If you’re a home baker or own a cookie business then you have probably struggled with knowing how to price homemade cookies. After years of selling home-baked goods and guessing at my cookie prices, I developed a simple process for pricing homemade cookies that covers all your costs and makes a profit for your business.
What you need to know to price homemade cookies…
- How to cover the cost of your cookie ingredients
- How to factor in your cookie labeling and packaging expenses
- How to track your cookie baking and decorating labor
- How to include your bakery overhead expense
- How to mark up your cost of goods for profit
When you know how to do these things, you can make a profit selling individual sugar cookies or even cookies by the dozen.
The first thing to do is keep track of the cost of your ingredients
Do you know how much you pay for your ingredients like brown sugar and chocolate chips? If not, this is the first place to start.
Your ingredient costs can fluctuate day by day, so keeping track of how much you are paying for your main ingredients will help you know when it’s time to raise your prices.
Pro Tip– keep a list of all the ingredients you buy. Include the size of the container and how much you paid for it.
Now it’s time to take a look at your cookie recipe and add up the cost of each ingredient. The easiest way to do this is to convert your recipe to weight. It’s much easier to calculate the costs by weight when your recipe units match the units on the packaging you buy.
You can weigh your recipe by putting your ingredients on a food scale, or you can look up the weight of your recipe measurements online.
When you’re done converting your recipe, you should have a price that it costs you for the ingredients used.
How to factor in your cookie packaging and labeling costs
If you are a home-based baker, then you need to follow your state cottage food laws for labeling and packaging.
Are you required to package and label your items individually? Then you will need to add the cost of 1 package and 1 label to each baked good that you sell.
If you are selling your baked goods by the dozen and packaging them together, you’ll include the cost of the packaging and label to the price per dozen.
Want to quote prices on a cookie-by-cookie basis?
To do this you’ll need to know your recipe yield. Your recipe yield is how many cookies you get from one batch.
Once you know all the costs that go into making and packaging one batch of cookies you can divide the batch price by the yield. This will give you the cost on a cookie-by-cookie basis.
Before you can mark your cookies up for profit, you need to factor in your labor. You want to be sure to pay yourself for all your hard work!
The amount of time it takes to make and decorate depends on the complexity of the cookie. Simple cookies like drop cookies or bar cookies have much less labor than royal icing sugar cookies.
Labor for decorated sugar cookies may include:
- Mixing the dough
- Rolling
- Cutting
- Baking
- Mixing and coloring the icing
- Decorating the cookies
- Packaging the finished cookies
Track your labor for each design you do. When you have completed all the steps that go into making your cookies, divide the time it took by the total number of cookies you produced and you will have the labor in minutes per cookie.
How to calculate the cost of goods sold for your cookies
Cost of goods sold is a term that refers to the direct cost of making your cookies. These include the cost of ingredients and packaging, your labor to make the cookies, plus variable costs, and fixed costs associated with making your cookies.
What are the variable costs of making and selling cookies?
Variable costs are costs that increase when your production increases. (disposable pastry bags, parchment paper, packaging, and labels)
Here’s a tip to help keep track of your variable expenses:
Include all your variable costs in your recipes. In addition to recording the cost of each ingredient used, add your variable costs like disposable pastry bags, parchment, packaging, and labels to each recipe.
What are the indirect costs for cookie makers?
Fixes costs are costs associated with running your business that doesn’t change each month. (rent for kitchen space, farmers’ market fees, website maintenance, etc)
The easiest way to calculate your fixed costs is to add up your monthly expenses and divide them by your monthly sales. This will give you a cost per dollar value. Add this amount to your markup when you are calculating your sales price.
How do I mark up my cookie costs of goods for profit?
Your sale price for homemade cookies is calculated by marking up your cost of goods sold. You’ll need to know the cost of goods sold for each type of cookie that you sell.
The formula for the cost of goods sold is:
cost of goods sold(cogs)=ingredient cost + labor cost + variable costs + overhead
Once you have your actual costs (cost of goods sold)you can mark it up for profit and get your selling price!
What is a good profit margin for decorated sugar cookies?
The profit margin for cookies varies widely based on your target market, your skill level, and your reputation. If customers are willing to pay more for your cookie designs then you can make a bigger profit.
In my group coaching program, the Bake Better AcademyI recommend that bakers aim for a minimum of 30% profit. This means that if the cost of each cookie is $1, they should sell it for $1.30. (Remember that the cost includes ingredients, packaging, labeling, labor, and fixed and variable expenses)
The 3x your ingredient cost misconception
Have you ever heard the pricing myth that a good rule of thumb is to multiply your ingredient costs by 3?
Here’s why the 3x your cost pricing strategy doesn’t work:
- It doesn’t include labor costs (and we all know how much labor goes into decorating sugar cookies!)
- 3x your cost doesn’t not factor in overhead costs. (farmers market fees, insurance, etc)
- You need to be able to mark up your cookie cost depending on your skill level. (lower markup for beginners, more for advanced cookies)
Ignore this general rule of thumb and price your handmade cookies based on this general guideline instead.
Pricing Individual cookies vs dozen cookies
How you decide to price your cookies depends on where and how you sell them.Some bakers need prices for a single homemade cookie and other home bakers sell by the dozen with the prices varying based on the complexity of each cookie.
Should you offer individually priced cookies?
Bake sales and Farmer’s market sellers often sell single homemade cookies. If you sell this way then you’ll want to have individual cookie prices. You can offer incentive pricing or bundles to upsell more cookies.
For example, if you sell an individual homemade chocolate chip cookies for $3, you can offer incentive pricing with buy 2 cookies for $5 and save $1.
If you are a custom cookie decorator who sells on the online marketplace or by pre-order then you may want to offer your cookies priced by the dozen. Do you have a minimum quantity requirement? If so, consider starting your prices with that quantity. Pricing on a cookie-by-cookie basis might invite customers to order smaller quantities than you are willing to decorate.
I hope you enjoyed these tips to price homemade cookies
If you’re interested in selling homemade cookies be sure to take the time to learn how to price your cookies.
To correctly price for profit, you need to do more than just cost your ingredients. Be sure to track how much time it takes you to bake and package your cookies. Remember to include additional expenses, and give your cookies a fair price based on your skill level and your target market.
Selling your homemade cookies is a great way to earn extra income, be creative and share your talents with others. For more information about getting started selling baked goods from your home kitchen, check out my complete guide to starting a home-based bakery.
Frequently Asked Questions
So many cookie bakers have reached out with questions in the comments and by email, that I decided to answer some of the more popular questions here:
What’s the first step in starting my own cookie business?
Begin by determining the type of cookies you want to offer and then check your state cottage food laws to see if all your ingredients are allowed. Want help starting your cookie business? click here.
What are some effective marketing strategies for a cookie business?
Utilize business cards, offer special discounts, and engage with your local market through custom orders. Click here to join my Home Bakery Marketing Club.
How much profit can I expect from selling custom cookies?
Profit varies, depending on your markup. Markup can depend on your experience level, how in demand you are, and the region you are selling in.
What’s the sweet spot for pricing homemade cookies to ensure enough profit?
Find a balance between covering costs and offering competitive prices.
Are there any initial costs I should be aware of when starting a cookie business?
Factor in expenses like equipment, business cards, and marketing materials as part of your initial costs.
How can I determine the right pricing for custom orders for special occasions?
Consider the complexity of the design, the types of ingredients used, and the time required to create each cookie.
Is it necessary to offer a slight discount at the end of the day to boost sales?
Offering a slight discount on leftover inventory can be a strategy to reduce waste and attract more customers.
