Understanding Business Basics for Your Sourdough Microbakery | Episode 87

mikalonte
Jun 12
3 min read

When we step into this world of sourdough baking, most of us don’t start out as business experts. We start as passionate bakers, and somewhere along the way, our love for fermentation turns into a real business. If that’s you, and you’ve found yourself hearing business terms that sound important but feel confusing—this post is for you.

Think of it as a mini business dictionary tailored specifically for sourdough microbakery owners. I’m walking you through the essential financial terms every home baker turned business owner needs to know. This post will help you understand your numbers, price with confidence, and protect your time, energy, and profit.

Let’s Start at the Top: Revenue

Revenue (also called gross revenue or sales) is the total amount of money your business brings in before expenses. If someone says they did $1,000 in sales, they’re talking about revenue—not profit.

It’s important to know:

Revenue is not the same as net income
Revenue is the top line, not what you take home

Net Income vs. Owner’s Pay

Net income is what’s left after you subtract all of your expenses—things like ingredients, packaging, overhead, and more.

Owner’s pay is what you actually pay yourself. It comes after expenses are accounted for.Just because your bakery brought in $3,000 doesn’t mean you can pay yourself all of it. If $2,000 went toward ingredients, equipment, or helpers, you’ve only got $1,000 left to work with.

Understand Your COGS (Cost of Goods Sold)

COGS includes all the direct costs of producing your product:

Ingredients
Packaging
Labels

Example:If it costs you $3 to make a loaf and you sell it for $10, your gross profit is $7.

This does not include your utilities, software, or other overhead.

Know Your Overhead

Overhead includes everything you need to keep your business running, but isn’t tied to a specific product:

Electricity
Water
Cleaning supplies
Website fees
Insurance
Cottage food permits

These are often easy to overlook, especially when you work from home. But they need to be included when you set prices and revenue goals.

Fixed Costs vs. Variable Costs

Fixed costs stay the same every month (e.g., subscriptions, insurance)
Variable costs go up or down depending on how much you bake (e.g., flour, chocolate, eggs)

This distinction helps when forecasting your busy seasons or planning for slower months.

Profit, Margins, and How to Use Them

Gross profit = Revenue - COGSNet profit = Gross profit - Overhead

If you brought in $1,000 in a week, spent $300 on ingredients and $200 on overhead, your net profit is $500. That’s your bottom line, the amount left for savings, taxes, reinvestment, and your own paycheck.

What’s Margin?

Your margin is the percentage of revenue you keep.

Gross margin = Gross profit / Revenue
Net margin = Net profit / Revenue

Example:$500 in net profit from $1,000 in revenue = 50% net margin (which is excellent!)

As a home baker, you should aim for 30–40% net margin to maintain a healthy, sustainable business.

What’s ROI and Why Does It Matter?

ROI stands for return on investment.

Before spending money or time on something new, ask:

Will this investment pay off?
Will it help me save time, bake more, or grow?

Examples:

A $200 speed rack that makes bake day smoother? Worth it.
A mixer that cuts hand-mixing time in half? Likely a good ROI.
Hours spent scrolling on Instagram? Probably not.

Apply ROI thinking to everything—from new equipment to workshops to social media time.

A Tool to Help: The Pricing & Profit Calculator

I created a Pricing and Profit Calculator to help you apply these terms directly to your business. It:

Breaks down the cost of each ingredient and recipe
Calculates your COGS
Flags your margin with color coding
Helps you build your weekly revenue goal by product mix

You can plug in your own numbers, see exactly what it takes to pay yourself, and make informed pricing decisions. It’s linked in the show notes.

Final Thoughts

Owning your numbers doesn’t mean you need a business degree.You don’t have to master everything overnight. But knowing the basics like revenue, net profit, and margin gives you power—the power to price strategically, plan for growth, and protect your time.

Take it one step at a time. Revisit these definitions as often as you need. You're building something beautiful and sustainable, and understanding your numbers is a key part of that.

Resources & Links

Get the pricing calculator here! https://carolinebower.thrivecart.com/pricingcalculator/
Join the Bread Winner Network: www.carolinebower.com/bwnetwork
Find links to all of my sourdough microbakery favorites including packaging, pans, and more here!
Follow me on Instagram for more microbakery tips: @carolinebower_sourdough
Download the FREE Guide and Checklist, Your First Steps to a Successful In-Home Bakery at https://www.carolinebower.com/checklist to begin building YOUR thriving microbakery!