How to cost active time?
I'm sorry if this is in the wrong section but I was wondering if there's a way to fairly price active time. I'm going to be selling at a farmers market somewhat soon so I need to price my goods but when I'm making dough, I may be making enough dough for one loaf or four. I don't felt like charging for rise time and proofing is fair since I can be watching TV or gone to walmart. Just the active time seems a fair way to charge so I'm hoping theres,a good,way to go about this. What I have been doing is assuming a $9 per hour labor rate and 20 minutes for active time. Is there a better way to do it? I don't mind totally discounting my time while I am first starting just to get my products out there but I don't want to have to double my price down the road because I want to get paid for it.
I'm trying to learn this stuff as I go so thank you for any help.
... you just have to price products what the going rate is in your area - then work backwards from that. No point factoring in your time at £x per hour if it subsequently makes a loaf 10x that of the competition.
That's the "joy" of being self employed... I've been self employed for 15 years now - but only baking for money in the past 3 - I don't recall ever factoring my time in for anything I've done directly - only when doing consultancy for others to I bill them an hourly/daily rate.
So I pitched my bread prices somewhat above what the bulk-supermarket stuff is but below that of the neighbouring town (which is a bit more upmarket than my town) and it's mostly worked. I did make a little adjustment about a year back but that was more to do with taking on more wholesale outlets and rationalising their prices from me.
So take some time and check out the competition - even if it's a cheap supermarket...
Good luck with the market - I'm off to one tomorrow (I do several a month) taking breads (currently slowly fermenting overnight), pasties, cakes, slices, viennoisery, and other bakery stuff...
-Gordon
From the sounds of it you're baking at a very small scale. If your volume consists of 1 to 4 loaves then the amount of your labor is cost prohibitive. Does it really only take 20 minutes of labor to make your bread? Does that include prep time? Does that include clean-up? Let's say it takes you 2 hours of labor to make 4 loaves of bread (keep in mind, this does not include the labor involved with selling the bread -- like slicing/packaging, setting up/manning/taking down your stand, travel time, bookkeeping, etc. ) then at your assumed rate that's $18.00. Split between 4 loaves that's $4.50 in labor costs per loaf. That's practically the price of an artisan loaf in itself!
Furthermore, a skilled artisan baker's time is worth far more than $9.00/hr. Twice that, at the least.
So there's really a couple questions to ask here. 1) How skilled of a baker are you? The higher your skill level the more you should charge for your time. $9.00/hr is what brand new hires with zero experience get paid.
But more importantly . . .
2) What is your goal?
Is your goal to profit from your current bread production? That's unlikely to happen if you're topping out at 4 loaves a day. You simply have no economy of scale.
Is your goal to earn a little extra side cash just to help support your bread baking hobby? Then cool, charge whatever you like.
Is your goal to progress your small microbakery into something bigger and more profitable down the road? Well, if that's the case then at this point you might just need to write off the costs of your labor. Consider it an investment in the future. In order to grow your business you need to price your bread at a cost the market can bear. And at such small volume, the price of your bread probably can't bear the cost of your labor.
Now, I don't mean that to sound negative or discouraging. But I think that in business, understanding and accepting reality is fundamentally important. So if you can accept that selling 4 loaves per bake means losing money in the short term . . . but that by building your reputation, customer base and networking, it creates greater opportunity in the long term, then I think you're well positioned to price your bread (currently) based on a criteria other than just cost of labor or ingredients.
Best of luck!
Trevor
I'm with Gordon on this one. I charge a price for my bread that more than covers the cost of the ingredients and other materials (such as packaging, labels, etc), contributes to the cost of the electricity and the capital cost of the equipment (e.g. mixers), and provides a nice chunk of change to supplement my retirement income. If I tried to calculate my time for shopping, mixing, baking, packaging, cleaning up, keeping records and everything else that goes into running a business, I'd go nuts. I took on bread baking as a retirement business partly for the income but also for the enjoyment. I bake for people here in my community and have great conversations with them when they come to buy bread. They bring me fresh shrimp they caught that day, preserves they make from their produce and things from their garden. I spent many years as a consultant charging for my time and tracking that time in detail; retirement and baking are supposed to get me away from that stress!
One thing I do, however, is keep spreadsheets with the cost (per gram) of all my ingredients, and also tables for all the breads I bake showing the amount of each ingredient. It's pretty easy to calculate the cost of a loaf, even when the cost of inputs changes (I find a cheaper supplier, the price of something goes up, etc). I know I'm making a pretty good profit; better on some loaves than others, but those ones supplement the higher cost loaves.
Don't do this to yourself. Unless you're building a business. Slap on an arbitrarily high price, see if it sells, and lower the price if it doesn't. Bread doesn't sell itself, so keep that in mind, too. Such a small amount of bread might sell itself, though.
I would much rather just bake and set a price that I deem reasonable and just have that cover the costs. To me that's the most viable way to go in the initial stages. If and when itcgrows,to something that could be profitable i.e. an actual business, then I would like to get a handle on the little costs that add up. Initially I had planned on discounting my time just to get my name and products out there, basically laying the groundwork for later possibilities. As cheap as the ingredients are, it won't take much to break even so I'm not terribly worried about the money part. My wife and I were just sitting down the other night discussing the possibilities of me going to the market and she seemed to get stuck on the costing so I was kind of hoping to come up with,something to ease her mind. She doesn't want,me,doing all of this,to make 9 cents an hour, if it were a job, if that makes sense.
I think in the end I will just end up setting a price and not worrying about the time cost since that was my initial gut instinct. Thanks for your help guys!
largely on how you regard your business and what kinds of goals you have. There's a spectrum with "full" standalone business at one end and hobby that includes selling something but not caring very much about making money at the other. At the latter end, I've even known a few people who were content to lose money as long as it wasn't too much. They operated their businesses for the enjoyment, as hobbies that, like most hobbies, cost them money.
If you intend to operate near that end and are fine with not much more than recouping the cost of ingredients, don't worry about full costing. Otoh, if you're more toward the former end, you should probably look at full costing. You'll have to do so sometime, and if you do it soon, it will, among other things, (a) give you the chance to learn how before you have to, and (b) provide an indication of the volume you have to reach so that your full cost and the pricing your market will bear balance out.
The biggest mistake you could make is to determine your price based on your time. People don't care how much time you spend or how much your materials cost. People care about how your prices compare to your competition and how good your bread is. Whether you can make a profitable business out of it is a separate issue and one that only you care about.
Costing active time is not a fair or realistic way to charge. What you should charge and whether you can make a profitable business are two different issues. What you should charge is as others have said basically whatever the market will bear. That you determine not by your costs or your time but simply by what others are charging, and if you have anything that could allow you to charge more such as better bread. Once you determine that then you look at how much time you need to spend on it, your cost of materials such as flour, or your cost of using an oven and so on. Then you decide what it would take as in how many loaves would you have to sell to make it a worthwhile business.