One of the most repeated questions I see and hear from home or small cake businesses is ‘How much should I charge for this cake?’ It is completely understandable to have some reservations when it comes to cake costing but it’s an extremely important element of your business.
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Simply put, if you’re not making any profit your business will fail.
Cake pricing is definitely something that becomes easier with experience. Firstly, when you bake and decorate cake after cake you become very aware of the time and resources that go into each order and secondly, you will gain confidence in your product once you see that people are willing to pay without any hint of a complaint.
The most challenging time is when you’re transitioning from hobby baker, doing favours and freebies for friends, to fully fledged cake entrepreneur and trying to make a living from your business.
What are the most common mistakes?
Absolutely top of the list here is not seeing the value in your own skills. There is a reason that people are asking you, specifically to bake a cake for their special event. They want their very own *insert your name here* creation because they taste delicious and look beautiful. If it’s good people will pay for it, simple as that!
Following up on not valuing your skills in not seeing the value of the service that you are providing. People will pay for something to make their life easier. They don’t have the skill or knowledge that it takes to bake and decorate cakes or cupcakes, and even if they could try, they don’t have the time. Making people’s lives easier is very valuable!
Estimating the cost of materials. You bake all the time, you’re forever in Tesco, ordering online or at the wholesalers, you know how much it costs to make a cake, right? You might think you do but you’re probably missing something and over time those expenses could add up if not accounted for.
Not accurately calculating your time. Next time you work on an order I want you to think about every minute you spent working on it. Not just how long it was in the oven but the sketching of the design, ordering materials, shopping for ingredients, crafting the decorations….the list goes on. It’s very easy to just brush those small moments off but remember, you’re a business now. Your time equals money!
Forgetting about your overheads. Adding up the cost of ingredients and decorations is one thing but don’t forget your overheads, items that are indirectly required throughout the whole order to completion process - such as electricity bills, cleaning products, phone/internet, marketing, etc
Doing favours for too many people - Now I do have a heart, I’m not going to suggest you charge your mum for a cake (unless it’s some sort of tiered masterpiece, be reasonable mum!) but do remember that this is now how you make your living. You have to be very clear with friends that you will have to charge them from now on, or agree a 20% off friends and family rate. If they support you and your new business, they will be more than happy to pay just like everyone else.
How to price perfectly
Spreadsheets! Keeping track of costs and time will really help you build up a picture of how much it costs to take an order from start to finish.
Cost all of your ingredients then calculate the price for each cake...I know it seems laborious but you only have to do it once then you never have to agonise again.
Get into the habit of recording the time spend on each order when you are finished and updating your records.
Every month, when you are working on your finances, be sure to record all extras to work out your overheads.
Set an hourly rate for yourself that you would be happy to be paid if you worked in a bakery, or close to that figure anyway. Be honest with yourself though, you know where your skill level is. Set your hourly rate fairly - a trained pastry chef with 10 years experience will be able to charge more than a hobby baker who started a year ago, generally. Again, you know how good you are, don’t sell yourself short!
Look at your competitors. Check out the prices for people selling similar products in your area, are you much higher or lower than they are? If your prices are wildly different from your competitors it will be hard to justify your prices so be sure to highlight what you are offering that makes your product unique and special. Be careful not to simply undercut your competition just to makes sales though, you won’t be doing yourself or them any favours and in the end no-one will be making any money. (side-note, you shouldn’t find this much of a problem if you have done the correct market research before started up - unique selling point!)
Do some testing. Set a price for a couple of months, if you’re meeting constant resistance or no bookings, lower your prices and try again. If you find that means you’re losing money, try to simplify the cakes to maintain a healthy profit margin. If that doesn’t seem like a viable option think about how you can market yourself and your product to encourage people to pay your premium prices - Do you offer free delivery? Do you use organic or local produce? Do you have any particular qualification in patisserie or sugarcraft?
So, I hear you. You’re thinking, that’s all well and good Kirsty, but how do I put this into action and come up with a cake price?
My super simple cake pricing formula!
Armed with all of the knowledge you’ve build up by following my recommendations above, you should be able to fill in the following blanks: an hourly rate, the time it takes to complete a cake order, your overheads, and the cost per order. Overheads is a tricky one to totally pin down so I like to take it as a percentage. The longer you’ve been in business the more accurate you can make this percentage but, from experience, 5% of your hourly rate multiplied by order time gives you a sensible number.
(HOURLY RATE X TIME) + COSTS + OVERHEADS = CAKE PRICE
So, for an 8 inch 3 layer cake, filled with jam and buttercream, decorated with fondant, taking 5 hours to complete...
(12 X 5) + 10 + 5% (= 3.50) = 73.50)
Cake Price £73.50 (if you want to be exact, feel free to round up or down as you see fit!)
If the thought of more maths is making your head hurt, don’t worry! I have a FREE DOWNLOAD that will do all of the heavy work for you.