Pricing: don't bake for free
Lesson 6 of 13 in our free Business Money Basics guide: a 5-minute money game with the key points below.
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Questions you'll answer
Illustration: each cupcake uses 40p of ingredients and 10p of packaging, and takes Mo 10 minutes. If he pays himself £12 an hour, what does one cupcake really cost?
Mo's £1 cupcakes sell out every Saturday. What does that most likely tell him?
Quick facts
- Add up ingredients, packaging and time, then add a margin → Cost-plus. Start from cost, build up.
- A wedding cake is worth more to the couple than its ingredients → Value-based. Price reflects the value to the buyer, not just the flour.
- Charging extra for a same-day rush order → Value-based. Speed is worth something to the customer.
- Making sure every price covers its share of the kitchen rent → Cost-plus. Cost-based: no sale should lose money.
- Fact: “If you don't pay yourself in the price, the business is quietly using you as free labour.” — Your hours are a real cost, even if no one invoices you for them.
- Myth: “The cheapest price always wins the most profit.” — It can win the most customers. Profit depends on margin times volume.
- Fact: “Customers often pay more for something that solves a real problem for them.” — That's value-based pricing: the birthday cake that saves a stressed parent's day.