Pricing - Part one
Pricing is one of the most difficult parts of being in business. As a member of many cake groups, I see the "how much should I charge" question all too often. Those of you in the same groups as I am must sometimes be frustrated or aggravated when I pop into a pricing thread and answer with a whole bunch of questions and “it depends.” Every single one of us wants pricing to be easy. It isn’t. I wish there was a simple answer. There isn’t.
As cake artists, we are creative and empathetic. We are caring and compassionate. All too often, we either don't even bother to do the math or we get all wrapped up in our feelings and knowingly undercharge. I have personally witnessed so many wonderful and talented people work themselves into the ground trying to build their dream company and get no where because they simply don't price in a way that is profitable. If you aren't pricing for profit, you are a hobbyist. I say that now, but I promise I struggled with it too. Finally, my husband looked me straight in the eye and said "Every single moment you spend on cake is time away from our son." Ouch. I felt that one.
Price = Costs + Wages + Profit + Adjustment to Market
Pricing is costs (more than ingredients), wages for time and expertise, and a profit for the business (to expand and buy new equipment). It's knowing your costs, knowing your value, and knowing what your client is willing and able to pay.
Let's start with costs. In order to price a cake, I have to know exactly what it costs to make it. I’m going to start with my buttercream.
This morning, Bertrude helped me make frosting. She’s a 20 qt mixer. Now just think about that. The time it takes me to make frosting will be different from those who have a 5, 7, 10, or 60 qt mixer. So already my cost will differ from yours.
9 lbs butter $18.63
13.5 pounds shortening $14.85
4 T salt $0.02
3/4 cup Vanilla $11.83
48 pounds sugar $34.16
Each of us will vary in these costs not only because of the quality of ingredients but also because of the purchasing power. Are you buying vanilla by the gallon?
I can now use this to calculate how much it costs me to make a cup of frosting. Then, knowing how many cups of frosting a cake needs will help me calculate the cost of that cake.
Before I do that, I need to add labor. In the case of making buttercream, my value of my time isn't especially high. US national minimum is about $7.50. In my area, the wage for someone tasked with making buttercream is about $11/hr. But that’s not all the labor costs! It also costs me employment taxes. I’ll calculate insurance in my overhead but we pay (even ourselves) taxes on wages. It costs about $12.16/hour. My costs for the hour and a half buttercream takes is about $18.24. This is separate from the labor calculation for making the cake.
Using all of that, I know it costs me about $0.81 per cup of frosting. This does not include what I spend on paper towels, dish soap etc because that is calculated in my overhead total.
Does this seem overwhelming? It can be. But it’s necessary. I recommend doing this for every single recipe. Once you know it, you can use it to price any size of all the items you offer. It's an investment of time in the beginning but will save you so much. It is valuable information that you need. Remember to update as prices change.
There are also many programs like CakeBoss Software and BakeDiary. I made my own Excel worksheets long before them but I hear good things. What is important is that you start on your way to knowing exactly what it costs to make anything you want to sell.
There are many wonderful cake groups full of great people who really want to help. When someone asks “how much”, people will answer. When they do, ask yourself if that helps you. Do you know what they are using? Do you know their costs? Do you even know if they are profitable? There is no shortcut. If you want to be profitable, you have to make the calculations. Anything else is a shot in the dark and a risk of working too hard for too little.