Episode 24: Stop Covering Costs and Start Building a Business

Most home bakers price to survive. In this episode, Annie makes the case for pricing to build — and explains why that shift changes everything.

If you've ever set a price by working out what your ingredients cost and adding "a bit on," this episode is for you. Because covering costs is the floor, not the goal. And if you've been pricing from the floor, it explains why you're busy but not building.

In this episode Annie covers:

• Why "what do I need to cover?" is the wrong starting question — and what to ask instead
• The hidden costs that almost never make it into a home baker's pricing (but absolutely should)
• The three layers of pricing: direct costs, overheads, and the profit margin that actually builds a business
• Why low prices don't just affect your margin — they affect perception, and perception affects everything
• The real reason raising your prices often loses the wrong customers and attracts the right ones
• How to use pricing as a filter, not just a formula

Plus: a practical exercise to find the gap between what you're charging and what you should be charging — and what to do about it.

If your prices haven't been looked at in a while, this is the episode to listen to with a notebook nearby.

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Transcript

SPEAKER_00 0:04

Hello and welcome to the Profitable Baker Podcast, the show for bakers who mean business. I'm Annie Bennett, founder of the Home Baking Business Academy, and every week I'll be sharing practical lessons, mindset shifts, and inspiring stories from bakers who are building businesses they love. Because success in this industry isn't about who bakes the fanciest cakes, it's about who builds the strongest business foundations. Let's get started. Hello and welcome back to the Profitable Baker Podcast with me, Annie Bennett. Now I want to start today with a question, and I want you to think about it for a moment rather than just rushing past it. When you set your prices, when you decide what to charge for a celebration cake or a batch of cookies, a wedding tier, what are you actually trying to do? If your honest answer is something like, cover what it costs me to make it, or not lose money on it, or charge something that feels reasonable without putting people off, then this episode is for you. Because here's what I want to talk about today: the difference between pricing to survive and pricing to build a business, and why that distinction matters far more than any formula or spreadsheet or any cost per gram calculation you've ever done. So let's get into it. Now I want to tell you about a pattern I see constantly across bakers at every stage, from people who've just taken their first order to people who've been doing this for years. A baker works out their costs, they're thorough about it, they know their ingredients, they've accounted for their packaging, they maybe even factored in a bit for their time. They look at the number and think, right, so I need to charge at least that. And then they add a bit, not too much, enough to feel like they're making something, but not so much that it feels like they're being greedy, or that customers will ghost them, or that they seem expensive compared to the supermarket down the road. So they set a price and they get orders and they bake and they're busy. And yet at the end of the month, at the end of the year, the money isn't quite adding up the way they expected. They are covering costs mostly, they're making something, but it doesn't feel like they're building anything. They feel like they're running to stand still. Now, does any of that sound familiar? If it does, and I suspect it may do for some of you, the problem is almost never the formula. It's that initial question they were trying to answer. Because what do I need to charge to cover my costs is actually a really limited question. It's not a bad question. Knowing your costs matters. It absolutely matters. And if you haven't done that work yet, it's foundational and you need to do it. But it's the floor, it's the absolute minimum. And building a business on the floor is exhausting. When you price to cover costs, you're essentially asking, What do I need to charge so this doesn't cost me money? And the implicit goal behind that is to avoid loss, not to be out of pocket, to break even or just above it. And that is a survival goal. It is not a business goal. A business goal sounds different. A business goal asks, what do I need to charge so that this business can grow? So I can invest in better equipment when I need it. So I can take a week off without my income collapsing. So I can pay myself something that reflects the skill and time and expertise I'm bringing to every single order. Those are completely different questions and they lead to completely different prices. I want to spend a moment on something that I think sits underneath all of this because I don't think pricing is really a maths problem. I think it's a mindset problem. And the mindset I see getting in the way time and time again is this. The belief that customers are primarily motivated by price. That if you charge more, they'll go elsewhere. That there's a ceiling above which people simply won't pay, and your job is to stay under it. Now I can understand why that belief exists. It feels logical and cautious. It feels like you're being sensible about the market. But here's what the evidence actually shows, both in research and in what I see inside the Academy membership with bakers who've gone through a pricing shift. When a baker raises their prices thoughtfully and confidently, the most common outcome is not that they lose all their customers. The most common outcome is that they lose some of their least committed customers. The ones who are always looking for a discount, always asking if they could do it a bit cheaper. And they attract customers who value what they do and pay without question. They have fewer orders, but they make more money. And that is not a lucky accident. That is what happens when pricing signals quality. Because price is information. It tells customers what kind of product this is and what kind of experience they're going to have, whether this is something worth investing in or something to pick up cheaply and not think too hard about. A low price doesn't just affect your margin, it affects perception. And perception affects everything. Now I want to talk about what I mean by building a business through pricing, because I don't want this to just be a pep talk about charging more. That's not quite what I'm talking about. What I'm really talking about is a shift in what you're accounting for when you set a price. Most pricing conversations focus on direct costs. Packaging, ingredients, a portion of utilities, sometimes time at a somewhat arbitrarily chosen hourly rate. But there are things that almost never make it into a home baker's pricing calculation, and yet they are the real costs of running a real business. The time you spend on inquiries that don't convert, the admin behind every order, the messages, the confirmations, the invoices, the chasing. The investment in your own development, the courses you do, the skills you build, the time you spend getting better at what you do, the wear on your equipment over time, the times when you're quiet and not earning but still running a business. The weeks when you're ill and can't bake and the income just stops. These are all part of the cost of doing business. They're not just the obvious countable per order costs, and because they're harder to quantify, they tend to get left out. And when they get left out, your price reflects a partial picture. It covers the obvious costs and leads everything else on the table, which is a phrase we used a few episodes back in a different context, but it applies here too. Now I want to give you a way of thinking about this that I find quite useful, and it's not complicated. Think of your pricing in three layers. Layer one is your direct costs. What does this specific order actually cost you to make? Ingredients, packaging, any costs that are directly attributable to this product. This is your flaw. Price must be above this always. Layer two is your overheads and your time. What does it cost to run your business? Not per order, in total across a year. Insurance, equipment, subscriptions, training, admin time, the hours you spend doing everything that isn't baking but is still your business. That total needs to be covered by your pricing across all your orders. It's not an optional extra, it's a real cost of operating. And layer three is your profit margin. The money that goes beyond covering costs and actually belongs to the business. The money you can reinvest, save, use to grow. The money that makes the difference between a business and an expensive hobby. Now, most home bakers are pricing solidly in layer one, some are getting into layer two, very few are consistently, confidently building in layer three, and layer three is the one that will build your business. Now I want to address the thing that I know is coming up for some of you right now, because whenever I talk about pricing, a particular thought tends to surface, and it usually sounds something like, but my customers won't pay that, or I can't charge that in my area. Hmm. I want to take each of these seriously because they're real concerns and they deserve a real response. So the first one, my customers won't pay that. How do you know? Because in my experience, this belief is almost always based on fear of how customers might respond rather than actual evidence of how they have responded. The customer who says that's too expensive was actually probably never your customer, anyway. The customer who would have said, absolutely, when can you deliver is still out there. But if your price is saying this is a cheap product, they might not even inquire. And as for I can't charge that in my area, I've said it before and I'll say it again. I'll bet you a bag of chocolate buttons that there are people within five miles of where you live that think nothing of paying £300 on a handbag or a watch. Not everyone is looking for the cheapest option. If you feel you can't charge higher prices to your customer base, then it's time to get your business visible to a new customer base. One that prioritises quality over price. There's one more thing I want to talk about before we close, and it's something that doesn't get said enough in the pricing conversation. Undercharging isn't kind. Not to your customers and not to the industry. Now I know that might sound counterintuitive because the instinct behind low pricing is often generous. I want this to be accessible. I want people to be able to afford it. I don't want to be the expensive one. And that instinct comes from a good place. But here's what low pricing actually does: it attracts the customers who are primarily motivated by price. And customers who are primarily motivated by price are almost universally the most demanding, the least flexible, and the quickest to complain. Whereas customers who choose you because of your quality, your reputation, your craft, those customers tend to be a joy to work with. Your pricing is a filter. So use it as one. I want to leave you with something practical because I know some of you will be sitting with this episode thinking, all right, Annie, I hear you, but where do I actually start? Here is where I'd start. Look at your most popular product, the thing that you make most often, and ask yourself honestly if you costed this up properly, ingredients, packaging, overheads, all the things I've talked about, what would the price need to be? Not what would feel comfortable or safe. What would it actually need to be for this product to be genuinely profitable? Then look at what you're actually charging. Now that gap, if there is one, if there isn't, well done. But if there is one, that's information. It's telling you something important about where your business is right now. And the question isn't how did I get here? The question is what am I going to do about it? Now you don't have to change everything at once. Pricing shifts can be gradual. You can move incrementally. You can start with new customers rather than existing ones. There are strategies, and we go into them properly and in depth inside the Academy membership. But the shift starts with the decision to ask the different question. Not what do I need to cover my costs, but what do I need to build my business? Now, if this episode has got under your skin a little, good. That means it's done what it's supposed to do. Pricing is one of the areas we go into in real depth inside the Home Baking Business Academy membership. I am so passionate about it, as you can probably tell. We don't just talk about the maths, though we do that as well. There's a whole training series about calculations, calculating your overheads and all that. But we talk about the thinking behind it, the confidence, the way you talk about your prices to customers, the strategy for raising prices without losing the customers that matter. If your prices have been the thing you've been quietly uncomfortable about, the thing you set a while ago and hasn't really revisited, I would love to see you inside the membership and working on it properly. All the details. And we are having a focused month during May about pricing confidence. All the details of the membership are in the show notes. If this episode has been useful, please share it with another baker who you think needs to hear it. And if you have a question or topic you'd like me to tackle in a future episode, you know where to find me. Thank you so much for listening. Take care of yourselves, take care of your businesses, and know what you do is worth more than you're probably charging for it. See you next time.