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How to price cakes and home baking

Many home bakers charge what a friend charges, or what feels right, and find after a year that they have been paying customers to eat their cakes. Cost first, then price. Work out what each product really costs, including your time, and then check the market.

1. Cost the ingredients

1. Write the recipe in grams.
2. For each ingredient, work out the cost per gram: the price you paid divided by the weight you bought.
3. Multiply by the weight the recipe uses.
4. Add up the recipe, then divide by the number of items it makes.

Butter is often the biggest single cost. Prices change, so cost your recipes again every three months from your receipts.

2. Add the other direct costs

• Packaging: cases, boxes, boards, bags, labels and ribbon. A box for 12 cupcakes at R18 adds R1.50 to each cupcake.
• Energy: an oven uses very roughly 1.5 to 2 kWh for an hour of baking. At about R3.50 per kWh, that is R5 to R7 an hour. Check your own tariff. Drying rusks overnight costs far more.
• Small items: colours, piping bags, baking paper, gloves and cleaning materials. If you cannot cost them exactly, add about 5% of the ingredient cost.

3. Pay yourself

The biggest mistake home bakers make is not paying themselves.

• Choose a fair hourly rate. Many home bakers start from at least the national minimum wage and raise it as their skill grows.
• Time every task: shopping, preparing, baking, cooling, decorating, packing, cleaning, messaging and delivering.
• For a batch, divide the batch time by the number of items.

Your time often costs more than the ingredients. Leave it out and you may charge half the real price.

4. Share out the overheads

Overheads are the costs that are not tied to one product:

• equipment, spread over its life (a R3 000 mixer used for three years is about R83 a month);
• the food hygiene course and permit fees;
• data and airtime for orders;
• transport for shopping and deliveries;
• market stall fees and bank charges.

Add up a month's overheads and divide by the number of items you expect to make that month.

5. Set the price, then check the market

Add ingredients, direct costs, time and overheads to get the total cost per item, and add a profit on top. Then compare with bakeries, markets and other home bakers nearby.

• Similar price: good. Compete on quality and service.
• Much higher: can you work faster, buy more cheaply, or offer something special? If not, the product may not be worth making.
• Much lower: you may be under-charging. Raise the price.

Never price below your total cost for long. A low price may bring orders, but every order then loses money.

When to say no

Turn an order down, or quote more, when:

• the customer's price is below your total cost;
• it needs skills, equipment or time you do not have;
• the deadline is too short to do it safely and well;
• the customer wants something unsafe, such as fresh cream at an outdoor event in the heat, or an allergen-free promise that you cannot keep.

Cost every product separately. One may carry the business while another quietly loses money.

This guide is based on Chapter 10 of Home Baking as a Side Hustle, which works through a full costing for a batch of cupcakes.