How do I price my baked goods?

Most pricing advice hands you a multiplier. Take the ingredients, multiply by four, round up. It is quick, it is memorable, and for a micro bakery selling bread it is reliably wrong — not slightly, but by enough to turn your best-selling product into your least profitable one.

Here is the method that does not fall over, in the order the steps have to happen. Bakers who use it call it the floor-and-ceiling method: the floor is your full cost, the ceiling is the local market, and the price is chosen between them by the hour it pays.

Step 1: find the floor

The floor is what the item costs you to make, with everything in it. Ingredients, packaging, and your own time at a rate you would accept from someone else.

That last line is the whole argument. Leave it out and the loaf appears to cost $1.05, which makes almost any price look generous — and makes the multiply-by-four rule produce $4.20, which is below what the loaf cost to make. Costing properly is a half-hour per recipe, once.

Step 2: find the ceiling

The ceiling is what your market will bear, and it is local. Not a national average, not what an article says artisan bread is worth: the shelf price of comparable bread at the three nearest places your customer might otherwise buy it.

Two cautions. Competitors' prices tell you what people pay, not what is profitable — you cannot see their costs, and some of them are underpricing too. And a ceiling is a constraint, not an instruction: being the cheapest stall is a position you should choose deliberately rather than arrive at by copying.

Step 3: choose between them, by the hour

This is the step the multiplier rules skip, and the one that makes a price list coherent.

Between floor and ceiling, pick prices so that each product pays you a similar amount per hour of your time:

(price − materials) ÷ hours the item took = what this product pays you per hour

The loaf at $9.50 leaves $8.45 after its $1.05 of materials, for 0.4 hours: $21.13 an hour. A cinnamon bun with $0.60 of materials taking three minutes needs to sell at $1.65 to pay the same. Price both by multiplying ingredients by four instead and you get $4.20 and $2.40 — which pay $7.88 and $36.00 an hour respectively, from one rule, on the same morning.

The right-hand column is a price list. The left-hand one is two unrelated decisions that happen to share a rule. The full arithmetic is here.

Step 4: review when costs move

A price set once is correct once. Flour and butter have had double-digit years, and because profit is the thin slice, a cost rise lands harder than it looks: your cost divided by your profit is the multiplier. For the loaf that is 1.6, so a 5% rise in costs takes 8% off the profit. For a thinner-margin bun it is 2.7, and the same rise takes 13%. Repricing is a smaller job than it sounds if your pantry stores what you paid rather than what you calculated.

This is the step nobody keeps up with by hand, and it is what a recipe costing app like Baketly is for: record the new sack price once and every recipe that uses it recosts itself, so the floor you priced from in step 1 is still true in step 4.

Common ways this goes wrong

• Pricing from the stall opposite. Fastest route to a market where everyone is underpriced and nobody knows it.
• Treating your time as the buffer. If the price only works because you did not pay yourself, you have not priced the product — you have subsidised it.
• Wholesale at a discount off a retail price that was already thin. Wholesale needs its own floor, because the margin has to survive the discount.
• Apologetic rises. Three small increases in a year are more noticeable than one clear one with a reason attached.
• Shrinking the loaf instead. Customers notice weight faster than price, and it costs you the trust that a straight rise does not.

The short version

Cost it with your hours in — that is the floor. Look at the three nearest bakeries — that is the ceiling. Choose between them so every product pays you a similar hourly rate. Review when your costs move. Any rule that produces a price without knowing how long the item took you is guessing, however confidently it is stated.

Read next

• Why the 4× rule underprices your sourdough
• How to cost a recipe properly, once
• What should I charge for a sourdough loaf?

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