How to cost your own labour in a food business

To cost your own labour, set an hourly rate, time how long one batch takes from start to finish, and divide: (minutes ÷ 60) × rate ÷ units in the batch. That is how much of your time each unit carries. It goes into the cost exactly like flour does. Leave it out and the price does not pay you, and what you call profit is really your wage, usually a poor one.

Why your time is a cost

When you own the business, nobody hands you an invoice for your work, so it is easy to leave out. It is one of the biggest hidden costs of a food business, and for handmade products it is often the biggest of all.

Three reasons to count it from day one:

• To know whether the product stands up. A product that only makes money if you work for free does not make money.
• To be able to grow. The day you hire help, the price already needs to pay them.
• To compare products. A product that takes twice as long cannot have the same cost.

Step 1: choose your hourly rate

There are two ways to reach a number. Work out both and use the higher one.

What you would pay someone else. What does someone doing this kind of kitchen work earn where you live? That is your floor. If you ever hire, check your local minimum wage and employer rules; your own rate should not sit below what you would legally have to pay a helper.

What you want to earn. Divide what you want to earn a month by the kitchen hours you work. If you want $2,160 a month and bake about 30 hours a week (roughly 120 a month): 2,160 ÷ 120 = $18 per kitchen hour.

Watch the hours that are not kitchen hours: shopping at the wholesaler, answering messages, delivering, bookkeeping. If you also spend 40 hours a month on those, $18 per kitchen hour works out at 2,160 ÷ 160 = $13.50 for every hour you work in total. You can accept that, raise your kitchen rate, or add those hours to monthly overhead as explained in how to allocate overhead to products.

Step 2: time one batch

Do not guess. Time three full batches and use the average. Note each stage on your phone:

• Getting out, weighing and mixing
• Shaping, filling tins or portioning
• Baking or cooking: only the time you cannot do anything else
• Cooling, packing, labelling
• Washing up and putting away

The last stage is the one people forget, and together with getting everything out it can be a large share of the total. It is covered in setup and cleanup time.

Step 3: turn it into a cost per unit

labour cost per unit = (batch minutes ÷ 60) × hourly rate ÷ units in the batch

Worked example: sourdough loaves

You bake sourdough in batches of 8 loaves, which is what your oven takes in one bake. You sell them at $9.00. Each loaf uses $1.40 of ingredients and $0.35 for the bag and label.

You timed three batches. The average:

The overnight prove and most of the bake are not counted, because you are asleep or doing something else.

Labour cost: (100 ÷ 60) × $18 = $30.00 per batch. Across 8 loaves: 30.00 ÷ 8 = $3.75 per loaf.

The sums: (9.00 − 1.75) ÷ 9.00 = 7.25 ÷ 9.00 = 80.6%. (9.00 − 5.50) ÷ 9.00 = 3.50 ÷ 9.00 = 38.9%. Energy, overhead and waste still have to be added to reach the loaded cost, but your time alone takes almost 42 points of margin. For sourdough, labour costs more than twice the ingredients and packaging together.

What a bigger batch does. Say you start doing two bakes back to back, 16 loaves. Mixing takes 40 minutes instead of 30, shaping 35, loading and unloading 30, cooling and bagging 30, washing up 25: 160 minutes in all. (160 ÷ 60) × $18 = $48.00, or 48.00 ÷ 16 = $3.00 per loaf. The same loaf costs $0.75 less in labour because mixing and cleaning do not double when the batch does.

How to bring your labour cost down

• Bigger batches, as above, as long as the oven and your sales can take them.
• Better sequencing. Weighing the next batch while the current one bakes turns waiting into useful work.
• Dropping products that eat your time. A product can have a good margin per unit and still earn little for each hour you spend on it. To compare them, look at contribution per kitchen hour.

Your time in the cost vs your pay

If your time is in the cost, your wage is covered whenever you sell at the price you worked out. What is left after all costs is the business's profit, and that is not the same as what you take out of the till each week. How to keep the two apart is covered in how to pay yourself from a food business.

Common mistakes

• Not counting your time "because you do it anyway". If you leave it out, your price only works as long as you work for free.
• Counting only the mixing. Packing, labelling and washing up are work too.
• Counting the whole bake when you are busy with something else. It inflates the cost and makes profitable products look like losers.
• A rate nobody would accept. If you would not pay someone else that, it is not a realistic cost for you either.

Do it with the calculator

In the food cost calculator, enter your hourly rate and the minutes each batch takes; it adds your time per unit to the loaded cost and shows how much margin is left.