Priced to Sell

I ran the top IGA bakery in the world for five years. I ran my own commercial bakery for nearly twelve years. I have a confession….sometimes I pulled the prices out of my butt. Yes, I simply guessed on what to charge. As you might expect, I probably lost money every time I priced something this way.

What is the smart way to price cakes? If you are going to do it right, it takes time.

First, do your research. You need to know what prices are being charged by your local groceries and specialty bakeries. You should know the price range for the types of cakes you regularly do – sheet cakes, 8″ layer cakes, cupcakes, whatever. If you do wedding cakes, you need to know the price per serving that these other businesses charge.

Most home bakers seem to stop right here and then undercut the other businesses in order to get the cake order. This is the WRONG way to price a cake. One, you make an enemy of the businesses – if you are not legally doing cakes from home, you are motivating the businesses to turn you in. Two, you are allegedly going the extra mile…using better ingredients, spending more time, giving more personal service…how can that cost less? Three, you haven’t looked into what it actually costs you to make the cake!

Second, you need to breakdown the cost of making your cake. If you start with a cake mix, then you start with that price. Then you have to compute the cost of each egg (12 pack carton costs “x”; divided by 12 is the cost of each egg). You must compute the price per ounce for the oil. You have to compute the breakdown price of every added ingredient. If you are a scratch baker, you have to compute the price per ounce of your flour, sugar and every ingredient.

Your cost of making the cake must include a price breakdown for the icing and any fillings also. This is going to take some time. We used to do this about every six months at the grocery store. It was an all day project. Once I knew the cost per ounce of all my ingredients, I could compute costs for each recipe. This gives you the base cost.

Third, you have to think about your overhead. Most home bakers and new bakery owners forget about this part. How much is your rent or mortgage per month? What is your average monthly electricity charge? Natural gas charge? Water charge? Phone charges? Internet? You need to compute a monthly overhead charge that contains all the fixed costs. Some of you may think that you can skip this, since your husband pays these bills or something silly like that…it does not matter if you contribute to these costs. The whole point is to see what it costs to make the cake!! Failure to think about these costs usually undermines home bakers who open retail shops. You do not have to cover the entire daily cost of your overhead out of your cake, but you do need to be cognizant of it and add something in for these costs.

Fourth, you need to cover the labor to make the cake. Most of us are woefully underpaid. If you have employees, you can figure up your daily labor charge to come up with a daily amount to be recouped in your cake costs. It gets trickier when it is just you. Most of us do not include ourselves. Even if you allot some money for the time you decorate, did you compensate yourself for the full cost of making the cake? You need to factor in time to mix the cake, to mix the icing, to make the decorations and…the time it took to buy the ingredients, to take the order and to research the design. Maybe you need to think about it like a commercial bakery – we have to pay someone for every single thing they do.

So, many of you are probably irritated right now, thinking I was going to give you a quick and easy formula to decide what to charge. The simple truth is that if you truly want to make money doing cakes, you MUST do a cost breakdown and it is going to take a lot of time. The first time. Once you have these core computations done, pricing will be much easier.

The final thing you have to figure out is how long it is going to take you to do the cake. When you are beginning, you tend to underestimate the time it actually takes. Once you have done certain designs a few times, you get a good grasp of how long it will take. If every single order you take is one of a kind (like the amazing Debbie Goard), then you have to figure out how much you want to make per day…regardless of how many hours it takes. Some people, like Christopher Garren have a set beginning price and then an added per hour charge that is added after the cake is completed.

So, what is your takeaway from this blog? There is not a quick way to price a cake. It isn’t easy for anyone. There is no secret, magic formula. You have a few choices. Pull a number out of the clear blue sky and live with it. Purchase pricing software or use a pricing template from Cake Central. See what others charge and set your price near theirs. Do the hard work to compute as many elements of making the cake as possible, then set starting parameters for your prices.

You will need to get in the habit of telling your customers that a quarter sheet cake STARTS at $x. They need to understand that this is the minimum it costs and that the more work or detail they ask for, the higher the price goes. The more experience you have as a decorator, the better you are going to be at pricing the extras. In the end, it is back to the hard work: how much fondant will it take, how much food color, how much extra time, etc.

I know that many of you are going to ignore what I have just told you. You will make a guess on the price and just live with it. You will be frustrated that you don’t seem to make any money at cakes. Go back to my opening paragraph! I did that. I lost money. I nearly had to close my bakery one year because I was charging too little for my cakes. The volume of sales was incredible, but the profit margin was in the red. When I finally came to my senses and did the hard work, I raised all my prices. Dramatically. People thought I was insane and some customers got angry and stopped ordering. I stuck to the accurate pricing. Turns out that most of the customers came back…they wanted our cakes and were willing to pay a fair price for them. I started to catch up on bills and realized that pricing requires our full attention.

If you are in the business of making cakes, you cannot forget that you are in BUSINESS. That means you need to put your artist hat aside and put on your businessman hat. If you will take the time to approach your cakes as a business, the business of cakes will reward you. You will find that you are only working when you make money. Isn’t that better than just working to TRY to make money?


14 thoughts on “Priced to Sell

  1. Wonderful once again! This is something we have all struggled with and it’s a hard lesson to learn (sticking to a proper fair price for you!) but it’s worth learning!

  2. This article is great for a NON BAKER as well .. the customer alone does not understand what goes into running a business to make their cakes. .. Most of my customers are GREAT when I have to raise my prices but then there are those few that say but its only a ???? ..then complain – to me if its only ???? then do it yourself if you think its so simple quick, easy and CHEAP. My health is not why I do what I do .. I do it because first and formost I LOVE IT ..but I do have to pay the bills too.

  3. This is definitely the thing I struggle with the most. I haven’t come to the realization that my cakes are worth as much as other people’s are … Thanks for another great lesson!

  4. I have people ask me all the time how to price their cakes, and you’re right, there is no pat answer. (I used to teach.) Another factor to be included is someone’s skill level. Although I have mostly come to grips with my pricing now, I sometimes try to “help” someone out with the price on a party cake, because it’s hard to price a tiered party cake the same as a wedding cake (though they should cost even more – lots more color and work). I wrestled with a price just today, but the girl surprised me when she offered me $50 OVER what I quoted her. I looked up, very surprised, and said “THANK YOU!” I said, “People just don’t realize what goes into making a cake like this.” She said someone had just quoted her $500 for the same cake, though in my opinion, that was extremely overpriced for this area for a two-tiered cake for about 50 people like she wanted. I tell people that when they overprice that much, they’re basically saying they don’t want to do the cake and it saves them from having to say NO. It reaffirms my faith in people when they appreciate my work and offer me more than I ask, and it has happened more than once. It’s great to have someone appreciate what you go through to create these cakes for them and they don’t tell you “it’s just cake.”

  5. Amen! If you are going to run it as a bobby then guess at your pricing. But if this is a business for you – LEARN and do your research. More than once I have suggested Cake Boss accounting software to people because it really does take into account everything in a business and it is specific for cakes! Don’t trust your memory. Trust what is in black & white and take time to get it there.

  6. Thank you Ruth. I figured everyone else had a magic calculator that made pricing so much easier. It’s a relief to know that others struggle too & it’s not just me. I’ve already applied your advice & I agree with you. Just price it & stick to it. I too have had to look at closing my business. I had to hire employees to keep up with the demand, but that ate my money up quick! Now I pray for God to provide a place where I can get out in the public & not just rely on made to order work. Thanks again!

  7. Very nice and useful article! Can you recommend a price breakdown – for instance, what would be the value (percentage) of ingredients in the total cost? Same about the overheads.

    • That is going to depend on YOUR costs of overhead and ingredients. Every area is different. I am sorry. You have to figure your actual costs to know what to charge.

      • We are a small bakery specialized in cakes. The main factor I took into consideration when setting up our rates was the level of our competitors. Indeed, it might not be most scientific criteria – yet no matter what our costs are, I have to make sure the clients accept us. Considering our rates level, the percentage of value for ingredients is around 20%, labor 20% and overheads 35%. I was hoping to hear if these percentages are used by others as well.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s