Cost of Production

All we are all hearing at the moment is that he cost of everything is rising and as a small business owner the challenges are no different.

Prices of all ingredients are rising, however it is difficult to know where to draw the line between keeping your product affordable and ensuring that you still make a profit on what you offer. A lot of things go in to setting the price of a product and a small business is no different to a larger producer of goods. This can sometimes be lost and people can tend to think you are charging too much for what you are selling. Some of the main factors that go in to deciding how much to charge can be:

• Cost of Ingredients - This will give a business a base of what it is going to cost to produce the item to sell. Raw materials give you the first base when setting a price.

• Overheads - Every business has overheads and for a small baking business these include electricity, gas, gloves, baking equipment. Factoring in what the cost of this is is a decision all businesses have to make. Do you want to recoup the cost of your equipment? Or will you just use this as a start up cost.

• Time - One thing people don't tend to factor in to the cost of an item is the time it has taken that business to produce goods and train to a level to be able to produce those goods. No one would work for less than the minimum wage, so why should a small business be any different. If minimum wage £10.42 per hour, so if it takes you 30 minutes to make your item, then surely it is right to incorporate £5.21 in to your selling cost.

For some, this is a tricky task to balance out, if for example your base ingredient cost is £4 and it takes you 30 minutes to produce your item, then your selling price would need to be £9.21 just to break even. Many small business owners decide not to pay themselves the minimum wage as this would make the product unattractive and if you are in a competitive market, your potential customers may go elsewhere.

It's a task where many of us need to strike the right balance.