You have probably face some clients that will look at your baked goodies with a reaction like… “No one would ever pay that much for cookies, cupcakes or whatever!” and I understand that situation, because I used to believe that too…but it’s simply not true. Not long ago when I was still baking to the public I was charging a fair price for my baked goods and I’ll still sell everything!
You see, there are different factors involved to your overall cost per cookie for profit like: Indirect or allocated costs this means costs that relate to the general running of your business, not directly to the making of the cookies, such as rent, insurance, and utilities; also how much your competitors are charging, if they sale, how much is your target market willing to pay, cost of ingredients, your rate of speed, labor, packaging etc… I used to do this as a business so as you can see there are more things involved. Even if we were to assume that you are using the exact ingredients as a fellow decorator; therefore, the only way to guarantee profitability is to figure out your own costs accurately and price your cookies accordingly.
Pricing is always a challenge since consumers don’t expect to be paying upwards of $4 for one cookie if they’re not already aware of time that goes into making each one. When I was selling cookies, I charged anywhere from $4, $18 or up to $23 a piece depending on the design.
The process of figure it out prices will start with these steps:
First of all you have to decide your bakery strategy, that is sustainable to your business. Here’s the 2 basics:
Walmart strategy: You can do low quality and low price, but HIGH volume. You need a lot of orders to maintain this strategy.
Mercedes strategy: You can do high quality and high price, and have low volume. This is preferable for most home bakers. We want to do excellent work but don’t have a line of customers waiting at the door.
A lot of bakers try to say they are high quality, low cost and that may be true. For now. But that is not sustainable. If you want to build a baking business that will last, this is a strategy that’s destined to end in failure. Personally, I’m going with the Mercedes strategy for a home bakery.
1. Calculate Raw Ingredients Costs
Begin by making a list of all the raw materials needed to create your recipe.
Before you start to figure your cost per unit, you will need to break down the cost of each raw material called for in your recipe.
2. Calculating Direct Labor Costs
When it comes to decorated sugar cookies, labor costs usually far exceed raw ingredients costs. The countless hours of work and attention to detail are what make these edible pieces of art so special. You could use your better judgment to estimate how long it takes you to complete a batch of cookies from start to finish. But better yet, I recommend establishing standards for cookie types by setting a timer while you work. For example, here’s the breakdown of how long it takes me to make 30 simply decorated 3-inch cookies:
- Dough prep time (60 minutes)
- Cut and bake time (45 minutes)
- Royal icing prep time (25 minutes)
- Icing/decorating time (30 minutes)
Total estimated time for production is 160 minutes. In order to figure out my direct labor costs per batch, I divide my hourly rate of $18.00 by 60 minutes to get a labor rate of $.30 per minute. I then multiply $.30 per minute by 160 minutes to arrive at a total direct labor cost per batch of $48. To compute cost on a per cookie basis, I simply divide $48 by the recipe yield (30 cookies) which gives me $1.60 per unit (cookie) for labor.
My direct costs, excluding packaging, are now: raw ingredients + direct labor = $ per unit (cookie)
* but don’t forget that Overhead or indirect costs have to be included to price your cookies.
Overhead includes both fixed and variable costs. Fixed costs are those expenses that require the same exact amount of money to be paid each month (or quarter/year), such as rent, kitchen equipment lease/rental, waste disposal, website maintenance fees, etc., and which are not a function of how many cookies you produce or orders you process. Whether you produce 1 or 1,000 cookies, these are those costs that you will incur like clockwork no matter what! If you have a small home-based business, these costs will, of course, be much smaller than those associated with running a standalone brick-and-mortar bakery. Variable costs are those costs that increase when production (number of orders or cookies) increases. These costs include things like shipping, paper supplies (office), utilities, etc.
Another important factor in determining the price of your cookies that will make things easier for clients to understand is by classifying cookies. And this really depends on the individual decorator, but here’s an example of what I would consider basic, detailed and elaborate. When referring to these examples PLEASE remember that each cookie artist must make their own determination of complexity.
(This is just a rough idea)
- Basic: 1-2 colors and consistencies of icing, no hand-cutting, minimal piping
- Detailed: 4-6 icing colors and consistencies, no hand-cutting, simple details
- Elaborate: 7 or more colors of icing, may or may not be hand cut, several piped details and added decorations like fondant, Isomalt, flowers, sprinkles etc…
Here’s a link that will help on Recipe Costing https://cafesmarts.com/
3. Calculating Packaging Costs
And let’s not forget packaging – it can rapidly add up! You must account for everything from the cellophane bags in which you place your cookies to the ribbons and/or stickers used to seal those bags shut, your business cards, boxes if you are shipping, packaging time etc.
I basically repeated the same process that I used to calculate my raw ingredient costs – that is, I divided the total price of each packaging element (i.e., a box of cellophane bags) by the units it contained (i.e, number of bags in the box).
Always remember to roll tax and the costs of shipping (to you) into the price of your bags, ribbons, and labels. Normally, I order many of my paper/packaging products together, so I divide the total shipping cost of my order by the number of items that have been shipped to me.
When I first started getting very busy with cookie orders, packaging time was one factor for which I hadn’t sufficiently prepared. Packaging cookies takes a good amount of time and care. You must accurately calculate how long it typically takes to bag cookies, cut the ribbon and tie the bags.
A few tips before committing to an order:
- Know your state’s baking laws and New York – Cottage Food Law – Forrager
- Require that all customers contact you via email or use and order form so that you have the request in writing.
- If you’re not sure about a price give yourself a little time to think and plan before giving a quote.
- Take a little time off here and there so you don’t get the dreaded “burn out”
What if customers say I charge too much?
Then they are not your ideal customer! If they complain about price, they’ll complain about other things. If they are asking you to make a customized baked good for their special occasion but want to pay Walmart prices, direct them to the closest Walmart. They are lost and confused. Do not waste your time or energy on those people. Want to be proactive to avoid these complaints? Post your prices for all to see. Go a step further. Post pictures and videos explaining the hard work and time it took to make elements of a certain cake/cookie etc. The more informed the customer is about how much time and effort you put into their order, the more inclined people will be to pay more.
My family and friends always ask me to make cakes/cookies but don’t pay enough. What do I do?
Stop agreeing to do it! It’s perfectly acceptable to do this the first few months to get your feet wet, but at some point you have to say no to free orders. You can do a fam/friends discount if you want to let them down easy.
I hope you find this information helpful. As always, I welcome your comments and questions.
And remember that the key to success is practice, patience & persistence.