Pricing your Cakes (A beginners guide)

Some of the most common questions I get as a cake decorator are:
How should I price my cakes? Can you share your price-list with me?
What is the right price for a beginner?
How much should I charge for this type of cake? 

As much as I’d like to say, this is what I charge and you can charge the same; that’s not possible. 


What you charge for your cakes is based on many factors around you before you begin to calculate the actual numbers. 

In this post I’m going to share with you my own experience, explore some of those factors using my own market, then use some rough figures as an example to show you how to go about it.

The most important factors being:

• Where are you located and how much is you community willing to pay?
  What clientele are you serving?
• What is your expertise? Or what unique value you offer? 
• What is your reputation and demand for your product?

Where are you located and how much is you community willing to pay?
What clientele are you serving?

6 years ago when I first re-located from the US; while I regularly made cupcakes, cake balls and cake pops; it wasn’t very popular here and to some it was something new. While I grew up with a cake for every birthday, wedding and holidays, here custom decorated cake was a luxury item and very rare to find.

It’s not one of the items listed for a birthday party.  Surprisingly, some weddings I attended did not have a wedding cake! It's not part of the culture.

Most birthdays my son attends have no fancy birthday cakes but a simple cake that grandma made in a baking foil, poured some chocolate sauce over and threw some sprinkles around.
Much has changed since then but not as much as it is in the rest of the world.  And yet this is where I choose to start my business.  

Therefore, as you can see; the level of awareness and as a result the value for decorative cakes in your market will largely impact the pricing of your cakes.  

What is your expertise? Or what value you offer?

It is important that you be honest with yourself when answering this question.
It is true that anyone who starts a business wants to make money; how much is based on expertise and the value you offer. 

Almost every cake decorator will tell you she provides a unique value; being freshness, personal consultation, designing, expertise etc.  But does this set you apart from the others? What about your product is different form the others? Do you bake the cake from scratch? Do you give free delivery? Are you cheaper? Do you have creative and unique designs? Do you provide any extra frills? How do you compare your skills to your competitors? 

Supermarkets – One of my mom’s friends use to take the price-list of a local bakery, mark it up by 30% and use it as her price list. As a kid I was amazed at how easy pricing a cake was, until doing my MBA opened my eyes. That bakery sold 300 cakes a week so her cakes were very under-priced.
Never ever compare your product to a supermarket chain, not even if you are at a basic level of cake decorating. This is not a good price guideline because supermarkets have a very different business model than ours.
As a home baker you use top quality ingredients as compared to generic supermarket brands, you customize each and every cake.  While supermarket cakes are flash-frozen; you offer freshness, consultation, designing and much more.

Competitors – There has got to be another home baker not far from you. Check out her cakes, see the value she provides – compare those to your skills and values. If someone choose to buy your cake over her why would that be? You definitely do not want people coming to you because you are cheap?

My expertise and value – While cake decorating was a new venture for me; baking on the other hand is my expertise. I have been baking for more than 20 years.  I take pride in the fact that I make the best tasting cakes from scratch. I am also especially talented in Novelty cakes and creating new designs.  I know that in my present community baking a cake from scratch is considered very unique and valuable, so I use it to my best advantage.

What is your reputation and demand for your product?

While it is good to start a business, exposure is the most important aspect of getting business. Do people know you?  Have you built a reputation? Does your product have a market presence?  If you have a good reputation your cakes will be in high demand and so you can charge based on your demand.

My reputation - Most of my business is word of mouth. I do not advertise. As such every client that comes to me comes thru someone I know or has tasted my cake at an event.
Because I deal with a price sensitive market this was the best way for me to build my reputation. Once people hear about you and your skills from reliable sources their attitude to pricing changes. I have seen that in my price sensitive market people are still willing to pay for good reputation.

All the above factors are good considerations toward the next step which is the actual exercise of counting numbers.

Here’s what I did when I started, works well for me so I’ll share it with you. 

• Call your local bakery, home bakers and get an estimate. Most cakes are sold per slice while some novelty cakes are sold per cake.
  Say for example the local bakery might say they charge 35 dollars for an 8 inch cake, while the home bakers charges 70 dollars. Keep that on your reference booklet.
  
• Calculate your direct cake cost.  You do not need to do this for every cake recipe. Just pick one that falls in between your costing. Say for example your flour, butter; eggs, milk, buttercream, fondant cost you 20 dollars to make an 8 inch cake. Keep that on your reference booklet. My Practice - I divide my cakes into three groups depending on the cost.  A B & C and set my price per cup for cakes, buttercream and fondant.
  For example - I might need 5 cups batter for an 8"cake plus 2 cups buttercream plus 500 grams fondant...calculate! 
  I can then just change the amounts based on the size of the cake. When I have a client I just refer to my folder and be it vanilla sponge, caramel or rum cake; I have my basic pricing and can give a quote instantly. I do the pricing for all my sugar art ahead too. It really helps to do your homework well, takes away the stress form pricing and looks professional too.
  
• Calculate the indirect cake cost. This would include the oven, gas, electricity, even your tools and extras such as luster dust. All cost that you associate with your business but are not used directly on each cake. Even your business cards and advertising are part of your business. 
  You can take a rough estimate of how much you think you should charge for this. Or to be more professional make a more detailed analysis.
  Let’s take electricity for example – take an electricity bill of October before you started your business and a bill of October after you started your business. (this is assuming all other conditions are the same) Now see the difference in price and check how many orders you had for the month of October. Divide that number by the number of cakes. Keep that on your reference book.
  Say for example you said your indirect cost is about 10 dollars.
  
• Wages – how much do you think you should be paid for your time, effort and expertise? This is where your earlier analysis of comparison between the local bakers and home bakers comes in.
  Say for example you decide to charge 7 dollars an hour. How long would it take you to decorate a simple to a complex 8 inch cake? If you said 2 to 4 hours then your price would range from 14 to 28 dollars; right? Keep that on your reference booklet.
  
• Extras – These usually would include things that are unique to every cake, like sugar models, or flowers or a special ribbon requested for that cake. Sugar models and other sugar art are priced on your skills not on cost. So if you made a figure how much you charge is based on how much time you put into it and what you think your figures are worth.
  Say for example - on this 8 inch cake; the extras cost  5 dollars.Keep that on your reference booklet.

Note: Delivery and set up are also to be included in your pricing. If you offer free delivery you will need to do the costing in your indirect cost. If not, it will be added to your extras.

Now let’s go back to our reference booklet.

Remember, the local bakery charges 35 dollars & the home baker charges 70 dollars. You do not want to charge as low as the local bakery and as  a beginner you might not be able to charge as high as the home bakers who have already established her business. However, never under-price your cakes as this is very unethical and a big disservice to your fellow bakers. 

Cost for an 8 inch cake
Direct cost – 20 .00
Indirect cost – 10.00

So, the cost of your cake is 30 dollars. And the cost per slice is 1.25 don’t forget - you still have to add wages and the cost of the extras (5 dollars) at the end of the pricing.

Now you have a few options. 
You could price your cakes based on your Cost Price or based on your Market Price.
Let’s start with based on Cost price.

1. You could take your cost and add the wages you want;
   in this example 14 to 28 dollars so
   the selling price of your cake is  44 dollars to 58 dollars plus 5 for the extras.
2. You could take your cost and add a percentage instead of wages to it. Say you decide that you want to make 35% on your cakes.
   So take 30 dollar and add 35% to it. So now your cake selling price is 40.50 dollars/1.68 per slice plus 5 for the extras.
3. You could take your cost and multiply it by a number like 2 or 3 or 4 depending on the complexity of the design or your skills.
   If you multiply by 2 your SP is 60 dollars, if you multiply by 3 your SP is 90 and so on plus 5 for the extras.
   Remember this works only if you have done a thorough job of your indirect cost or else you would be underpricing your cakes.
4. Another way to price your cakes is based on the Market value for your product. 
   You still do your costing and keep that as a reference, so you will be able to calculate how much is your profit.
   But you price your product based on what the market is willing to pay for it.  One way to do it is to find out what other cake decorators are charging. Obviously they are charging what the market is willing to pay. So they have already established the market value for the cake.
   Find the price that works well for you and then evaluate your costing and work your selling price around it. 
   Sometimes the market value is low so you might need to decide if you want to still charge higher than the market value or find a way to bring your cost to match that price.
   Some times the market value is high so you get paid a premium or you can give extra benefits that add value to your product.
   

What’s most important is that you have to charge what feels comfortable to you and what makes it worth your time and effort. When you value what you do and price it accordingly others will do the same too.

My Business 
When I began my business I priced my cakes lower than the market value, not because I wanted to get more business. No!
Unlike most professionals that go to courses and learn by practice, my practice was on the job.
While I was very confident of my baking skills, I still had to prove my decorating skills not only to my customers but myself too. So I made a lot of cakes by just charging for the cost and was very happy about it.

I looked at it; as if these customers were funding my education.
I needed the skills and gain some experience and they needed the low cost option. But as my level of skill and expertise grew so did my prices.

We all have to start somewhere and sometimes we have to make compromises along the way to reach our goals. What’s important is how you feel about it. Charge what you think is right to you and you will attract those people that are willing to pay the price you quote.
 
To me it doesn’t matter if the cake has a price tag on it or is for FREE. Once it leaves my hands it’s a work of art made by ‘Veena’s Art of Cakes’.  People who see the cake don’t ask how much you paid for it… they ask who made the cake.  Take pride in what you do and what you offer.

I hope you enjoyed reading this post and I hope it helped you in some way.

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