How to Set Prices for a Home Bakery
Updated: Feb 10
We’ve already talked a teensy bit about pricing your baked goods and the effort that it takes up front. Today, I’m going to dig in and really get into the nitty gritty of determining your home bakery’s prices. Now, I’m going to be honest with you. Pricing is tedious at best, and it’s certainly not glamorous, but it is one of the most essential things you will need to do when you start your business. It is my hope that these tips will make it a little more painless for you than it was for me!
How are competitors pricing their baked goods?
The very first thing I did when deciding to open a home bakery was scope out the competition. I went to local bakeries, farmers markets and grocery store bakeries to get a general sense of what “competitors” were charging for their products. There are MANY factors that go into pricing, so deciding to charge $6/cookie just because the bakery down the street is doing it is not the way to go. But gaining an understanding of the going rate for similar products in your area is a helpful place to start.
How much do your ingredients cost?
It’s time for a trip to the grocery store…or two or three. You may not know all the ingredients you’ll ever need, but there are some staples that you’re sure to be buying pretty frequently. Start with those and add to your list as you go.
How much does a five-pound bag of flour cost? How about a ten-pound bag? How much for two pounds of sugar? A dozen eggs versus a carton of 18 or 36? Is a bottle of vanilla cheaper in-store or online? What if you buy in bulk?
Ok, I’m sorry, I’m not trying to make your head explode! But these are the scenarios and questions that you’ll come across at this juncture, so it’s important to make sure you have all the facts.
The easiest way to do this is with a good, old-fashioned spreadsheet. In my example below, I’ve listed out my items and included columns to mark the prices from two local grocery stores, a big box store and a behemoth online retailer that rhymes with schmamazon. Then I’ve broken that pricing down into something universally measurable, such as a cup of flour, teaspoon of vanilla or a stick of butter.
If you commonly weigh your ingredients, then by all means determine the price for every 10, 50, 100 grams of sugar you use. For ingredients that you measure by amount (cup, tablespoon, etc.), but are packaged by weight, this will take some converting to get the pricing breakdown where you want it to be. It takes an extra step or two, but will make things easier moving forward.
And for recipes you make commonly, track the cost to bake the whole recipe on a spreadsheet so you don’t have to add the ingredients’ cost one by one every time you make it.
Don’t forget the cost of your packaging…
Packing is not cheap. Even when buying in bulk, it can be a big investment, so do not leave this crucial consideration out when pricing your goods. Here’s where your handy dandy spreadsheet will come in use again. Whether you’re buying a few boxes here and there at your local craft store or buying 100 boxes at a time from an online retailer, determine the price per box, container, etc. and list it out for each size or type of package you get. This also includes any labels you might be using for ingredients or marketing, so be sure to include any and all aspects of packaging into your spreadsheet so you can determine how much to figure into the price you will charge.
For example, a 10x10 cake box might cost $2 per unit, a cake board may cost $1 per unit, an ingredient label may be $.25 a unit and a sticker with your logo on it may be $.50 a unit. That $3.75 is not insignificant! If you didn’t incorporate that into your pricing, you’d lose $37.50 after just 10 orders. Don’t give the packaging you’ve spent money on away for free!
And most importantly, your time!
Your time is valuable and you should be charging accordingly! On top of how much it costs to bake and package your product, you need to make sure that you’re not making $1/hour to make a custom order.
I’ll break down a real life pricing example for you that may give you a hint as to one of the many reasons I decided owning a home bakery was no longer sustainable.
Now what if I told you I charged $35 for this cake? A cake that start to finish took abut four hours of work. It's no exaggeration. I was paying myself $5/hour. The horror! So in this situation, do not do what I did.
I didn't realize what I was doing at first. I thought, hey, if I can make $20 from making a cake, I'm pretty happy with that. But when I really sat down and thought about how much I was making per hour, I was shocked. So be sure to consider this up front when setting your prices so you don't end up having to raise prices three months later and have to explain to repeat customers that you were severely underpaying yourself!
Some things I didn't factor into my pricing, but you may want to are: utilities, gas or any paid marketing avenues. I didn't incorporate these into my pricing because I wasn't baking that many orders a month to have a significant impact on my utility bills, I bought ingredients while doing weekly grocery shopping at a store five minutes from my house, and did not use any paid marketing for my business. But if you're noticing your electric or water bills are doubling, you live 50 miles from the closest grocery store or you're paying for a website domain, social media ads, promotional materials, etc., then make sure you add those costs into your pricing as well!
Is there anything I haven't covered that would help you set your prices? Shoot me an email at firstname.lastname@example.org to let me know!