Waste in a bakery: what under-baking really costs

"Every evening I throw away seventy-six units. That is seventeen baskets a week. And every evening I am afraid to bake less" — that is how Solomiya, the owner of a bakery and pastry shop with its own retail counter, opened the conversation.

Sound familiar? In the morning everything smells wonderful, by lunchtime the display case is half empty, at five the salesperson asks whether to bring more, and at eight you are bagging up what nobody is going to buy.

The reason is almost always the same. Goods here live for one day, so every decision about quantity is a bet placed twelve hours before the result. Until that bet becomes a line with two prices — the price of surplus and the price of shortage — you cannot see which way you are getting it wrong.

In this article we break the bakery down into two units: the bun that was written off, and the bun there was no time to bake. And we show why the second one costs more.

Solomiya's path: from a home kitchen to a bakery with a display case

Solomiya started with a home oven and cake orders through friends. Her arithmetic was simple: I bought this much in ingredients, I sold the cake for that much, the difference is mine.

Two years later she rented premises and installed an oven. After four she opened a retail counter at the bakery, added bread and sweet buns, and hired three bakers and two salespeople.

That is exactly when the clarity disappeared. Revenue grew tenfold and more, the report showed a perfectly decent margin. But the feel for money was gone for good — along with the evening basket that nobody counted anywhere.

"In my home kitchen I baked exactly what people had ordered. In the bakery I guess every day how many people will walk in. And I still do not know how many of them I never reached."

Why "we sold everything" and "we baked everything" are two completely different businesses

A bakery runs two productions in one room. The first is what you baked. The second is what you managed to sell before closing. There is always a gap between them, and that gap is your money.

The gap does not disappear just because you are not looking at it. It simply flows from the display case into the bin, and from the bin into the "ingredients" line, where it looks like ordinary cost of goods.

What the owner sees in the evening report

Revenue for the day 23 392 ₴, ingredients 7 980 ₴, everything else at the end of the month. The till closes without a hole.

The trouble is that not a single figure in that report tells her how many people were told "sorry, all gone" at half past five — and how many of them will come back.

Life before every bun became a line

The state Solomiya lived in for almost three years is familiar to any bakery that grew out of a home oven.

• Waste was seen as a basket, not as a number. "A lot was left today" — and no amount, no item, no trend.
• Lost sales were not recorded at all. An empty shelf at five felt like a good sign: sold out, well done.
• Tomorrow's quantity was set by the baker's gut feeling. The benchmark was how much dough is convenient to mix, not how much went yesterday and at what hour.
• Every item was counted by one and the same rule. A loaf costs a tenth of a cake to make — but a mistake in quantity costs the same in the bin.
• A markdown was treated as an admission of failure. Selling cheaper felt worse than throwing away, because "it spoils the price".
• Weather, holidays and paydays were never marked anywhere. So the next year all the same slumps came back with all the same surprise.

Not one of these problems was culinary. All six were accounting problems — and that is exactly why neither the baker nor the bookkeeper could see them.

A bakery day in numbers

The first thing Solomiya did was count one ordinary day down to the last unit.

Indicator	Value
Baked in a day	420 units
Sold	344 units
Written off	76 units (18.1%)
Average price	68 ₴
Ingredients per unit	19 ₴
Revenue for the day	23 392 ₴
Ingredients for the day	7 980 ₴
Write-off in money	1 444 ₴

What those 18.1% actually mean

Seventy-six units out of four hundred and twenty — almost every fifth one. Every day 1 444 ₴ worth of ingredients goes into the bin: 76 multiplied by 19 ₴.

It sounds like a disaster. But look at it the other way round: those 18.1% are the price of there still being something in the display case at five. A bakery with zero waste is a bakery with an empty shelf at four in the afternoon.

The core unit: 49 ₴ of margin on one bun

Every decision in a bakery runs into one number — how much is left from a single unit sold.

How to count margin per unit, not per day

A price of 68 ₴ minus 19 ₴ of ingredients gives 49 ₴ of margin on every unit sold.

But you pay for what is baked, not for what is sold. In a month the bakery bakes 420 × 26 = 10 920 units, sells 344 × 26 = 8 944 and writes off 76 × 26 = 1 976. So the real ingredient cost of one unit sold is 207 480 ₴ divided by 8 944, that is 23.20 ₴, not 19 ₴.

Add the fixed costs: 310 000 ₴ divided by 8 944 is 34.66 ₴ on every unit sold. That leaves 68 − 23.20 − 34.66 = 10.14 ₴ of profit per bun. That is exactly what you earn when a person takes something out of the display case.

The month: where 90 712 ₴ comes from

Twenty-six working days — and the picture comes together completely.

Item	Monthly total
Revenue	608 192 ₴
Ingredients	207 480 ₴
Rent	58 000 ₴
Wages	186 000 ₴
Utilities including the oven	42 000 ₴
Other	24 000 ₴
Total other costs	310 000 ₴
Profit	90 712 ₴ (14.9%)
Of that, written off into the bin	37 544 ₴ (41.4% of the profit)

The waste that takes 41.4% of the profit

1 444 ₴ a day turns into 37 544 ₴ a month. This is not an abstract "cost of production" — these are ingredients whose purchase brought in not a single hryvnia of revenue.

And it is 41.4% of the bakery's profit. Which means that out of every ten hryvnias Solomiya takes out of the business, four she carries out to the rubbish every evening in the shape of bread.

"When I first saw thirty-seven thousand a month, my first thought was: that is it, bake less. It is a good thing I did not listen to myself that day."

Under-baking costs more than writing off

Here is the place where money is lost by every bakery that has "finally got serious about waste".

Count the two prices of a mistake. A surplus unit costs you 19 ₴ — you have already paid for the ingredients, and those ingredients went into the bin. A unit that was missing costs 49 ₴ — that is the margin a person was already ready to hand over, only there turned out to be nothing on the shelf.

Divide 49 by 19 and it turns out that under-baking is about 2.6 times more expensive than writing off. And that is only the money of a single day.

Why an empty shelf at five costs more than a basket of waste

The person who is told "the bread is already gone" takes away more than just 49 ₴. She goes to the next bakery, and if the bread there is on the shelf at five, next week she will go straight there — without you this time.

A written-off bun takes 19 ₴ once. An empty shelf takes 49 ₴ today plus the risk of losing a person who used to come in three times a week. The first is an expense, the second is churn that appears in no report at all: there is nothing to record, because no sale happened.

"For two months I baked twenty per cent less. The waste fell almost to zero and I was delighted — until I looked at the revenue. People simply stopped coming in the evening, because they knew there was nothing left by then."

The level at which the sum of the losses is smallest

So the task is not to "write off zero". The task is to find the quantity at which the sum of the two losses is smallest: what gets thrown away plus what never gets sold.

Zero waste means maximum lost sales. Zero lost sales means a mountain in the bin. The answer is somewhere in between, and it is calculated, not felt.

The 27.9% rule

Here is how it is calculated. A surplus unit costs 19 ₴, and a unit sold brings in 68 ₴ of revenue. Divide 19 by 68 and you get 27.9%.

That is the threshold probability: the last unit is worth baking as long as the chance of selling it is higher than 27.9%. If out of ten days it sells on at least three — bake it. If on two — do not.

The logic is simple: surplus is cheap, shortage is expensive — which is why systematic over-baking pays. A bakery with 18.1% waste is healthier than a bakery with almost none, if the second one sends people off to a competitor every evening.

The evening markdown: minus forty per cent after six

Between "throw it away" and "do not bake it" there is a third option that Solomiya refused to hear about for a long time. Sell it cheaper.

She set a simple rule: after 18:00 everything left from today's baking is sold at a 40% discount. The price drops from 68 ₴ to 40.80 ₴. Of the seventy-six units that used to go into the bin, 31 sell this way.

What the evening markdown gives	Value
Price after 18:00	40.80 ₴ instead of 68 ₴
Sold at the markdown	31 units
Markdown revenue per day	1 265 ₴
Cost of those units	589 ₴
Added to profit per day	676 ₴
Added to profit per month	17 576 ₴

Thirty-one units out of seventy-six is 40.8% of all the waste, and it has stopped being waste. Into the bin now go 76 − 31 = 45 units, that is 45 × 19 = 855 ₴ a day and 22 230 ₴ a month instead of 37 544 ₴. The waste alone shrank by 15 314 ₴.

And the bakery's profit — 90 712 ₴ plus 17 576 ₴ — rose to 108 288 ₴, with the margin up from 14.9% to 17.8%. The markdown brought back 17 576 ₴ out of 37 544 ₴, that is 46.8% — almost half of what would otherwise simply have gone to the dump.

"That first evening I was physically ashamed to hang up the discount sign. It felt like announcing to the whole street that I cannot count. And a week later, at half past six, there was a queue of people who had never come in before at all."

Why the markdown does not eat the daytime price

The main fear sounds like this: if it is cheaper in the evening, people will stop buying during the day. In practice, no — the markdown buyer and the nine-in-the-morning buyer are different people.

Whoever takes a fresh baguette for breakfast will not come for it at seven in the evening. And whoever needs bread "just to have some in the house" would never have paid 68 ₴ — he would have picked it up at the supermarket. The markdown does not take a sale away, it adds a buyer you never had at full price.

Three things the markdown does not cure

A markdown reduces the price of a mistake, but it does not cancel the mistake itself.

• It does not bring the margin back. 40.80 ₴ minus 19 ₴ is 21.80 ₴ instead of 49 ₴. Every unit sold at the markdown is still less than one sold during the day.
• It does not cure a shortage. If the bread ran out at four, there is nothing left to mark down. Lost sales are something the markdown does not see at all.
• It does not work on everything. A cream cake will not stand until the next day even with a discount, and on some items a markdown simply moves the problem an hour forward.

The range: bread, sweet buns and cakes are counted separately

An average price of 68 ₴ and average ingredients of 19 ₴ are fine for a conversation about the bakery as a whole. But quantity decisions cannot be made on averages.

Why a loaf and a cake cannot be written off by the same rule

With cheap items the price of a surplus unit is low, while demand is even and predictable — so it pays to over-bake them with a reserve: an empty bread shelf hits the whole display case, because bread is exactly what brings a person in every day.

With expensive items it is the other way round. The price of a mistake is high, demand is uneven, orders are often personal. Here the threshold works against big batches: better to have two cakes and a sign saying "the rest to order" than six and write off three.

So Solomiya now has two rules. Bread and sweet buns — over-bake to the threshold. Confectionery — to order, with a minimum in the case just for the look of it.

Why "bake exactly as much as you sold yesterday" does not work

The most common attempt to bring order looks sensible: we sold 344, so we bake 344. Zero waste, the money stays put.

In reality you are guaranteed to sell less than 344. Because 344 is not demand, it is sales: that many people got what they came for, and the figure knows nothing about how many did not. Leaning on it, the bakery lowers the bar a little every day, until it arrives at the level where there is nothing left in the evening.

The right benchmark is not the quantity sold but the hour when an item ran out. The bread disappeared at four — tomorrow we bake more, even if something was written off yesterday. At eight there was still half a shelf left — we bake less. Time, not totals.

What changed when a bun became a line

Solomiya did three things. Every item got its own count of baked, sold and written off per day. The salespeople started noting the hour when an item ran out. The −40% markdown became a rule at 18:00, the same for everyone and with no exceptions.

Two quarters later this became visible:

• Waste stopped being a fear and became a number. Into the bin go 45 units instead of 76, that is 22 230 ₴ instead of 37 544 ₴ a month — a conscious price for a full display case, not an accident.
• The markdown added 17 576 ₴ of profit a month. The same ingredients, the same oven, the same people — part of the basket simply went through the till.
• The margin grew from 14.9% to 17.8%. With no price increase, no new premises and no wage cuts.

"I thought I was fighting waste. It turned out I was fighting to have something to sell at half past five."

The takeaway for business owners. Where goods live for a single day, a mistake has two different prices — and it is almost always cheaper to err on the side of surplus. A surplus unit costs you its cost of goods, while the one that was missing costs the full margin plus a person who went off to a competitor. So the main number in a business like this is not the waste percentage but the level at which the sum of waste and lost sales is smallest. The same works in a flower shop, a deli, a café with a display case, a salad bar and any fresh-food delivery: the moment you know the price of a shortage, it becomes obvious that "zero in the bin" is the most expensive decision of them all.

A few closing pieces of advice

• Count the two prices of a mistake. The price of surplus is the cost of goods, 19 ₴. The price of a shortage is the margin, 49 ₴. As long as the second is bigger than the first, over-baking pays.
• Work out your own threshold. Divide the cost by the price: 19 divided by 68 is 27.9%. Bake the last unit while the chance of selling it is higher than that percentage.
• Record the hour when an item ran out. It is the cheapest way to see the lost sales that are missing from the till report.
• Bring in the markdown on a schedule, not by mood. One time, one discount, everything that is left. For Solomiya that is −40% after 18:00 and 17 576 ₴ of profit a month.
• Count the waste in money every day, not in baskets every week. 1 444 ₴ a day sounds different from "a lot was left today", and completely different again as 41.4% of the profit.
• Split the rules for cheap and expensive items. Over-bake the bread with a reserve, make the confectionery to order — an average price of 68 ₴ is no good for a decision about a cake.
• Do not set "zero waste" as the goal. Zero in the bin almost always means an empty shelf at five in the evening and a customer who will not come next time.

The money does not disappear — you simply do not see it

A bakery looks like a business where everything is decided by the recipe, the price of flour and the spot on the street. In reality the recipe is the entry ticket, and the money is decided by one thing: how precisely you place your bet on tomorrow's quantity every evening.

None of these losses disappears on its own. But the moment a bun becomes a line — with the quantity baked, sold and written off, and the hour when it ran out — you can see what feeds you, what goes into the bin and how much of that can be brought back through the till as early as next week.

How to see this in your own bakery

Everything described above rests on a single table: every product is a line showing how many were baked, sold and binned, and what time it ran out. Most owners keep this in a notebook and add it up at the end of the week, when nobody remembers why Tuesday came up short. When the same data is collected automatically, you can see both the real demand and the price of an empty shelf — which is exactly why small and medium business owners use Finmap: to see the financial picture instead of reconstructing it from memory.

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Topic foundation: Management Accounting Explained: What It Is and Why Owners Need It