Cookie lovers everywhere rejoice when they discover a new home baker, selling fresh, homemade disks of deliciousness. If you're planning to start a home-based cookie-baking business, you may already be aware that there's more to it than just perfecting a few recipes. In order to make some financial dough from your sweet, buttery dough, you have to understand how to price each cookie individually and by the dozen.
TL;DR (Too Long; Didn't Read)
Create a cookies price list by calculating the cost of ingredients and equipment, the money you spent to meet food-production standards, and the cost of any permits and licenses.
First Establish If It's Legal
It would be wrong to assume that anyone can legally peddle cookies, anywhere. Although many states allow home-based food producers to sell certain edibles such as cookies, some do not allow any type of food-related home-business activity. Check with your Department of Health and the U.S. Food and Drug Administration to learn more about restrictions and the current costs of registration and permits in your area. Also, confirm the zoning regulations for running a business from your home, if you haven't already. Don't spend a dime on establishing a cookie-baking business, until you know that it's legal to set up such a venue in your locale.
How to Calculate the Cost of Registration and Restrictions
If it's legal to sell homemade cookies in your state and neighborhood, the costs associated with setting up shop can vary depending on your expected earnings, for starters. If you think you'll earn more than $5,000 but less than $18,000 per year, for instance, you may have to pay a $50 fee when you register your business as of 2018. Generally, small-scale cottage food producers who typically sell their products at farmers markets, charity events or from home do not have to pay hefty registration fees.
On the other hand, if you expect to earn more than $18,000 or plan to ship your goods out-of-state, you might be required to register your home business as a food facility. In such cases, you could end up spending hundreds or even thousands of dollars on kitchen updates and equipment to meet food-safety requirements. Although you probably wouldn't benefit from pricing your homemade cookies excessively higher than the competition, you should factor some of the costs associated with setting up your home bakery into each cookie.
How to Calculate the Cost of Ingredients
Figuring out how to price your homemade cookies, which is called recipe costing isn't as difficult as you might think, but it is a bit tedious. Basically, it's best to start with your recipe in front of you along with the prices or receipts for each major item on it: a stick of butter, carton of eggs, a bag of flour, a bag of sugar and a case of chocolate chips, for example. It might be necessary to convert some of your recipe's measurements from cups, tablespoons and teaspoons to pounds, grams and ounces – a conversion app would come in handy. Ultimately, you want your ingredients' units of measurement to line up with the product's measurement of weight on the package or vice versa, which makes it easy to calculate the cost per cookie. For example, flour is typically sold by the pound, so the amount of flour for your recipe should also be converted to pounds or ounces.
A Simple Example
As a relatively easy example, imagine that you're calculating the cost of a recipe that makes 24 cookies. If a dozen eggs cost $3 and the recipe calls for 2 eggs, the cost of the eggs per batch of cookies is 50 cents or slightly more than 2 cents per cookie or 24 cents per dozen cookies. As for the sugar, if a 10-pound bag costs $5 and the recipe calls for 1 pound (or 2 cups) of sugar, the cost of sugar per batch of cookies is 50 cents or slightly more than 2 cents per cookie or 24 cents per dozen cookies. After you break down the cost of each ingredient per cookie, add them together to get the total cost per cookie.
Again for simplicity, imagine that all the main ingredients to make 1 cookie total 27 cents. To account for any extras, such as salt, baking soda and vanilla extract, it's wise to add a few cents, meaning that each cookie probably costs more like 30 cents to make. Catalog each of your recipe's costs, and then periodically check for ingredient price increases, so that you can make changes to your homemade cookie prices, as needed.
How to Calculate the Price of Cookies
Now, what about your profit? Well, maybe you plan to factor in your time at $20 per hour. If you can make 4 batches or 96 cookies in an hour, that's $5 per batch or roughly 21 cents per cookie. In our scenario, this means that each cookie now costs 51 cents to make. But what about overhead costs, including the power bill, the wages of a helper, your initial costs to set up your home bakery and any losses from burnt or botched batches? To recoup some of these costs, do a bit more math. You might have to round up each cookie to at least 60 cents or about $7 per dozen in order to not just avoid losing money but make a sweet and tidy profit.
- A Touch of Business: How to Start a Cookie Business
- Home Business Center: How to Start a Successful Cookie Business 1-2-3
- U.S. Food and Drug Administration: How to Start a Food Business
- Harvard Food Law and Policy Clinic: Cottage Food Laws in the United States
- U.S. Small Business Administration: So You’d Like to Start a Home-based Baking Business: Now What?