Here is a question most small business owners can’t answer straight away.
When you make one sale, how much does it actually pay you?
Not what’s left after materials. What’s left after everything, including the hours you put in.
Most people guess. Some guess well. Many are surprised by the real answer, and not in a good way.
Meet a baker who thinks she’s doing fine
Take a simple example. Sara bakes celebration cakes from home and sells them for $40 each. Ingredients and the box come to $18.
So in her head, every cake makes $22. Thirty cakes a month, $660. Not bad for a side business.
But Sara has left two things out.
The first is the extra gas, electricity, phone data and packaging stock she buys each month. That’s about $150, or $5 a cake.
The second is her time. Baking, decorating, answering messages, delivering. Around two and a half hours per cake.
Put those back in and the picture changes. After overheads, each cake leaves $17 for two and a half hours of work.
That is $6.80 an hour.
If she valued her time at even $8 an hour, every cake would be losing her $3. The busier she gets, the more she loses.
Why this hides so well
Nobody sends you an invoice for your own hours. Overheads arrive as separate bills, so they never feel attached to a single sale. And the money from each order lands in your account, which feels like profit even when it isn’t.
So the business looks busy and healthy from the outside, while the owner quietly works for less than they would ever accept from an employer.
Now check your own numbers
I built a free calculator that does Sara’s sums for you. Pick your currency, enter one product, and in about two minutes you’ll see:
- your true cost per unit, with your time and overheads included
- what each sale really leaves you, and what that adds up to each month
- the price you need for the margin you want
- how many customers you could lose after a price rise and still earn the same
It works in any currency, there’s no sign-up, and nothing you type is stored.
Three things to watch for
A red number. If your profit per unit turns red once your time is counted, selling more won’t save you. It will only make you busier while you lose. The price has to move first.
Margin versus markup. They sound alike but they are not. A 30% margin is a 43% markup. Mixing them up is one of the easiest ways to underprice without realising it.
The last box. Section 4 tends to be the one people stare at longest. It shows how many customers could walk away after a price rise before you’d be any worse off. For most businesses, the number is much bigger than they feared.
So, what did Sara need to charge?
With her time valued at $8 an hour, each cake really costs her $43 to make. To keep a 30% margin, she would need to charge about $61.
That sounds like a big jump from $40. But it is the honest price of the work. Until she knows it, every decision about discounts, new orders and growth is being made on a number that isn’t real.
Your number might be fine. It might not. Two minutes is all it takes to find out.
If you want the full method behind the calculator, it is all in the book.
The calculator is based on Chapter 5, “Pricing Mistakes,” of my book The Small Business Financial Survival Guide, which early readers have rated 4.2 out of 5 on Amazon, with no review below three stars. Reviewers there describe it as a plain-English guide built on real-world examples, and one called it a financial must-have for small businesses. Sara is an illustration, but her numbers are very common. You might also like 3 ways to make more profit in a small business.
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