How to calculate cost per unit for a food product, labor included
A food product's cost per unit is its ingredients, plus its packaging, plus the labor to make and pack it. Leave the labor out and a case of chocolates that really costs $14.79 to make looks like it costs $8.71.
The numbers are from a small chocolate maker's own costing spreadsheet (February 2024).
$14.79
to make, labor included
- Ingredients$7.64
- Making labor$5.52
- Packaging$1.07
- Packing labor$0.56
Labor is $6.08, 41% of the cost. Without it the case looks like $8.71.
A real case of chocolates
The example here is real. A small chocolate maker costed each of her products in a spreadsheet, by hand. The product we'll follow is a case of 24 wellness bites, which she sold for $45.
Her labor cost was $40.64 an hour, which is more than anyone's wage: it's what an hour of someone's time cost her once payroll taxes and benefits were added on top.
What one case costs
| Cost | What it covers | Per case |
|---|---|---|
| Ingredients | Everything in the 24 bites, at what she paid for it | $7.64 |
| Making labor | The case's share of the time to make the batch and assemble the bites | $5.52 |
| Packaging | The case and the materials it's packed in | $1.07 |
| Packing labor | The time to pack one case | $0.56 |
| Cost per unit | $14.79 |
That's $0.62 a piece.
What leaving labor out does to the margin
| At $45 a case | Without labor | With labor |
|---|---|---|
| Cost | $8.71 | $14.79 |
| Profit | $36.29 | $30.21 |
| Margin | 81% | 67% |
Labor is 41% of what this case costs, more than anything except the ingredients. A costing sheet that skips it is missing a cost almost as big as the food itself.
Working it out for your own product
- Ingredients. For each one, work out what a gram costs: what you paid, divided by how many grams you got. A 25 lb case of flour is about 11,340 g, so divide the case price by that, not by one bag. Multiply by the grams one batch uses, add them up, and divide by the units the batch makes.
- Packaging. Add up everything one unit goes out in: the box, the liner, the label, the insert. Price each one the same way, by what one piece costs you.
- Making labor. Time a whole batch, start to finish. Multiply the hours by your hourly labor cost and divide by the units the batch makes.
- Packing labor. Time packing the same way. Packing ten cases and dividing by ten is more accurate than guessing at one.
- Add the four. That's your cost per unit.
Where costing sheets go wrong
Leaving out your own time is the one this guide is about. If you make the product yourself, your hours still cost something, and counted at zero a product can look profitable while paying you nothing for the work.
Two more hide inside the labor line. Timing only the mixing misses setup, cooling, shaping and cleanup, which are all part of the batch. And using the wage instead of the hourly cost leaves out the payroll taxes and benefits that come with every hour.
The last one is pricing from last year's receipts. Ingredient prices move, and a cost per unit is only as current as the prices under it.
Overhead and waste
Rent, insurance and equipment cost the same whether you make 100 units or 900. Her sheet didn't include them, and neither does Prophitable's cost per unit. If you want them in, add up a month's fixed costs and divide by the units you made that month, then add that on top.
If some of every batch never makes it into a box, each unit costs more than the recipe says. Divide by the units you actually get, not the units the recipe should make.
To set this up in Prophitable, see How to finish your products.