How to price your time as a small food business (and stop working for free)

When I was running my bakery I'd start at 8 in the morning and regularly work until 2 or 3 the next morning, so I could go and make a few hundred pounds at a market the next day. I was easily doing over 70 hours a week, and it was running me into the ground.

When I finally worked out what I was earning per hour, it was less than any other job I was qualified for. Less than a minimum wage job. Some weeks I was working for nothing, and I hadn't noticed, because the way I priced things never asked how long they took.

Some of that is the sweat equity every new business needs. But you have to know how much time you're putting in and what it's costing you, because that's the only way out. This guide shows you how to work it out, and what I did once I could see it.

Why a markup doesn't cover your labour

Most small makers price the same way: work out the ingredient cost, then multiply it, often by 3 or 4 for retail. That multiplier is meant to cover your time, your running costs and a profit. The trouble is it covers your time very differently from one product to the next.

Take two products that both cost £1 in ingredients and packaging, both sold at 4 times cost, so £4:

• A jar of jam or chutney. You cook a big batch, and each jar takes about 2 minutes of your hands-on time to fill, lid and label. The £3 left after ingredients works out at around £90 an hour.
• A hand-decorated biscuit. Each one takes about 15 minutes. That same £3 works out at £12 an hour, and you haven't paid your rent or insurance yet.

A markup on its own can't tell you whether you're being paid. You have to put the time in. (If you make decorated cakes, the same goes double: see how to cost a cake properly.)

Step 1: count your hands-on time

Next time you make a batch, time it on your phone. Count every minute you spend working on it:

• getting set up and weighing out
• mixing, shaping, filling, decorating
• packing and labelling
• washing up and clearing down

Leave out time in the oven or the fridge if you're free to do something else meanwhile. If you have to stand over it, like a pan of chutney reducing on the hob, it counts.

Time a real batch, not the one you imagine. Set-up and washing up take about the same time whether you make 12 or 60, which is why bigger batches pay you better per item.

If someone helps you, their hours aren't part of your hourly rate. Their wages, plus holiday pay and anything else you pay on top, are a cost per batch, just like the ingredients. Count only your own hours against your rate.

Step 2: how much should you pay yourself per hour?

Pick an hourly rate. It should be at least the minimum wage where you live, and really it should be more. You're the cook, the buyer, the marketer, the driver and the person on the stall in the rain.

A good test: what would you have to pay someone else to do this work? You'll want to hire help one day, and the price has to be able to pay for it.

Step 3: work out what each price pays you per hour

Say you make 24 brownies in 2½ hours of hands-on time, and each one costs 60p in ingredients and packaging.

• At £3.00 on your stall, the £2.40 left on each brownie pays you £23.04 an hour.
• At £1.50 to a café, the 90p left pays you £8.64 an hour.

Here are the two sums behind that:

What a price pays you per hour = (price − ingredient cost per item) × items per batch ÷ hands-on hours per batch

Lowest price that pays your rate = ingredient cost per item + (hourly rate × hands-on hours ÷ items per batch)

At £15 an hour, that's £0.60 + (£15 × 2.5 ÷ 24), which rounds up to £2.17 a brownie. Sell it for less and you're working for less than £15 an hour.

You don't have to do the sums yourself. The free recipe cost calculator works out both from your ingredients and your time, or you can download the free costing spreadsheet and keep it.

What about that café price?

Wholesale will always pay less per item than your stall, because the café needs room for its own margin. That's fine, as long as it still pays your rate. Remember the stall price has to pay for your time standing behind it all day too, while a café order is a box and a drop-off. What matters is that the wholesale price pays your rate for the making, and that the steady volume makes your batches bigger and quicker. At £1.50, this one doesn't. More on setting a café price in pricing for wholesale.

Step 4: add your running costs

What's left after ingredients also has to pay the regular bills that come in however much you sell: rent or kitchen hire, insurance, licences, pitch fees, software, your phone, fuel and repairs.

Add them up as a monthly figure and divide by roughly how many items you sell a month. That's your running costs per item. If your bills are £250 a month and you sell about 400 items, that's about 63p an item.

Now put it all together. For our brownie that's 60p of ingredients, £1.56 of your time and 63p of running costs: £2.79 is the real minimum. The £3.00 stall price clears it. The £1.50 café price is a long way off.

The free running costs calculator lists the costs most small food businesses forget. For another way to spread overheads across a product, see how much a micro-bakery should charge.

How to put your prices up without losing customers

This was the part that scared me most. What actually happened: I put my prices up gradually, a little at a time, and it made no real difference to sales. People still bought them. The customers who come back to a small maker aren't choosing on price. They're choosing you.

Most of it is self-belief. You have to convince yourself your product is worth it before anyone else will. A few things that make it easier:

• Go in small steps. 20p now and 20p in a few months is easier on you and on your regulars than 50p at once.
• Launch new products at the right price. Nobody has an old price to compare them with.
• Tell your regulars and cafés first. A short, honest note about ingredient costs goes a long way.
• Make it look worth it. Better packaging or a bigger box can carry a higher price.

Should you stop making products that don't pay?

Once you know a product's real minimum price, try selling it at that price. If it only sells when it's cheaper, think hard about whether it belongs in your range. Making something for a few pence of profit is a poor use of your time, and those hours could go on the products that pay you £20 an hour or more.

There are exceptions. A low-margin line that gets you into a deli, or keeps a big weekly batch going, can earn its place. But keep it because you've decided to, with the numbers in front of you, not because you never checked.

How I got out of the 70-hour weeks

Knowing my numbers was the start. Then:

• I put my prices up, gradually, as above. That paid for everything else on this list.
• I hired people to run the markets first. Outsource the easiest things first. Someone standing behind your stall doesn't change the quality of what you make, as long as you hire the right people and train them well. That gave me my weekends back for making.
• I bought proper equipment. Going from a stand mixer to a commercial mixer meant no more tiny batches. A commercial oven took me from one cake or three trays of brownies at a time to five or ten. That one change saved me hours every week.
• I got prepared. The biggest time saver of all is knowing exactly what you've got to make before the day starts. The same market stock, the same café standing orders, the same Saturday bake, every week, with specials added on top.

How often to recheck your prices

A price that paid you properly last year might not now. Chocolate, butter, eggs, glass jars and energy have all jumped in recent years, and every rise comes straight out of your hourly rate. Check your prices whenever a big ingredient goes up, and at least twice a year. See updating recipe costs when ingredient prices rise.

A spreadsheet is fine for your first few recipes. The trouble starts when you have twenty, three price lists and suppliers who change their prices every few months. It won't tell you when an ingredient rise has pushed a product below what it should cost.

Where MakrPrep comes in

I built MakrPrep to do this for me. Put in what you pay for your ingredients, your hands-on time and your hourly rate, and every price shows what it pays you per hour. When an ingredient goes up, any price that drops below your minimum or your rate turns red straight away, not months later. Add your running costs, and the Orders page shows how much of this month's bills your orders have covered so far.

It also does the preparing. Set up a template for what you take to every market, each café's standing order and your regular week, add specials on top, and MakrPrep works out what to make each day and what to buy.

It's £19.99 a month in the UK. Take that café brownie: it was 67p under the price that pays £15 an hour. If the café takes 30 a week, that's about £87 a month you'd been giving away. Fixing that one price covers the subscription four times over.

You can try it free for 14 days, no card needed. It comes with a sample bakery already set up, so you can see what every price pays before you type in a single recipe. Or start with the free recipe cost calculator and see what your best seller really pays you. You might be surprised. I was.