By far the most popular article on this site is my post about pricing your baking. I continue to see questions on forums and in Facebook groups about how much to charge when you’re getting started so I thought I would revisit the topic, dig a little deeper and look at it from a couple of different angles. If you’d like to get caught up please have a look at part one over here.
In addition, I've also revamped the free Cake Pricing Calculator and it now looks more beautiful than before and even easier to use. I hope you find it really helpful in your cake business so please hit the big yellow button below to download yours.
When you’re setting up your baking business and writing up a business plan, considering your projected income over the first year and beyond is a key element. As with any new business your income and, hopefully, profit is something that will grow over time as you built up a customer base and become known for your services. A steady income isn’t going to happen overnight, but with some planning at the start you should be better prepared to build up as quickly as possible.
The area that is consistently overlooked and undervalued by customers, and bakers alike, is the value of your time. Justifying costs for the ingredients, equipment and production is easy because there are hard values to be put against them. However costing for your time can be more tricky for some.
Working backwards can be a helpful way to look at it. Meaning, how much do you need to pay yourself at the end of each month to cover your living costs? Let’s say you need to earn £1500 every month to live. That breaks down to roughly £375 per week which is £53 per day. This is just the amount that will be classed as ‘profit’ so you still need to consider your production costs, which obviously vary from product to product. How many cakes/cupcakes/biscuits/weddings does that add up to each week? Is this achievable in 5-7 days, working 6-8 hours a day?
If your current prices mean you would fall far short, then you will need to think about ways to raise your prices or increase your profit margin.
It's nothing to be afraid of. If you're not bringing in more than your spending your business isn't going to go very far. You work hard and make people happy, you deserve to earn a comfortable living. Think about the ideas below when trying to maximise profit:
Increase your prices
Reduce your production costs
Better value ingredients
Take on more orders
Speed up production times
Thinking about your overall income requirements can often help you to gain perspective and assess your value more objectively. It is difficult when you start out because most of us suffer from 'imposter syndrome' and think ‘who am I to charge this much for my cakes?’. Well, I’m assuming if you’ve come this far you’ve had lots of people request your products, compliment and enjoy them, so whenever doubt starts to creep in - think back to those moments of praise!
whenever doubt starts to creep in - think back to those moments of praise!
My cake pricing formula relies on you assigning yourself an hourly rate. Since writing my first post I’ve had a few questions about how to generate this figure so hopefully the below can help get you started.
Looking at the national wage statistics the average hourly rate for a baker or cake decorator is £7.00 - £8.50 per hour and around £18 000 - £25 000 per year, depending on the employer ( source1 source2). When I worked as a baker in a local cafe in the north of Scotland I earned £7.00 per hour. Working for yourself you can certainly aim higher for a higher hourly rate than if you are an employee of someone else but it’s useful to have an idea of the industry standard.
Your hourly rate will also be affected by your skill level. Do you have professional training or years of experience? These will certainly equate to a higher hourly rate than a newbie. Also remember that you can use different hourly rates depending on what it is you are creating for a particular order. For example, an intricate, tiered wedding cake is going to take much more of your expertise than an order of two dozen plain cupcakes. So remember you can adjust to suit the order.
When you have your hourly rates in mind, you can pop them into the Cake Pricing Calculator and use the outcome as a guide for pricing your cakes. Here's a screenshot of the form filled out:
You may or may not know that my ‘day job’ is an architectural assistant (that is one exam away from being an actual architect) and in every office I’ve ever worked in, recording your time spend on every project is vital. There are a number of reasons for this but one is that it eventually becomes a reference for the office when pricing for future jobs. Whenever we get in a project similar to one we have worked on before we will look back at the hours spent on the project and whether or not it was profitable. This information is then used to inform the fee against the job.
You will be recording all of your sales and the amount you changed but I recommend also including the time and material cost of producing each order. After a few months you will find yourself with a database that will become a valuable resource when you are asked to quote for a potential client. It will also avoid making costly mistakes more than once.
(Side note - I’m not going to go into detail about it here but remember to set aside about 20% of your profit to be paid to Mr Tax Man at the end of the financial year)
As I’ve mentioned before cake pricing is a knowledge and understanding that you will build up over time. There will be occasions where you’ll be furious with yourself for under-charging and curse the hours you spend for next to nothing. Equally there might be the odd occasion where you feel like you’ve made a big win - those moments are part of the joy of owning your own baking business - so savour them!!
I really hope that this, along with my first post, helps you to get to grips with cake pricing but if you have any questions please leave a comment below or get in touch using the social links.