The floor-and-ceiling method for pricing baked goods

Every pricing question a home baker asks is really one of two questions: what is the lowest price I can afford, and what is the highest price I can get. The method answers both, then leaves you one decision between them. It is the method behind every pricing post on this site and behind the Baketly app, and it is written here in one place so you can point to it.

1. The floor: what the item costs you

Cost one item fully. Not the batch, not "roughly a dollar of flour": every ingredient at the price per gram you actually paid, the bag and the label, and your own time at an hourly rate, including the minutes you spend waiting on it. The worked example used across this site is a sourdough loaf:

Time is 82% of that loaf. Leave it out and the floor looks like $1.05, which is how a loaf ends up selling at $4 and feeling like a bargain to everyone except the baker. How to cost a recipe properly, once.

2. The ceiling: what your market bears

Take the shelf price of a comparable item at the three nearest bakeries. Not a national average and not what a blog says artisan bread is worth: the number your customer has in their head when they look at your table. For a standard sourdough loaf in most US towns that band sits somewhere between $8 and $14. Your three local numbers are the ones that count.

If your floor lands above the local ceiling, you do not have a pricing problem. You have a cost problem, and it is almost always batch size.

3. Choose between them, by the hour

Any price between floor and ceiling is survivable. The one to pick is the one that pays you a similar rate per hour to your other products, so that the slow bakes are not quietly subsidised by the fast ones. On the worked loaf:

The jump from $7 to $9.50 costs the customer $2.50 and nearly doubles what the morning pays you. Above about $11 you are no longer fixing an underpriced loaf; you are making a positioning bet, which is fine as long as it is a chosen one. What to charge for a sourdough loaf, in full.

4. Review when costs move

A price set once is correct once. Because profit is the thin slice, a rise in costs hits it by a multiplier of cost divided by profit: on the loaf that is 1.6, so a 5% rise in ingredients takes 8% off the profit; on a cinnamon bun it is 2.7 and 13%. The floor moves every time flour does, and a method that cannot follow it is a photograph of a day that has passed.

This is the step nobody keeps up with by hand, and it is what a recipe costing app like Baketly is for: the pantry stores what you paid for how much, every recipe costs itself from the pantry, and recording the next sack price recosts all of them at once. Steps 1 and 4 become numbers you read; step 2 is a price check against bakeries near you; step 3 stays yours. What a cost rise does to your prices.

What it is not

It is not a multiplier. The common "ingredients times four" rule skips the floor's largest component, your time, so it overprices fast bakes and underprices slow ones: it pays $7.88 an hour on a sourdough loaf and $36 an hour on cinnamon buns. Why the 4x rule underprices sourdough. It is not a markup either, because a markup is applied to a cost that may or may not have your hours in it. And it is not cost-plus: the ceiling is a real limit set by your town, not a target you aim for.

Who it is for

Home bakers, cottage food businesses and micro bakeries: one or two people baking, selling at markets or to regulars, and doing the books themselves. It works for a loaf, a dozen cookies or a wedding cake, because the only things that change are the ingredients, the hours and the local ceiling. For a bakery with staff on payroll and a daily menu, restaurant food-cost tools fit better. Why.

The short version

1. 1
   Floor

   Cost one item fully, hours included. The worked loaf: $5.85.

2. 2
   Ceiling

   The shelf price of a comparable item at the three nearest bakeries.

3. 3
   Choose by the hour

   Pick the price between them that pays you about what your other products do per hour.

4. 4
   Review when costs move

   Keep the pantry priced from what you paid, so the floor is always today's.