per minute
20 minutes x 20p = £4.00

Then divide by the batch size:

£4.00 ÷ 24 = 17p

Labour cost to make each loaf is 17p

If you are the sole baker in your business, you might think it’s not worth charging for yourself. But this will inflate your perceived profitability and will cause issues if you later end up working 60 hours a week and find that you’re barely earning the minimum wage. Always include your working time in your product costing.

Totalling up the production costs

For the total production cost for your bread, add the ingredient and the labour costs:

Ingredients + Production labour = Production cost

And in the case of our white loaf example:

0.59 + 0.17 = 76

The cost of production per loaf is 76p

The supply cost

Service + Delivery = Supply cost

Selling or delivering your products to your customers is going to cost time and/or money. Even though you might not be leaving your house there is still a service cost that you should account for in your costing. There are two avenues you can go down to find this expense:

1) Processing the order and serving in a shop environment:

When selling your product in a shop or taking orders from a website or social media page there will be a cost to complete the sale.

We won't do this individually for every product so once you've spent 5 minutes to working it out once, you can use the same supply cost throughout your range.

First work out how long it takes to process the sale of a product, including:

  1. Taking the order
  2. Answering any questions (especially important if you offer customer products)
  3. Taking payment
  4. Packaging and giving the order to the customer
  5. Saying goodbye
These are labour costs without considering any material costs.

In a physical bakery, perhaps 1.5 minutes is needed per order. Using this estimate 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 = Cost of supply

If the staff wage is £10 per hour for our example:

£10.00 ÷ 60 = 16p per minute

16 x 1.5 = 24

The cost of service is 24p

And as there is no delivery service, the Total Supply Cost is also 24p

Once you have worked out this cost you can use it across the whole range of products – though charge extra for slicing or any other personalisations if you wish! If serving food to dine inside, you can add time for table service and cleaning time here too.

2) Distributing locally to businesses or residents

If you deliver the products yourself in a car or van or hire someone to do so, it is really important that it is correctly costed, or “worked out”. Here’s how I recommend you do it.

Running a supply chain

You can either cost for supply individually, or have a set fee.

  • Add the mileage cost from your daily round and the wage of a driver. Then divide the total cost by the number of customer drops and loaves delivered to get an average cost per bread.

or

  • Directly expense the cost of the mileage and the driver’s rate for each customer to find out how much it will cost to make the journeys individually.

The second option is best if serving large orders that are a considerable distance away. The first is preferred for local operations, so that’s what we’ll follow today. With this method as you pick up more customers in close proximity, you will naturally drive up profitability. You can then factor this price into the product price, or add an additional “delivery cost”. I’ll explain the merits of both in a moment.

How to find your average delivery cost

You’ll need to account for the driver’s wage, as well as the cost of running the vehicle. Use the latest government’s mileage expense rate (US mileage rate) and multiply by the distance completed.

Daily costs:
Driver rate p/h x time = Driver cost

Mileage rate x distance = Mileage cost

Per customer:
Driver cost + Mileage cost = Average distribution cost
   Number of customers

Let’s calculate the driver’s cost first:

In this example, let's say 10 drops take 2 hours in a 15 mile round trip.
Drivers rate @ £12 per hour

12 x 2 = 24

The national mileage rate in the UK for 2022 is 45p, in the US it is 58c. Check on your government’s website if you’re not in either of these countries.

Mileage expense: 45p per mile
Mileage: 0.45 x 15 = 6.75

Add the driver cost and the mileage expense:

Something is wrong here
12 + 4.5 = 16.5?

Making a total daily cost of £16.50

Divided by 8 drops:

16.5 ÷ 8 = 2.06

The cost per delivery is £2.06

Charging a delivery fee vs incorporating it into your product’s price?

You are able to spread your delivery costs across your product’s price or have a set delivery fee that you add to each order. If you sell mainly to consumers, distributing the delivery fee into your product pricing can make you look quite expensive. So if you are selling small quantities and worried about looking greedy with high prices I suggest that you add a delivery fee on each sale that’s delivered. It shows transparency to the customer and can also encourage people to spend more too. You can also choose to offer a “spend x for free delivery” promotion to encourage larger sales.

If you are selling larger quantities, including the delivery cost in the price of your product can seem more appealing. It’s also easier for businesses to do their taxes when there is only one rate so it’s expected that delivery is not a separate charge in the commercial world (for local suppliers anyway). Bigger clients will probably want a better deal as economies of scale produce better profitability margins. It is best to not just listen to me though, do a bit of research into your ideal customers and understand how similar suppliers charge for delivery.

How to incorporate distribution costs into the price

Take your distribution cost and divide it by your average order size. For example, if the distribution cost shown above is shared between an average order of 6 loaves:

2.06 ÷ 8 = 0.34

The cost of distributing a loaf is 34p

How to produce your total supply cost

Returning back to the formula I shared earlier:

Service + Distribution = Supply Cost

We already worked out our total supply cost for our “Selling in a bakery example” being 24p.

For the delivery service example, we’ve worked out the distribution cost as 34p, but there will be a cost for taking the order, packing it and preparing it for delivery. We called this cost the service cost. This was calculated using the following:

Service rate:
£10 per hour or 16p per minute

Time spent on service: 
2 minutes

16 x 2 = 32p

Service cost is 32p

Both the service and distribution costs are combined to produce the total supply cost:

32 + 34 = 66p

The total supply cost is 66p

Here’s our running total:

Production cost + Supply cost + Fixed cost = Cost price
Production cost = 76p
Supply cost = 34p
0.76 + 0.66 = 1.10

1.10 + Fixed costs = Cost price

We now have a running total cost of £1.10 for our bread. Now we incorporate the fixed costs to get the “cost”, or “break-even” price.

How to find your fixed costs

The fixed costs are expenses that remain roughly the same each month. They are still 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 going to stay relatively the same.

Accountants will classify these as net expenses, and in a business plan, they will be. I believe that including them in your product costing ensures that your business will generate enough income to pay for them. The same fixed cost can be applied to all of your product range, and you’ll only need to review this once a year. Let me explain what it includes, and understand that you don’t have to include all of these costs if you don’t need to. Here is the formula you can use to calculate your fixed cost value:

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

First, you need to find the monthly cost of each of your expenses that have not been previously accounted for. Then divide by how many loaves you’d expect to produce each month to provide an average fixed cost per bread. Before we get into the benefits of this, let’s look at where fixed costs can arise:

Common fixed costs in a bakery

The fixed costs are as simple (or complicated) as your business needs them to be. And if you’re selling a handful of loaves to your neighbours you might wonder why all the faff? Some of these costs will be ultra-low in a small start-up. But if expansion is on the cards, consider budgeting for them now. Many of these bills will be paid yearly or quarterly so you’ll have to work out their monthly expense. If this is a new business, get quotes, and speak to an accountant and other business owners to get a good idea. Common fixed expenses include:

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

Finance agreements are not a fixed cost in accounting terms but can be included in this costing forecast if you’re expecting the business to return your investment.

More costs are included in the advanced version of this article.

Packaging

The packaging expense is the cost of the packaging to wrap the bread in. You might see value in elaborate wrapping or using a professional stamp. Using expensive packaging can justify premium prices.

Action: Calculate the monthly packaging spend on the number of products produced.

How to price bread image

Rent

This is the cost of the premises used to produce your bread. If you have a specific business premise, this is self-explanatory, but when baking at home it’s a little more complex. When using a home kitchen you still should charge a small amount for rent, if not solely for tax reasons. If you do bake from home, you might be able to rent part of your home and utility bills to your business. Take advice from an accountant.

Action: Calculate the monthly rent cost

Business rates

Tax is paid to UK councils for the use of business premises. Bakeries that are small enough will receive business rates relief and not pay a thing. If you bake at home you may find that you can reduce your household council tax bill. Again, take advice based on your location.

Action: Determine monthly business rate expenditure (if necessary)

Utilities

If your bakery premises is separate from your home it will have its own utility bills. If not you will have to estimate how much your utilities increase when you are baking. The extra power used will add a lot to your bill so if you won’t want to ignore this one! Even a rough estimated cost should be included. Wifi, water, and heating/air-con costs should also be included here.

Action: Calculate monthly utilities

Equipment

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

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

Once you buy the equipment, you’ll need to cost it into your product pricing. Any excess funds at the end of the month can be saved and reinvested into new equipment in the future.

Take the value of all your bakery equipment that’s not already on finance and divide it by 36 months. That’s 3 years to pay it off. If you have equipment paid for on a loan or equipment finance don’t include it here, leave it for the finance section.

Mixer £1500
Oven £1100
Bannetons & utensils £250
Fridge £250

Total: £3100

3100 ÷ 36 = 86.11

Monthly equipment cost £86.11 

How to factor product-specific equipment

When it comes to product-specific equipment you should cost it against the items it is to be used. For example, the cost of a baguette roller could be added as a separate charge against baguettes.

Action: Calculate the monthly cost of your equipment

Insurance

A business that sells food must have indemnity insurance. This will cover if someone gets ill after eating your products. It also usually covers employee liability from injuries. If you use a deep fat fryer, the cost will increase. If you are planning to deliver, vehicle insurance can be factored in here as well.

Action: Calculate how much insurance costs per month

Cleaning & sundries

A small section of your monthly costs, but a necessary one. This includes the costs required for buying cleaning products, hiring external companies to clean vents etc. and replacing any worn equipment such as tea towels and bannetons. The cleaning and sundries cost should be tiny in a home set-up but will run into thousands in a commercial kitchen.

Action: Calculate cleaning and sundries average monthly cost

Business loans/finance

Add any loans or finance taken out for your business to produce a monthly cost. If you are using your own money you may want to see a return on your investment, typically in 3 or 5 years. It’s up to you and your accountant whether you actually take this money back or leave it in the business. Calculate what the monthly payment to yourself should be alongside any external finance cost and include it here.

Action: Calculate loans and finance monthly costs

Adding fixed costs to the price of bread

Here for my example, I’ve calculated the amount of our monthly fixed costs and provided a total of £615.11 at the bottom:

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

Total 615.11

Using the same figures as the distribution cost you estimate how many loaves of bread you’re planning to sell each week:

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

Then, produce the total per month:

Bread sold per week x Weeks in a year = Bread sold per year
288 x 52  = 14976

Divide by 12 to produce monthly bread sales:

14976 ÷ 12 = 1248

The fixed cost per bread

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

Monthly fixed costs ÷ Monthly bread sales = Fixed cost per product
615.11 ÷ 1248 = 0.49

The fixed cost per product is 49p

Calculating the cost price

So we now have all of the information we need to produce our cost price! We’re going to use the formula that I shared with you at the top of the page:

Production cost + Supply cost + Fixed cost = Cost price

To find the cost price in this example we enter the figures produced:

Production cost = 76p
Supply cost = 34p
Fixed cost = 49p

Therefore:

0.76 + 0.34 + 0.49 = 1.59

Our cost price is £1.59

This is the price where I could sell my bread and break even. But there’s something missing – and that’s profit!

How to prevent losing money with the Profit Index

You should start any business in order to make a profit. Not doing so is going to cause problems! Making a profit is the reward for your risk and time, but can support future expansion. Generating profit also acts as a buffer for extra costs or sudden cash-flow demands. It’s inevitable that you’re going to burn a few products, forget the yeast or have customers not pay or ghost you after you’ve made their order. There may also be tax to pay. See me how to improve your bakeries profit guide to learn about unexpected costs and cost management.

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

Cost price x Profit index = Selling price

So in this example:

1.59 x 1.7 = 2.70
Cost price 1.59
 70 % buffer1.11
Selling price 2.70

Adding the 70% buffer means my beautiful bread should be sold for £2.70. I think it’s a fair price considering the quality of the bread and the door to door delivery!

If I was to sell the bread without factoring for delivery, it should be sold for £2.50, with a £2.10 delivery fee on orders. I’ve increased the delivery fee slightly to make it a more rounded number.

The standard bread costing table:

Here’s the full table found in the costing spreadsheet:

Direct costs:   
 Ingredients 0.59
 Production 0.17
Cost of production: 0.76 
Supply costs:   
 Distribution 0.34
Cost of supply: 0.34 
Monthly fixed costs:   
 Packaging 10
 Rent 340
 Business rates 0
 Utilities 100
 Equipment 86.11
 Insurance 18
 Cleaning & sundries 10
 Finance 51
Total monthly fixed costs: 615.11 
Estimated production quantity 1248 
Average fixed costs per bread 0.49 
Total costs  1.59
 70 % profit buffer 1.11
Selling price  2.70

Increasing the profit margin for your bakery

You can choose to increase or lower the profit index if you wish. If you are certain of efficiency, can produce high volumes and are confident of a constant supply of orders; you can lower the buffer. Your buffer directly relates to your profit margin. As the buffer rises, as does your potential profit. If you don’t expect to sell high amounts, a higher profit index could help your business grow! You might want to tweak your profit index to ensure the business generates enough profit to keep you motivated.

Is price important for brand identity?

As a product’s price rises, expectations build too. So if you increase the profit margin of your bread, it has to deserve it in the eyes of your customers. Also, 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 isn’t. Getting your price right across your range of products is essential in how your bakery attracts its target customers. Whatever price you charge, if you can exceed expectations you’ll attract customers in droves!

The problem with costing in a new bakery business

The issue when costing bread is that you have to run at the capacities used in your calculations to achieve the planned profit. To achieve this, it means that your dough mixer and your oven must be full for each batch and that all the bread that you bake is sold. When you are starting out, this is unlikely to be the case. Batches might be small to fulfil customer orders and bread might not sell on the day and need to be thrown away. You can be accepting of this and put all your energy into building up your repeat customer base, but you can also try and work a little smarter.

You could bake part of your range on one day, the remaining on another and the full range on weekends (when it’s busier). You might be able to retard some dough for several days which means you can simply proof and bake on quieter days.

There is much to do to keep your expenses down when you first start out so it’s best to have a plan. See my how-to improve bakery profitability guide to see more tips

Do I need a cash flow forecast?

If you are expecting to grow your bakery business you should also create a cash flow forecast. Here further checks should be made 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 things stack up. With your costs already determined, you can simply adjust the profit index to make your business plan more appealing.

Ending thoughts

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 it has provided ways to factor in your expenses when pricing bread. You may want to look at the costing bread in the larger operations section where more expenses are included.

P.S. Just a disclaimer that I will do everything I can to help you although I’m not a financial adviser and will take no liability for your business!

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