One of the biggest questions that face any professional or hobbyist cake decorator who wants to sell their work is how much should I charge a customer for a cake? In this article, we break down the essentials you need to consider before naming your price.
How much have you spent on tools and equipment?
It's time for some honesty. How much time have you invested in learning the art of cake decorating? How much have you spent on tools and equipment? How much time have you honestly spent learning the business side of things?
The more honest you are, the bigger the gap will be. It's a classic case that as an artist you want to be focused on the creative, right brain, activities and the business side requires engagement from the left side of the brain. Regardless of which side we lean towards we all have to engage the other side of the brain just to get through the day.
The fact that you are reading this article has already engaged the business side of your brain, so let's go.
In any service based industry there are 3 key component that go into making up the price of your product or service:
- Time (your pay)
Broadly speaking they should work out at around 30% each, but of course overheads for someone working from home will be less than someone running a shop. However, there's an expectation that buying a cake from a shop will be more expensive than a home-based operator. Remember, these are just very rough guidelines and there's a multitude of thought and understanding that needs to go into each component.
- Ingredients - you need to know how much you are spending on ingredients to
make each cake. We're not talking about measuring each oz or gram, but we are talking about knowing that if someone comes in for a 10" square
decorated cake, how much the actual cost to you will be to produce that cake. This is fundamental to you understanding what to charge. It's worth spending some time to work out your actual costs and writing up a chart with the cost of cake in each of your most ordered sizes and work it up and down to start your pricing guide.
- Overheads - this is the one everyone forgets so don't worry if you've neglected this so far. However, these overheads need to be paid for and if you haven't attributed them into the price of the cake then you might be falsely showing a profit. Overheads include: Electricity, gas, advertising, broadband, mobile phone, website, delivery vehicle, insurance, kitchen equipment wear and tear (it will need to be replaced sooner due to your business activity). I'm sure that you can think of a few that aren't listed, but it's essentially everything that goes into making your business work. So how do you calculate how much of your mobile phone, electricity and gas to set as running costs? It's simply a case of taking meter or call readings in a week were you have no business activity and week where you have. Note the difference and you can legitimately charge that against your business overheads.
- Time (your pay) - here's something to think about. Your ingredients are paid in advance of you making the cake, your overheads are accrued as you make the cake and your time is only paid once both ingredients and overheads have been deducted and only once the customer has paid. As there is little room for negotiation with the other two, if you are undercharging then it's your pay that's affected, not the others. Being underpaid, leads to feeling undervalued, which is a downward slope.
This is just a short insight as each of these subjects and surrounding topics carry a lot more details, but the objective here is to help you understand what you need to calculate in order to come up with a pricing chart.
Once you work out your prices and understand where these prices have come from you need to promote and sell with confidence. Would you have more confidence in a cake artist who presents a formal looking, logical pricing chart with confidence over someone who's too shy to look you in the eye when giving the price? We are all the same. If someone is too shy to look me in the eye and doesn't have enough confidence in their work or themselves to give me the design, the price and the details, then why should I have confidence that they will deliver? It's cruel, but it's fact.
Now, having said that, being too self assured can have the opposite effect so just somewhere in the middle is where you should be aiming. You want to present your price, your design and your terms with enough confidence that your customer will have faith in you and that's when you'll get the sale.
It took Paul a while to work it out. He was very shy at the beginning and would only convert about half of his wedding appointments to a sale. He did some work on his confidence and soon after it was high unusual that he didn't get a sale. His cakes were the same, his prices were the same, but he just learned how to act with a little more confidence with amazing results.
It's important that you have a prepared pricing chart that you can talk through with your customer so they can understand the price that you have arrived at.
Feel free to use our PRICING CHART as a guide to help you come up with something suitable for your business.
You'll see on the chart that the cake sizes are along the top in columns and the Bands listed on the left. We worked out how much each cake size cost to make then added a contribution for overheads (which were high due to shop and bakery costs).
The Band represented the amount of time each tier would take to make.
It was then a straightforward case of adding the ingredient and overhead costs to the time against each Band which gave us the price per tier.
Presenting your pricing chart within a leather bound portfolio gives a professional look and installs confidence with your customer.
Paul would always finish his appointment by giving three options:
- Band C - you'll get a lovely, well decorated cake
- Band B - you'll get a great design befitting the occasion
- Band A - you'll get a beautiful design with bells and whistles
Of course, each design becomes more expensive, but so does the quality of design and essentially the time that you'll need to spend making the cake.
To hear Paul's take on things have a look at the video below (apologise for the old video and the shirt, which Paul assures me was trendy once).
Pricing your cakes can be daunting, but once you've grabbed the nettle life becomes so much easier. It's worth taking the time to work out the costs and coming up with a pricing structure that suits you and your business. For more on pricing have a look at my 8 min video on Youtube.
Taking the time to learn the business side of things will not only let you understand what you should charge and why, but will also allow you to operate a profitable business from a position of knowledge and empowerment. For further details have a look at what our Pro Section has to offer.
Hope this has helped a little and all the best with cake business.