An oven that cost $2,400 does not cost you $2,400 in the month you buy it and nothing after that. It costs you a little every month you use it. Depreciation means spreading what you paid, minus what you could get back by selling it, over the months it will last. Divide that monthly amount by the units you make and you have the equipment cost per unit, ready to go into your loaded cost.
Why equipment is a hidden cost
The oven is not in the recipe and it is not on the supplier's invoice. That makes it one of the hidden costs of a food business that is easiest to forget, along with payment fees and the cost of samples and tastings. While the oven works, forgetting it does not hurt. The day it breaks and there is no money for another one, it does.
It helps to keep two things apart:
- The cash going out: you paid $2,400 at once, or in instalments. That is cash, and you plan for it as part of how much it costs to start a small food business.
- The cost: how much of the oven gets used up each month. That is what belongs in your price.
The formula
Monthly cost = (purchase price − resale value) ÷ months of useful life
- Purchase price: what you paid, including delivery and installation.
- Resale value: what you think you could sell it for, used, at the end. If you will not sell it or it will be worth nothing, use zero.
- Useful life: how many months you will use it before replacing it. Be honest about your workload: an oven that bakes every day wears out faster than one used at weekends.
Then:
Equipment cost per unit = monthly cost of all your equipment ÷ units made per month
Add servicing too. If you pay for a service once a year, divide it by 12 and add it to the month.
What counts as equipment: anything that costs a meaningful amount and lasts more than a year. The oven, mixer, freezer and fridge, but also the scales, a vacuum sealer, and the gazebo and folding table you take to markets. Cheap things that wear out within months belong in overhead instead.
Worked example: sourdough from a small kitchen
You bake sourdough and sell about 200 loaves a month. Your main equipment:
| Equipment | Price | Resale | Useful life | Cost per month |
|---|---|---|---|---|
| Convection oven | $2,400 | $300 | 60 months | $35.00 |
| Stand mixer | $600 | $0 | 36 months | $16.67 |
| Oven servicing | $120 a year | - | 12 months | $10.00 |
| Total | $61.67 |
The arithmetic, line by line:
- Oven: (2,400 − 300) ÷ 60 = 2,100 ÷ 60 = $35.00 a month
- Mixer: (600 − 0) ÷ 36 = $16.67 a month
- Servicing: 120 ÷ 12 = $10.00 a month
- Total: 35.00 + 16.67 + 10.00 = $61.67 a month
Equipment cost per loaf: 61.67 ÷ 200 = $0.308, about $0.31 a loaf.
It looks small. But if a loaf leaves you $3.50 in contribution, that $0.31 is almost 9% of what you keep (0.31 ÷ 3.50 = 8.9%). And every month, $61.67 has to come out of sales, however many loaves you sell.
Make less, and each unit carries more
Equipment is a fixed cost: it costs the same whether you bake 200 loaves or 100. If sales drop to 100 loaves one month:
- 61.67 ÷ 100 = $0.62 a loaf
Double what it was. That is why a big oven bought "for when we grow" raises the cost of every unit until you do grow. Before you buy, divide its monthly cost by what you actually make today.
When several products share the same equipment
If the oven bakes sourdough and brownies, split its cost by hours of use. Say the oven runs 50 hours in the month: 35 for bread, 15 for brownies.
- Bread: 35.00 × 35 ÷ 50 = $24.50 of the oven
- Brownies: 35.00 × 15 ÷ 50 = $10.50 of the oven
Then divide each amount by that product's units. If that feels like too much detail, add up all your equipment and spread it evenly over every unit you make. Less precise, but far better than counting nothing.
Set the money aside, not just the number
Working out $61.67 a month fixes your price. To also be ready when the oven dies, move that amount into a separate account each month. After five years, the oven's share alone adds up to 60 × 35.00 = $2,100, which with $300 from selling the old one makes the $2,400 it cost. If ovens get more expensive you will be a little short, but you will not be starting from zero.
Three common mistakes:
- Only counting new equipment. A second-hand mixer you were given still wears out; use what it would cost to replace.
- Choosing a long useful life because it makes the number look nicer.
- Forgetting servicing, which is not small for equipment that works every day.
Do it with the calculator
In the food cost calculator, multiply your equipment cost per unit by the units in a batch and add it to "Gas, power and other per batch"; you will see how much of it lands in the product's loaded cost.
Frequently asked questions
What useful life should I use for an oven or mixer?
The one you honestly expect at the way you use it. Think about how long your last one lasted. If in doubt, pick fewer years: better for the equipment to outlast the plan than the other way round.
My oven is paid off. Do I still count it as a cost?
Yes. One day you will have to replace it, and that money has to come from sales. If you stop counting it, your margin looks better than it is until the day the oven dies.
Is this the same depreciation my accountant uses?
Not necessarily. Tax depreciation can follow its own rules, so check your local tax rules or ask an accountant. For pricing, the simple version is enough: what you paid minus what you would get back, over the months you will use it.
Do I depreciate pans, trays and small tools?
Cheap things that wear out quickly, like spatulas and piping bags, go into monthly overhead. Things that cost a lot and last years, like an oven, mixer or freezer, get depreciated.