A Case Study of Cookie Cost (from Gathering Ingredients to Packing)

You didn't add in the time to clean up.  For cost you should add something for equipment.  Personally I think the market is limited, so I decided to not take anymore orders.  I only decorate for fun, practice or love.  My time is too valuable to discount my cookies and I don't think non-decorators appreciate the effort.  My decision wasnt exclusively cost and time.  I did a lot of cookies for a charity the year before and my shoulder paid the price.   

Hi, I'm SO glad to see someone who actually took the time to time all of the steps that go into making a decorated cookie! Congratulations! I think if more people did the same thing, they would realize they are charging way too little for their cookies and are actually losing money. (Also to remember, most cookie videos are heavily edited and often fast-forwarded, so times displayed on them are rarely an accurate indicator of real cookie decorating time.)

However, you forgot to add a markup to cover your overhead costs (electricity, facility rent or lease, water, etc.) and to also make a profit. If you pay all of your price charged to the person you hire to decorate (or to you), there will be no money left over to pay utilities/rent or to put away for investments in equipment to grow the business. Many decorators forget this point, and you can never grow out of your home and into a bigger, sustainable business if you don't factor in these elements. (Please see our blog posts under the "Business of Baking" blog category; we have some awesome articles there about pricing.) Thus, your computed cost should be even higher than $10 per cookie.

That all being said, you can achieve economies of scale (drive unit - per cookie -costs down) by making more things in larger bulk batches. It's never most efficient to do small, custom orders. But this mostly applies to the mixing of dough and some simpler decorating tasks. And, again, you might need to invest in larger mixers in order to realize these savings over time. As you can see from your analysis, the bulk of your time is spent in decorating activities, which are hard to scale up and do faster, so in order to cut costs here, one needs to think seriously about making simpler, more easily reproducible designs (and/or hiring cheaper labor.)

On the labor point: in the US, minimum hourly wage is less than $25 in many states (it's not even $15 here in Missouri), so you might be able to carve out some cost there. BUT, if it is you or another very talented person decorating the cookies, you need to be mindful of how you value your/their time. I charge a three-digit figure (per hour) for my time in consultations and teaching, so that's why I no longer bake cookies for sale. I'd rather spend my scarce time making more money and not repeating cookie designs over and over for customers.

So, to answer your question about whether there is a market for a $10 cookie (or more, if you were to add overhead costs and profit), I cannot say for Dubai (perhaps there is), but it is tough to make this sort of sale here without lots of customer education and customers with deep pockets. I was able to command these sorts of cookie prices when I had my bakery, but I also made other things (namely higher margin wedding cakes and simpler sweets). If I had to rely on cookie sales alone in my bakery, it would have never made any money. So, for me, product diversification, not only design simplification, was key to the bakery's success.

I hope this helps a bit.

I think Julia said it well but let me add something. When I dwelled on cost and production I lost the love of decorating cookies.  Now that I do it for myself the enjoyment of decorating is returning.

Econlady posted:

I think Julia said it well but let me add something. When I dwelled on cost and production I lost the love of decorating cookies.  Now that I do it for myself the enjoyment of decorating is returning.

I believe (and know) one can do both though, and I personally think everyone out there baking (as other than a stated hobby) must focus on cost. I knew the costs of doing things inside and out when I had my bakery AND I still loved what I did - even the costing part! When you don't focus on costs, it's easy to get bitter because you feel like you're always getting underpaid, or to get anxious because you're not charging enough to keep the business afloat. Knowing the numbers allows a business owner to understand and state her full worth (it's empowering and uplifting)! And, when you project more confidence in the value of your product, you will find more people willing to pay the price.

That being said, I found the production (repetition) aspect of baking for customers pretty boring. Even though I had a custom shop, people often gravitated toward designs I had done in the past. I also found it hard to train people to the level needed for highly skilled decorating, so I got burned out doing most of the finish work myself. Those are the primary reasons I closed my shop - not out of lack of love for the art or financial reasons, but because of the tedium of day-in-and-day-out routine baking.

Julia M. Usher posted:

That being said, I found the production (repetition) aspect of baking for customers pretty boring. Even though I had a custom shop, people often gravitated toward designs I had done in the past. I also found it hard to train people to the level needed for highly skilled decorating, so I got burned out doing most of the finish work myself. Those are the primary reasons I closed my shop - not out of lack of love for the art or financial reasons, but because of the tedium of day-in-and-day-out routine baking.

I have been a fan of you and your work since the first CookieCon.  You have said clearly stated many of the pitfalls of cookie decorating.  thank you for all you do!

Econlady posted:

Julia M. Usher posted:

That being said, I found the production (repetition) aspect of baking for customers pretty boring. Even though I had a custom shop, people often gravitated toward designs I had done in the past. I also found it hard to train people to the level needed for highly skilled decorating, so I got burned out doing most of the finish work myself. Those are the primary reasons I closed my shop - not out of lack of love for the art or financial reasons, but because of the tedium of day-in-and-day-out routine baking.

I have been a fan of you and your work since the first CookieCon.  You have said clearly stated many of the pitfalls of cookie decorating.  thank you for all you do!

There are many upsides too, so I don't want to sound too negative. I hope I haven't. The above is just my personal experience; people need to find the right balance that works for themselves. Some people might find predictable, repetitive work very soothing, for instance. Or hate teaching, and only ever want to be immersed in the baking of the cookies and not the decorating of them. There are many ways to shape, staff, and balance a bakery business and make it work for you, the owner. But I do believe it's critical to understand your cost structure in any scenario. 

Thank you for all the replies,

I do agree with everything that has been said. I did not take in consideration all the other important factors, as location, electricity, insurance, depreciation, and, of course, the cleaning!   

I admit, I am happy that people like my cookies and enjoy all the compliments. I understand that they want to be able to get cookies on demand. To know the real cost, helps me to explain why I can’t take orders.  It is not that I don’t want they have cookies. I just don’t want to be rude and ask for $ 50.00 per cookie.

Thank you again,

Perla Adams posted:

Thank you for all the replies,

I do agree with everything that has been said. I did not take in consideration all the other important factors, as location, electricity, insurance, depreciation, and, of course, the cleaning!   

I admit, I am happy that people like my cookies and enjoy all the compliments. I understand that they want to be able to get cookies on demand. To know the real cost, helps me to explain why I can’t take orders.  It is not that I don’t want they have cookies. I just don’t want to be rude and ask for $ 50.00 per cookie.

Thank you again,

I agree completely! Knowing your costs allows one to make smarter decisions about the type of work s/he chooses to take. While it's great to take only profitable orders, I can think of circumstances where one might choose to underprice an order just to be sure to get it or for the experience - for instance, if it was for a high-profile client who was likely to do repeat business with you or whose name you could use in future marketing, or just to have the cookies as part of your portfolio. But, more often than not, I used my pricing as a threshold for screening customers. If they balked at my basic starting prices without any decoration, then I knew they were not going to be profitable customers for me, and I avoided costly consultation time this way.

It's so sad to the see the numbers broken down, but it is the unfortunate reality. I don't know what kind of business costs there are in Dubai, but for my business I also pay a CFO permit fee, a business license fee, LLC taxes, etc. All those fees alone are enough to eat up my profits. 

Aproned Artist posted:

It's so sad to the see the numbers broken down, but it is the unfortunate reality. I don't know what kind of business costs there are in Dubai, but for my business I also pay a CFO permit fee, a business license fee, LLC taxes, etc. All those fees alone are enough to eat up my profits. 

Those sorts of fees would get accounted for as overhead in any pricing calculation. Fortunately, they are usually annual fees that can get spread across many orders, so they don't add to per cookie costs as much as some other things do.

Julia M. Usher posted:

Aproned Artist posted:

It's so sad to the see the numbers broken down, but it is the unfortunate reality. I don't know what kind of business costs there are in Dubai, but for my business I also pay a CFO permit fee, a business license fee, LLC taxes, etc. All those fees alone are enough to eat up my profits. 

Those sorts of fees would get accounted for as overhead in any pricing calculation. Fortunately, they are usually annual fees that can get spread across many orders, so they don't add to per cookie costs as much as some other things do.

They are annual fees, but they are my largest cost by far. I think it's worth calling it out separately for people considering the CFO route. It takes a lot of cookies to cover $1200 in fees.

Aproned Artist posted:

Julia M. Usher posted:

Aproned Artist posted:

It's so sad to the see the numbers broken down, but it is the unfortunate reality. I don't know what kind of business costs there are in Dubai, but for my business I also pay a CFO permit fee, a business license fee, LLC taxes, etc. All those fees alone are enough to eat up my profits. 

Those sorts of fees would get accounted for as overhead in any pricing calculation. Fortunately, they are usually annual fees that can get spread across many orders, so they don't add to per cookie costs as much as some other things do.

They are annual fees, but they are my largest cost by far. I think it's worth calling it out separately for people considering the CFO route. It takes a lot of cookies to cover $1200 in fees.

Sure, I guess it's all relative. My monthly rent was close to that in my bakery, so for me rent/lease and payroll/payroll taxes were my largest expenditures.

So, how much will be the "magic number"? I saw people selling cookies in Etsy at $4.00 to $ 5.00 per piece. I must assume, those cookies are heavily subsidized by the decorator or by other baking products. 

I am starting to conclude, that for a person that do customized cookies (2 or 3 dozen per order, with several levels of embellishment like borders, stencils, flowers, etc.), from a home kitchen, the cost of each cookie can easily surpass $30.00 per piece, perhaps even more.

Perla Adams posted:

So, how much will be the "magic number"? I saw people selling cookies in Etsy at $4.00 to $ 5.00 per piece. I must assume, those cookies are heavily subsidized by the decorator or by other baking products. 

I am starting to conclude, that for a person that do customized cookies (2 or 3 dozen per order, with several levels of embellishment like borders, stencils, flowers, etc.), from a home kitchen, the cost of each cookie can easily surpass $30.00 per piece, perhaps even more.

 

It could - the cost/price is clearly driven by the decorating time, and the more complex the design, the higher the cost. There is no one "magic number", but rather the number you compute based on your cost structure and level of design complexity. But, I can guarantee that those charging $3-$4 per decorated cookie are probably just covering costs of ingredients and packaging and paying themselves next to nothing.

Hi Perla, I just read this post and noticed you are writing from Dubai. I have just moved here last month. Glad to know a Cookie Connection member living here as well!

I am not interested in selling my cookies, but I am interested in every aspect related to cookies.

Samantha @Aproned Artist mentioned the costs of business in the U.S. (CFO permit fee, business licence fee, ecc). In Italy if someone want to sell homemade food then needs to open a IAD (Impresa Alimentare Domestica) which involves some annual costs as well, on top of respect a list of requirements (label, Haccp, ect.). You didn't mentioned any of those cost in your list. Is there anything similar in Dubai? Are there any restrictions or requirements to sell homemade food in Dubai (I know this second question maybe would belong to another forum)?

@Perla Adams and @Manu biscotti decorati, Please note that I "forked" (moved) Manu's question about start-up requirements in Dubai to another forum topic, as it isn't so related to this one. (We try to keep forum topics to one topic, so people can easily search and find all content later.) The link to the new topic is in the post above. Please respond to and follow that new topic there. Thank you.

I am sooooo happy to see these posts.  I knew I wasn't making any money off my cookies and this has really put it into perspective.  I make cakes as well and I don't think I am charging enough for my decorating skills.  I love the compliments on my products but it is not enough.  If I can't get paid for my time and talent then why am I doing it?  I don't always love the process but I like the end results (oh yeah, and hate the clean up).  Time to do some re-evaluating.  Thanks!