One of the most popular questions on cake group pages is the dreaded "HOW MUCH?!" First let me say that I find this especially frustrating. I find it frustrating because I know the person asking really wants help. I know they are vulnerably admitting they don't know and need help. I also know there is absolutely no way for me to answer in a way they want me to answer. They want a dollar amount. I can't give them one. No one can tell anyone else what to charge without knowing all the costs, the labor, and the profit needs. I also find it frustrating because some of them know what they should do but they don't want to do the math. They want someone to do it for them. That is just plain rude. Finally, it frustrates me because well meaning people will toss out a random number. This can do so much harm.
I typically respond with some version of explaining that each one of us is different and it's impossible to answer correctly. I include the soundest pricing advice I've ever been given:
Price = All Costs + Labor + Profit for the business
I know that seems much like an easy thing to say. And, I know it is far more complicated. I also know that as creatives, it's not much fun to do the math. I promise once you devote energy into the foundation of your pricing it will be so much easier. More importantly, you will be profitable. Isn't that the whole point of having a business!
In case you are coming here from one of the groups, I want you to understand why I take this subject so seriously. Without meaning to be combative, I have on occasion asked provocative questions. See, I know that some people answer this question with what they would charge (not having done the math, what they think someone else should charge, or what they have seen at a local (incomparable) store. That isn't helpful. Worse, it can be harmful. I say this because far too many of our Sugar Sisters undercharge. When pressed, most people can't say either what their costs are or the profits. Many of them don't even have a business.
"So what?!" some may say. Well, I have personally watched very committed women try so hard, invest so much, and work themselves almost to death only to realize they have made no profit. They used someone else's pricing suggestion or erroneous formula. It is absolutely heartbreaking. Worse still, many of them think they are making a profit and aren't. If I can save someone from that, I will.
But what if they are in my area? Even if they are right next door to you, your costs will probably be different. Are you using the same chocolate? Do you buy from the same place? Are you even targeting the same clients? I am truly good friends with 6 cake artists in my area. We are all different. Sure we overlap and sometimes compete for the same client but our costs and our prices vary. Honestly, even our target client varies.
So what is the magic formula? I wish it could be as easy as multiplying your ingredients by 2 or 3 or 4. It isn't. That is one of the biggest mistakes people make in pricing for our industry. These formulas exits because they are great for some industries like retail. We are making the product and selling the product. We need different calculations.
Start with costs
Costs are more than ingredients. Costs are every single thing you touch from taking the order through it going out the door. A few things people forget are: license, insurance, business cards, website, paper towels, dish soap, etc. It's every single thing. There is absolutely no way to know if you are making a profit without knowing all your costs.
Lets start with ingredients. These, of course, are what you need to make your product. "But what if I already own them?" All ingredients cost you. It doesn't matter if you have them on hand or have to go to the store. Already owning something doesn't make it free. I use an excel spreadsheet to calculate all my recipes. The first page is a master list of ingredients. For this example, let's use Callebaut Dark Couverture callets. I pay about $122.95 for a 22 lb. pound bag. That makes them about $0.35/ounce. When I make my small batch of chocolate chip cookies, I use 1 1/2 cups of chips. Each cup is 6 oz. That recipe costs me $3.15 just in the chips. In total, the recipe costs $18.17. The batch makes 15 cookies so each cookie costs me $1.21 in ingredients.
It may help to review this post of how I priced my buttercream.
Ingredients are only part of my costs. What is your overhead. This one is tricky. The first year, you won't know. You'll need to guess how much cling wrap and parchment paper and all the other things we use but sometimes forget. You'll need to include license, insurance, office supplies, cake stands, and website costs and every other non ingredient business related expense. I take my yearly costs for these items and divide that across the months. This is my monthly operating costs. To know how much of this to adds to cookies, I have to estimate how many I could make (at full capacity). Let's pretend my operation costs are $100 month (its way more) . If I can make 100 cookies a day for 30 days, I can calculate the cost per cookie:
$100/(100 cookies x 30 days)
$100/3000 = $0.033 each cookie
That's not so bad per cookie! I specialize in wedding cakes. While at one point I was making 5-8 per week, I now typically create 2 cakes a week. My operation costs are divided by 8 cakes per month. If we use that same $100, each cake costs about $12.50.
This doesn't include packaging. Packaging isn't free. You'll need to add the cost of your box, any lining/wax paper you use, labels and ribbon.
Labor
Labor is another cost we must calculate. This is tricky. In the beginning we are slow. As we become more experienced, we get faster. To account for skills, mechanics use a big book of labor. It lists how long each task should take the average mechanic. I do the same. I also pay myself differently depending on the task. While the going rate in my area for someone washing dishes in a bakery is about $11/hr., some of the carving, sculpting, and piping I provide deserves $25/hr.
When calculating labor, be sure to consider how long it should take, the fair wage for that task, and any fees an employer would pay (like employment taxes). You'll also need to account for some of the weekly tasks you perform that are often forgotten. Most of us spend time answering emails, shopping and planning, posting to social media, etc.
There are 2 ways to calculate this labor. One is per product. My average wedding cake is a 4 tier for a guest count of 150. For the average wedding cake, I spend about 20 hrs. start to finish:
In person consult - 1.5-2 hours
Sketching and writing contracts - 2 hours
Emails to coordinate delivery - 15 min
Planning/Research - 20 min
Baking 3 hours
Clean up 3 hours
Frosting (filling, crumb, and final) 4 hours
Decor 1-3 hours
Social media posting 15 min
Shopping 10 min
Misc tasks 30 min
Delivery 30 min- 1 hour
Now lets look at that list. Cconsults, sketches, décor, and cake set up are highly skilled labor and are "billed" about $25/hr. ($312.50) Baking, cleaning up, frosting, and all those other tasks are about $11/hr. ($82.5). The total labor (before tax) is $395.
I think it is important to mention the horrid sole proprietor tax. When you work for an employer, they pay half of some of your federal taxes. When you are your own employer, you pay it all. This tax is 15.5% on top of your regular federal income tax. One year I fell in the 15% federal income tax bracket. My tax that year was 30.5%. That is a chunk of change! As an employee, you get paid $11/hr. but your employer pays $11.85. They actually typically pay more due to unemployment insurance, workers comp, health, etc.
When I add the tax to the $395, the labor cost becomes $424.63. Now I just want you to think about that for a moment. Think about how many times you would need to multiply the cost of ingredients to account for the overhead and this labor. As I mentioned, labor is often our biggest cost.
I don't have time to do this for all my cakes. I could use that average. Another way to determine labor costs is to use the hours we work per week.
Lets use a 55 hour work week. Chances are in that week I am performing more of the less skilled labor. Let's say I "work" at the $11 wage for 3/5 of the time and at the $25 wage for 2/5 of the time. That's 33 hours at $11 ($363) and 22 hours at $25 ($550). I use that total labor cost of $981.48 (I added the tax). I divide that by the number of cakes I am making to get the cost per cake. Remember in the first example we are only making one cake. In this example we are costing by weekly work and average number of cakes.
Have I lost you yet with the math?
Hours per week/amount you produce = labor cost each
Both ways work. Both ways ensure you are paid for your time. If you do not know how many cakes you will be making a week, it is ok to estimate or to cost each cake.
If, you are making single item or boxes of desserts, you will use the time it takes to make the items. I typically break that down. You'll use the total items made (minus waste)/ the minutes it takes to make them to find the per minute "cost" of each.
If I make 20 mini cupcakes in an hour (20/60 minutes), each one costs me 3.33 minutes. $11/60 minutes = $0.183/minute. $0.183 per minute x 3.33 minutes = $0.61. Those cupcakes cost $0.61 each in labor.
Cost of waste
This is absolutely something we need to consider especially when we are talking about cookies and cupcakes and candies. There is always a chance something gets burned or dropped or otherwise doesn't meet the standard to be sold. This is waste. How much waste do you expect to have each month? If you are running a sale and mass producing instead of pre-sale option, the waste is any unsold items.
Profit for the Business
Even if you are a sole proprietor, you deserve profit for the business. Sometimes this is invested back into the business in new equipment or tools. Sometimes it's paid out to you the owner as a profit for taking the risk of being in business.
When you walk into a store, the items there will vary in profit. When I worked at a battery store, some items were 200% profit while others were only 10%. This is because the client values and is willing to pay more for some products and less for others. The goal is to have an average profit range. In our industry, the standard is 40-60%.
You deserve a wage for your work. You also deserve a profit on the investment of starting a business.
Consider the value
After you have done the math, evaluate the price. Are your clients willing and able to pay this price? Will they pay more? If they are only willing to pay less, can you lower the profit and still be in that 40% range? If your clients aren't willing and able to pay a profitable rate, this isn't a good product for you. Either somehow find a way to reduce your cots or don't offer it!
Double check your profitability
You've done the math. You've calculated everything. You've sold your first year. It's time to see if your math was accurate and if you were profitable. You'll want to know your net profit and your net profit margin.
Net profit = total revenue - total expense
Profit margin = net profit/net revenue
Sometimes, we don't have to wait a year. When I offered cheesecake variety boxes for the holidays, I projected I would profit $15/box. At the end of the sale, I am able to run all the numbers of what I spent against what I earned to see if that number is accurate. If it wasn't, I need to determine why. Did I not sell enough? Did I incur unexpected costs? If so, I need to adjust.
If you haven't yet, get a separate bank account. At the very list, keep a ledger with every single penny you earn and spend. Sometimes I would accidentally purchase something as part of a home trip to the store. When I got home, I would make a copy of the receipt making sure to note it was for the bakery. Check it often. Some months will be more profitable than others and some months you may take a hit because of overhead. That's ok. Work towards the goal of profitability.
Comfort levels
Yes, I know you are scared to charge. We cake artists are empathetic and caring and compassionate. It is sometimes difficult to ask what we know we need to charge. I want you to change your perspective. You not only deserve to be valued, but you and your family deserve to be compensated for your time and devotion. I had a hard time with this one. Finally, my husband looked me dead in the eye. He said "Every moment you spend on cake is one away from our family. We should be compensated for that." He's right. I've spent many long days ensuring someone had a great cake. It meant missing dinner or story time or 100 other things we sacrifice. You would not go to a job for free. If you can't charge for yourself, do it for your family.
The other reason you should charge a profitable wage is your Sugar Sisters. There are so many women trying to make this a business. They are doing every thing they can to make this work. Each time you undercharge, you make it harder for them. Potential clients will wonder why she can't do it at your rate. It devalues the market and influences what clients will be willing to pay. Please don't make it harder for us.
This kid is my world. I'd much rather be spending the day with him.
Help your Sugar Sisters (and Brothers)
When you see these questions and want to help, offer sound advice. I promise you it helps. You will be giving someone the tools to build a successful business. You will also encourage others to do the same. I've been offering the same advice for a few years and every now and then, I see my own words repeated. It warms my heart. And the more we answer with the tools instead of a number, the less those questions appear.
For more information on building your business and profitable pricing, please see view our Mentoring for Success and the Mentoring for Success Pricing Edition