How to know if your food product is profitable

A food product is profitable when it passes four tests: each unit brings in money after its variable costs, that money pays for your kitchen hours, the result holds up in the channel where you sell it, and together with your other products it covers your fixed costs and your own pay at the end of the month. If it fails the first test, you lose money on every sale. If it passes the first and fails the others, you are working for less than you think. You need five numbers and an afternoon; below is the method and a full example with brownies and meal prep boxes.

In this guide

This page is the overview. Each part has its own guide:

• Contribution margin explained with examples: what each unit brings in.
• Profit per kitchen hour: the metric that ranks your products.
• Break-even point: how many units you need to sell each month.
• Which products to keep, push or drop.
• Gross profit vs net profit, with a monthly example.
• Why you can be profitable and still have no money.
• What margin is good for a small food business.
• Signs a product is losing money.
• How to pay yourself from a food business.

The five numbers you need

1. What you keep from the price. The price the customer pays, minus sales tax if your prices include it, minus any channel commission or card fee.
2. Variable cost per unit. What you spend only when you produce: ingredients, packaging and label, gas or power for the batch, and waste spread over the units you actually sell. If you do not have this yet, start with how to calculate the cost of a food product.
3. Kitchen hours per batch. Every hour your hands are busy: prep, cooking, packing and cleaning up. Oven time when you can do something else does not count. Time spent standing over the pot does.
4. Your fixed costs for the month. What you pay whether you sell or not: market pitch, extra power, phone, replacing equipment. If you are not sure which is which, see fixed vs variable costs.
5. What you want to earn per hour. Your own number, decided before you look at the results. Without it there is nothing to compare against.

A note about your time. Loaded cost adds ingredients, packaging, labour, overhead and waste, and it is what you use to set prices. For these tests we keep your own time separate, because it is exactly what we want to measure: how much each hour pays you. If you pay a helper only when they are producing, that pay does go into variable cost.

Test 1: does each unit bring in money?

Contribution per unit = what you keep from the price − variable cost per unit.

This is what each sale adds towards your fixed costs, your time and your profit. Divided by what you keep from the price, it is the contribution margin as a percentage. If it is negative or close to zero, the product loses money on every sale, and selling more makes things worse. If it is positive, the product moves on to the next test. Passing this one is the minimum; it does not yet tell you the product is worth making.

Test 2: does it pay for your kitchen hours?

Contribution per kitchen hour = contribution per unit × sellable units per batch ÷ hours per batch.

Compare the result with what you want to earn per hour. A product with a good margin can pay badly per hour if it takes a lot of work, and one with a modest margin can pay very well if it is quick. This is the test that surprises people most and the one that decides what to do with your week, because your hours are the thing you can least stretch.

Test 3: does it hold up in every channel?

The same product brings in different money depending on where you sell it. A delivery app takes a commission, a café pays you a wholesale price, a market charges for the pitch. Repeat tests 1 and 2 with each channel's price and commission. A product can be profitable at your stall and lose money somewhere else; comparing profit by channel goes into this in detail, and selling on delivery apps covers commissions.

Test 4: does it cover fixed costs and your pay?

Add up the contribution from everything you sold in the month. Subtract your fixed costs. What is left is what the business pays you. Divide it by every hour you worked, including shopping, deliveries and answering messages, and compare it with your number from test 2.

This test looks at all your products together. It tells you whether the ones that passed the first three sell in enough volume to support you.

Worked example: brownies and meal prep boxes

You sell brownies and meal prep boxes from home, through messages and at a Saturday market. You want to earn $20 an hour. The prices in this example are before any sales tax.

The costs

Brownies. A batch of two trays gives 32 brownies, but 2 are offcuts or break, so you sell 30.

• Ingredients per batch (butter, chocolate, eggs, sugar, flour): $28.80
• Oven gas or power per batch: $2.40
• Bag and sticker: $0.25 per brownie
• Variable cost per brownie: (28.80 + 2.40) ÷ 30 + 0.25 = 1.04 + 0.25 = $1.29

Meal prep boxes. A batch is 20 boxes, made to order, so nothing is wasted.

• Ingredients per batch (chicken, rice, vegetables, sauce): $84.00
• Gas or power per batch: $6.00
• Container and label: $0.90 per box
• Variable cost per box: (84.00 + 6.00) ÷ 20 + 0.90 = 4.50 + 0.90 = $5.40

Test 1

Both pass. Looking at this table alone, the meal prep box looks like the earner: it brings in more than twice as much per sale.

Test 2

A batch of brownies takes you 1.5 hands-on hours: mixing, baking, cutting, bagging and cleaning. A batch of meal prep boxes takes 6 hours: cooking the chicken, rice and vegetables, portioning, labelling and cleaning.

• Brownies: 2.21 × 30 = $66.30 per batch ÷ 1.5 hours = $44.20 per hour
• Meal prep: 5.60 × 20 = $112.00 per batch ÷ 6 hours = $18.67 per hour

The order flips. The brownie, with less than half the contribution per unit, pays you more than twice as much per hour. The meal prep box falls short of your $20.

Test 3

Brownies in three channels, with the same batch of 30:

On the app: 4.00 × 25% = $1.00 commission, you keep $3.00, minus $1.29 cost, $1.71 per brownie. Times 30 is $51.30, over 1.5 hours, $34.20. At the café: 0.91 × 30 = 27.30, over 1.5 hours, $18.20. The app holds up because you raised the price there. The café price does not pay your hour, although it does save you selling and delivery time, which shows up in test 4.

Test 4

In a month you make 6 batches of brownies and 8 batches of meal prep boxes, all sold direct.

• Brownie contribution: 6 × 66.30 = $397.80
• Meal prep contribution: 8 × 112.00 = $896.00
• Total contribution: $1,293.80
• Fixed costs: $300.00 (market pitch $160, extra power and gas $60, phone and internet $40, replacing equipment $40)
• Left for you: 1,293.80 − 300.00 = $993.80

Hours in the month: 6 × 1.5 = 9 on brownies, 8 × 6 = 48 on meal prep, and 30 on shopping, the market, deliveries and messages. Total: 87 hours.

Your real hourly pay: 993.80 ÷ 87 = $11.42. To earn $20 an hour for those 87 hours you need 87 × 20 + 300 = $2,040 of contribution. You are $2,040 − $1,293.80 = $746.20 a month short.

What the example tells you

Brownies are profitable direct and on the app. Meal prep boxes bring in good money per sale but do not pay your hour at $11.00. And the whole business, at this volume, pays you $11.42 an hour. Three possible changes, each with its number:

• Raise the meal prep box to $12.50. It then brings in $7.10 per box, $142.00 per batch and $23.67 per hour. On the same 160 boxes a month that is $240 more.
• Swap 1 meal prep batch for 4 brownie batches, if you can sell the extra 120 brownies. Both take 6 hours. You give up $112.00 and gain 4 × 66.30 = $265.20: $153.20 more.
• Group shopping and deliveries to go from 30 to 22 hours outside the kitchen. Contribution does not change, but your hourly pay rises to 993.80 ÷ 79 = $12.58.

None of these closes the $746.20 gap alone. For the rest you need more volume or lower fixed costs, and the break-even point guide tells you how much volume.

What to do when a test fails

• Fails test 1: the price does not even cover what you spend. Check the cost, raise the price using the full pricing method, or stop making it. The signs a product is losing money help you spot similar cases.
• Fails test 2: the product brings in money but costs you too much time. Try bigger batches to spread prep and cleanup, fewer steps, a higher price, or making it to order only.
• Fails test 3: set a different price for that channel or leave it. Do not average channels, because a good one can hide one that is losing money.
• Fails test 4: the problem is your mix and your volume. Look at which products to keep, push or drop and whether your fixed costs make sense for what you sell. The gap between what each sale brings in and what is left at the end is explained in gross profit vs net profit.

If a product passes all four and there is still no money in the account, look at when customers pay you, big purchases, and what you take out for yourself. That is covered in why you can be profitable and still have no money.

Mistakes that make a product look profitable

• Costing only the ingredients. Packaging, gas and waste add up, and on cheap products they can weigh as much as the recipe.
• Dividing by what the recipe says. If the recipe says 32 brownies and you sell 30, divide by 30.
• Counting only time at the stove. Washing up, packing and cleaning are batch hours too.
• Working from the price with tax or before commission. That money is not yours.
• Comparing yourself with a percentage you read somewhere. A good margin depends on your time, your fixed costs and your channel. What margin is good shows how to work out your own.
• Forgetting your pay. If you take whatever is left at the end of the month without knowing what each hour earned, you do not know whether the business pays you. Start with how to pay yourself and how to cost your own labour.

How often to run the tests

Rerun tests 1 to 3 for a product when a major ingredient changes price, when you change the recipe or packaging, and before you start selling in a new channel. Run test 4 once a month with what you actually sold. With two or three months of numbers you will see which product carries the business and which one just fills your time.

Do it with the calculator

In the food cost calculator you enter the recipe, units per batch, waste, minutes of work, price and channel commission, and it shows what you earn per unit and per kitchen hour. It subtracts your hourly pay as a cost, so the per-hour figure is what is left after paying yourself; set your hourly pay to 0 to see the full contribution per hour, as in this example.