Guide
Ingredient price increases in a bakery: recost, reprice, and tell customers
When ingredient price increases hit your bakery, the fix is three steps: find every product that uses the ingredient, recost each one with the new price, and set the new selling price as full unit cost times one plus your target markup, rounded to a price that looks natural. Anything currently selling below that number is losing margin. The rest of this guide walks through a worked example with a butter price increase, the three ways to respond, and how to raise prices without losing customers.
Why ingredient price increases hurt a small bakery more than you notice
A price increase rarely announces itself. Butter goes up a little at the store, you pay it, and the cake you sell keeps the same price it had last year. Nothing in the kitchen looks different, orders keep coming, and the drop in profit only shows up weeks or months later, when the month feels busier than ever but the bank balance does not agree.
The real difficulty is that one ingredient sits in many recipes. Butter is in your cake sponge, your buttercream, your cookie dough and your pie crust, and some of those are sub-recipes you reuse inside other products. Working out by hand which selling prices to change means recosting every one of them, and most bakers never get around to it. That is how a bakery ends up busy and underpaid.
Step 1: find every product the increase touches
Start from the ingredient, not from the product. List every recipe that uses it directly, then every recipe that uses one of those as a component. A frosting that contains butter carries the increase into every cake, cupcake and cookie sandwich that uses that frosting.
For each product, you need its full unit cost, not just the ingredients: packaging, your labour, gas or electricity for the oven, and a share of fixed costs such as insurance or a market stall fee. A butter increase changes only the ingredient line, but your target markup applies to the whole cost, so you need the whole number to price correctly.
- Ingredients, at the price you paid on your latest purchase
- Packaging: boxes, boards, bags, labels
- Labour: your hours times the hourly rate you want to earn
- Machines and energy: oven and mixer time
- Overhead: a share of fixed monthly costs per item
Read next: How to calculate recipe cost, step by step, Recipe cost calculator for bakers
Worked example: a butter price increase on a vanilla cake
Here is an example with made-up but realistic numbers. An 8-inch vanilla cake uses 1.25 lb of butter between the sponge and the buttercream. Butter goes from $4.00 to $5.20 a pound, so the butter in this cake goes from $5.00 to $6.50, an increase of $1.50 per cake.
Before the increase, the full unit cost was $24.00: $14.20 of ingredients, $1.80 of packaging, $6.00 of labour and $2.00 of overhead. With a target markup of 80 percent, the suggested price was $24.00 times 1.8, which is $43.20, a margin of about 44 percent of the price, and the cake sold at $45, comfortably above target.
After the increase, the unit cost is $25.50. The suggested price becomes $25.50 times 1.8, which is $45.90, rounded to $46. At $45 the cake now sells below target. The gap looks small on one cake, but the same butter is in the cupcakes, the cookies and the pie crust, and it repeats on every order until you change the price.
| Line | Before | After |
|---|---|---|
| Butter price per lb | $4.00 | $5.20 |
| Butter in the cake (1.25 lb) | $5.00 | $6.50 |
| Full unit cost | $24.00 | $25.50 |
| Suggested price at 80% markup | $43.20 | $45.90, rounded to $46 |
| Current selling price | $45 | $45 |
| Below target? | No | Yes |
Read next: Bakery profit margin: how to work it out and how to raise it, Profit margin calculator for bakers
Step 2: choose how to respond
Raising the price is not the only answer, and it is not always the right one for every product. You have three options, and you can mix them across your menu.
Whatever you choose, decide it per product with the numbers in front of you. Absorbing the increase on a product you sell twice a year is fine; absorbing it on your best seller is how margins disappear.
- Raise the price to the new suggested price, or close to it
- Change the product: a slightly smaller size, a different filling, or a cheaper ingredient where customers will not notice the difference
- Absorb it for now on a few low-volume items, as a deliberate choice you review next month
How to raise prices without losing customers
Most customers accept a price increase when it is small, explained, and announced in advance. What upsets people is a surprise at pickup or an order quoted at one price and charged at another.
Honour every quote and custom order already confirmed, especially those where the customer paid a deposit. The new price applies to new orders from a date you announce. A short, friendly message works better than a long apology: ingredient costs have gone up, here is the new price, thank you for supporting a small bakery.
- Give notice: a week or two before the new prices take effect
- Raise in rounded steps, such as $45 to $46, not to $45.90
- Change several prices once rather than one price every week
- Keep one or two entry-level products at an accessible price
- Add value where you can: a better box, a size option, a bundle
- Treat wholesale separately: cafes usually expect notice in writing and a date
Read next: Bakery price list software, one list per place you sell, Software for bakeries that sell wholesale
Step 3: catch the next increase automatically
Ingredient prices will keep moving, so the lasting fix is a habit: record the price every time you buy, and let the recosting happen on its own. Our monthly ingredient price index is a good place to see which staples are moving, and the free cake pricing calculator gives you a quick suggested price for a single cake.
Farinu does the recosting for you. Each time you record a purchase or a new ingredient price, it recosts every recipe that uses that ingredient, sub-recipes included. If a product now sells below your target markup, or below the target price you set, on any of your price lists, retail or wholesale, you get a margin alert with the suggested price. Accept it to raise the price on every list that sells below it, or dismiss it and keep your price. Helpers on your team never see costs, only the owner does.
The free plan covers costing for up to 10 recipes and up to 50 orders a month, which is enough to see where an increase hurts. Team adds the rest of the bakery: unlimited orders, sales, the monthly profit and loss and stock.
Read next: An ingredient price tracker for bakers that tells you what to charge, Butter price and flour price trend: the bakery ingredient price index, Cake pricing calculator
Questions
- How much should I raise prices when ingredient costs go up?
- Recalculate the full unit cost with the new ingredient price and multiply it by one plus your target markup. In the example above, a cost of $25.50 at an 80 percent markup gives $45.90, so $46. Raising only by the cost increase keeps your profit in dollars but lowers your margin as a percentage.
- How often should I review my bakery prices?
- Review them whenever you record a noticeably higher price for a staple such as butter, eggs, flour, sugar or chocolate, and do a full review at least every few months. Changing several prices at once is easier on customers than frequent small changes.
- Should I change the price of orders already confirmed?
- No. Honour any order already quoted or paid with a deposit. Apply the new prices to new orders from a date you announce in advance.
- Can I shrink the product instead of raising the price?
- You can, as long as you are honest about it. Offering a smaller size at the old price next to the full size at the new price often works better than quietly shrinking a product customers know well.
Related pages
Know which products an increase touches, the day you buy
Create a free Farinu account, cost up to 10 recipes, and get a margin alert with a suggested price when an ingredient goes up.