Of all the questions I am asked by my students, how to price a cake is at the top of that list and when I explain the best way to price it I am often met with a look of shock and responses of "but that'll make it far too expensive" or "no one will pay me that". So I thought it was about time I wrote about how to price your cakes and why it is important you charge properly for your cakes.
Let me start off by saying that whether you consider yourself to be a professional or a hobby baker, if you are taking money in exchange for a cake there are certain things you must do by law, including registering with HMRC and ensuring your local environmental health office knows you are selling foods - this applies whether you make a profit or not. You can find out more about this in my guide to starting a cake business.
The most common reason for people underpricing their cakes is that they don't consider themselves to be a professional. So let me start by saying, if someone has asked you to make them a cake and is willing to pay for it then to them you ARE a professional and as such you need to be paid for your work. They have asked you because you have the skills they are looking for, and have probably spent time and money perfecting those skills, you have the tools and equipment needed to complete the job they have, which again have cost you money, and you are the one they have chosen to work for them.
There's no such thing as a hobby baker who charges for a cake!
If you charge for your cakes you ARE a professional!
So don't under sell yourself and make sure you follow this simple formula to ensure you are not losing money or working for free, and then, if you plan to make a profit you can factor that in as well.
By following this simple formula not only will you be pricing your work fairly you will also be helping to push up the prices of cakes in your local area so that everyone selling cakes in your community is able to price fairly and you are helping people to understand that if they want good cakes, they won't be cheap.
No one wants to be known as the cheap cake lady, and by charging low prices you are not only doing yourself a disservice you are also driving down the prices other cake makers in your area can charge - which you may think isn't your problem because other cake makers are your competitors, but by people continually striving to undercut each others prices you will never be able to charge a fair price for your own cakes.
So, now we have covered why you should charge a fair price, here is a very simple way to work out how to price up your cakes:
Labour + Ingredients + Sundries + Utilities = Cost
Cost x % = profit
Cost + Profit = cake price
So let's look a bit more at how this formula works and how you can make it work for you.
In order to ensure you are not working for free and are at least breaking even when making a cake you MUST charge a labour fee. Even if you don't plan to become a full time cake maker you will soon get tired of making cakes for free or for a loss so this is a really important step to ensure you continue to enjoy making cakes for people, whether they are friends and family or customers.
Your labour charge will usually be an hourly rate and at this stage I would like to point out that in April 2017 the national minimum wage in the UK will be £7.50p/h. If your labour charge is below that then really you would be better off not making the cake at all because you could spend your time doing something far less stressful for more money!
Your labour charge is how much you want to be paid for every hour you spend working on this cake so make sure you charge for your time spent designing, shopping, baking, decorating, cleaning and delivering. It can be hard to guess how many hours you will spend on this when you are starting out so make sure you keep records of each cake and how long it took you so you can look back on it when you are pricing a similar cake in the future. A simple way to do this is to grab a post-it note, write the number of hours on it and pop it next to the cake then take a photo of it with your phone to keep a record.
As a guide I would advise charging a minumum of £10-15 per hour for this. If you think this sounds too much then consider how much of your time and money you have invested into developing your skills and ask yourself whether any other trade would give you their skills for less than this.
This is pretty obvious and I'm sure the ingredients are the one part of the cake that everyone would price correctly but make sure you are including every single edible that is going into that cake from the butter and flower to the sugar pearls and florist paste.
If you are unsure on current costs simply download an online shopping app and add the ingredients to your basket.
Sundries will include anything not edible which you will not get back after the cake has been delivered. So be sure to include cake boards, boxes, cupcake wrappers, ribbon, dowels etc.
This can be really hard to price as unless you have a smart meter you are unlikely to know how much your oven costs to run for an hour. But you can work this out as an hourly rate if you really want to by looking at your electricity bill and dividing it by 8772.7 (this is the number of hours in a year!)
As I said earlier, unless you are adding this part you are really only breaking even and your business will not be making a profit. This is something to consider if you are planning to build your business and expect it to make you a living. Without a profit you will not have money to invest in new equipment, future training or even marketing materials such as business cards etc. This is why the profit is the most important thing to consider if you are hoping that your cake making business will be a way to pay your bills and make you a proper living.
How much profit you wish to make really is up to you but I would aim for between 25-75% of the cost, that may sound a lot but keep reading! The % you settle on may depend on the type of cakes you make, the customers you work with and the events or occasion you are pricing for - eg wedding cakes cost more to market when you factor in wedding fairs etc so you'll need to ensure your profit covers that and will want to increase the %.
Now you have understood the way to price your cake lets look at an example and consider a very simple cake.
This is a very simple one tier chocolate cake with ganache filling and one flower decoration. Lets imagine this was a 12" cake which could feed 50 people.
Labour = This would take approx 5 hours and you would charge £15 an hour
Ingredients = approximately £35.00
Sundries = £10
Utilities = £3.50
Profit = I am using the lowest end of the scale at 25%
Cost = £75 + £35 + £10 + £3.50 = £123.50
Profit = £123.50 x 25% = £30.87
Total charge = £154.37
That sounds a lot right? But now remember that cake was for 50 people, so each slice works out to cost £3.08 - less than you'd pay for a coffee in Starbucks.. does it seem so expensive now?
So next time you get asked how much a cake will cost, don't pluck a figure out of thin air and more importantly, don't panic! Sit down (preferably with a slice of cake!) and work out how much that cake will cost.
If your customer is not happy with your price then don't drop it immediately. Instead consider these key points:
- Do you really think you could do it cheaper? And would you really want to?
- Do you want to work for a customer who doesn't value your time and skills?
- Have you told them the price per slice? Could you offer them something else within their budget instead of dropping the price on this cake?
And if they insist they can get it cheaper, then let them do that because the chances are they can't and they will come back to you if you are selling a great quality product, maybe not for this cake but for others in the future. We all know we can get food cheaper in ASDA than Marks & Spencers but that doesn't mean we don't sometimes buy the things we want in M&S if we consider the quality to be the most important thing when we are shopping for a special occasion.
"I know cake makers who charge less"
"I know customers who pay more"
The kind of customers you want to be building relationships with are those who appreciate your skills and the quality of product you can provide them, they will then recommend you to other similar customers. The last thing you want for your business or personal reputation is to be recommended based on your prices, especially if they are low, because once you are known for your prices, it will be impossible to change them.
I really hope this has helped with your pricing strategy, if you are still struggling or have any questions please leave a comment below and I will try and cover them in a future post.
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