If you have landed on this blog, I am guessing that you have reached a stage on your cake making journey where you want to turn it into a profitable business. When I first started, I am going to be totally honest, I had no idea where to start when it came to pricing my cakes properly, my idea of researching was to look at how much M&S charged and charge a bit extra! I now look back and cringe, I have no idea how I survived those first few years working for literally 50p an hour.
So, with that in mind I made it my mission to learn as much as I could on how to do it properly as I knew I could not carry on much longer if I didn’t start pricing correctly.
The main thing I learned was that each business is different. The biggest mistake people make is to base their cost on what a competitor charge. Where I am not denying that is good to be aware of what others in your areas are charging, copying their prices (or even worse undercutting them) is a massive mistake! Their circumstances might be totally different from yours, for instance they might be doing this as a hobby so they don’t charge much as they are happy to just cover their costs. They could be using cheaper or more expensive ingredients. They might be buying in bulk so their costs are lower etc
I now would like to share with you all a simplified version of what I have learned so you too can price up and move your business forward.
When pricing cakes, you need to take into account the following:
- Cost of goods
- Cost of labour
1. Cost of Goods
This is the easy part; the cost of goods should be everything you need to buy in order to make the cake such as:
The best way to work this out is to create worksheets and put all these costs down, I have created spreadsheets and although its time consuming to start with once its done, it’s just a case to revise them annually to account for price fluctuation.
2. Cost of Labour
This is basically your wage. To work out your cost of labour you need to work out how long it takes to make a cake. You do this by breaking it all down into tasks
Time is the hardest thing to price, especially when working from home as you can get easily distracted for example, the washing needs doing or there are dishes in the sink already when it comes to wash your cake equipment. Or you “multitask” for example you can make your sugar flowers while watching tv, this will of course mean that it will take longer to complete the task. So when trying to work out your timings you need to ensure that you concentrate on the task in hand just as you would if you had a “boss” watching over you.
The other factor to take into considerations is what you are worth, which probably happens to be the hardest thing to price as we are our own worse critics, but you need to get over that hurdle and think about it this way, if you worked for a cake shop (or any other jobs really) how much is the minimum you would be willing to work for? When you know the answer to that, there are other things to take into considerations such as:
- Skills – Do you have a set of skills that make you different from the cake maker down the road
- Experience/knowledge- the longer you do this job for the faster you become
- Location – living costs vary from place to place
Another good way to work out what you should be charging per hour is to ask yourself this question:
- What would it cost to hire someone to do your job???
This is especially important if you are ever ill and need to pay someone to do the work for you, you need to make sure you are charging enough to cover their wages
The other important factor that so many people do not take into account when pricing a cake is to add some labour time for the other work such as
- Time spent taking orders (emails, phone, consultations)
- EHO paperwork
- Ordering stock/shopping
- Design research
- Extra deep cleaning
This is one of the biggies and one that so many people forget about.
Overheads are what you need to run your business and you could not function without such as:
- Council tax
- Phone (landline and mobile)
- Website costs
- Housekeeping; eg cleaning equipment, chemicals
You need to factor all this in what you charge to ensure they are covered. There are 2 ways to do this, one is really complex and would need to be done over a period of at least 3 months by keeping track of every hour worked to work out an hourly overhead rate….so in my opinion far too complicates for a home business. The easiest way to calculate your overheads for cake pricing is to add 25% of your costs of goods
Profit is what you need to create a business, you cannot have one without it, otherwise its just a job with a hell of a lot of responsibilities.
Profit is needed for many reasons such as these:
- To replace equipment; eg mixer breaks
- Invest in your business eg: buy equipment, take classes, create a better website, advertise, wedding fayres etc
- Covers unexpected events: eg if you’re out of action for a while and you need to pay someone to do your job with the labour cost, you can still pay yourself a small wage with the profit.
- Hire an accountant
- Have some money in your account to pay your tax and NI bill at the endo of the tax year (unless you are disciplined enough to put a bit aside every month)
The amount of profit you charge is entirely up to, and certain products will have a much higher profit margin than others. To work out profit I add the cost of goods, labour and overheads and add between 30%-70% for profit.
Well this is it! I hope you have found this helpful. If you have any questions why not join our Facebook group where as well as being able to ask any questions you will have access to many form and worksheets including ones to help you with your pricing as mentioned above https://www.facebook.com/groups/francescascakesacademy/
I will leave you with the best piece of advice I was once given by another business owner: If out of 10 customers 8 of them book with you, then you are too cheap! You should base it on a 6/4 ratio. (6 bookings of 10 quotes given)
Ask yourself this question, would you rather make 4 cakes at £30 each or 2 cakes at £60 each? By having less demands you can produce a much higher quality product so people will be prepared to pay more for it.
Not everyone can afford custom cakes and that’s absolutely fine, but that doesn’t mean you should work for free. Value yourself and your time and your business will flourish.