How to charge for cakes? This is the BIG question, isn’t it?
I talked to you extensively in The Cheap Cake Lady about many of the reasons you don’t want to be her. If you missed that post and you’re struggling to charge appropriately, I highly recommend you head over there and read it for some motivation. Today though, I’m going to talk to you about how you can keep from being her.
I don’t want this to be a misleading article. I’m not going to tell you WHAT to charge for your products. I can’t tell you what to charge for many reasons. Pricing depends on many things and that’s exactly what we are going to address here. I am going to explain to you HOW to decide what to charge for your products.
I know. Not the easy answer you were looking for.
When you are first starting out it can be so overwhelming knowing where to begin. You are constantly doubting yourself, your abilities, and what people are willing to pay, as it is JUST cake after all (but it ISN’T!!). So you just charge whatever “feels” right without really taking all true costs into consideration.
Today we are going to change how you look at pricing your cakes and other products. You are going to learn all the aspects that you should be using to mathematically figure your product prices.
1. Figure out how much your materials and ingredients cost.
The first thing you need to do is go through all your receipts and write down how much each and every item you use to make a product costs. Be sure to include tax that you pay on the items as well. These are the items you use for every single order or nearly every order. These costs will help you figure your base pricing.
When I say everything, I mean EVERYTHING.
Every tiny item adds up over time and you could be losing lots of money if you don’t account for every single item.
You will want to include things such as:
Cake mix, flour, sugar, milk, eggs, butter, sour cream, yogurt, flavoring, powdered sugar, shortening, boxes, cake boards, parchment paper, ribbon, dowels, fondant, gumpaste, baking spray, cupcake wrappers, etc.
2. Figure out the cost of specialty and one time use items.
Now you want to write down the cost of things that you don’t always use in every order. These are special order items or items that you specifically bought for a single order. Be sure to include shipping costs as well.
They may include things like:
Edible images, sprinkles, petal dust, airbrush color, stencils, cookie cutters, cake drums, etc.
3. Figure out the cost of tools.
You will want to write down the cost of tools that you have purchased that you use on a regular basis. These are items that you use with nearly every order. If you purchased these items a long time ago or just have too many to remember then do the best you can to estimate what the purchase price was. I tend to use an overall percentage to calculate in my final cost equations but it’s helpful to know how much you have in these items. (See example at the end.)
These items may include:
Cookie cutters, exacto knives, piping bags, icing tips, icing spatulas, mixer, mixing bowls, spoons, air brush machine, couplers, pans, food coloring, rolling pins, office supplies, printer, ink, computer, etc.
4. Figure the cost of utilities and overhead.
If you work from home it’ll be a little trickier than if you have your own retail space. There’s a couple different ways you can go about figuring the cost of utilities and overhead.
When working from a retail space you will just simply write down the average cost from your monthly bills. To get the average take at least a year’s worth (or whatever you can) of a specific bill and add the totals together. Once you have that total divide it by however many months you added together and you have your average ($3000 total/12 months= $250 average).
Working from home is a bit more difficult. If possible you can compare past bills with bills that you have received since beginning your business and figure the difference. Of course this isn’t very accurate because you can’t be sure just how much of the difference is because of your baking as opposed to things like the weather (we’re talking electricity here). There are also things like your internet bill that may be a flat rate regardless of your usage. Don’t discount these bills though because you are still using them for your business. You just may need to use another way of deciding these costs.
If you can’t decipher what the costs of your utilities or rent are using the method above, because you work from home, don’t fret. Another way of deciding this cost is by using a percentage. You can take your monthly bills and for example use a flat 20% as your cost figure. You may need to use a greater or lesser percentage.
Items will include things such as:
Rent/mortgage, electricity, internet, advertising, website fees, business license fees, insurance, etc.
5. Decide what your time and talent are worth.
This is probably the most difficult of all.
Why is that, do you suppose? Why don’t we value our time?
I’m not sure why, but I do know that if we don’t value it, others won’t either.
There are a few ways to handle this one. What you basically need to do is decide on your bottom dollar wage you are willing to make per hour, and never charge less than that. I also use a second hourly rate that I charge when I’m making a product or a design that requires a high skill level.
If I’m only icing a cake and piping polka dots onto it I won’t charge the same hourly rate as I do if I’m hand cutting 50 tiny intricate snowflakes. This is the easiest way for me to charge for my talent as well as my time. Some people may not agree with this train of thought, but I personally don’t feel like I should charge a premium for basic decorating. I’m not saying I don’t still charge a fair wage for myself, I just don’t charge extra for doing simple tasks. Does that make sense?
Don’t forget to consider your talent!
When deciding what your time is worth be sure to take into account your talent and skill level.
As I said above, I charge a basic hourly wage and a premium hourly wage. Decide how you want to approach that. If you are just starting out and you aren’t very skilled you still need to charge for your time. You may not be ready for higher skilled cakes, so you won’t need a higher skilled hourly wage cost because you probably will be turning away orders outside of your skill level. (Don’t ever be afraid to say no to a design that is out of your comfort zone!!)
Once you know how much to charge per hour you now need to figure out how much time you have in each product (I tend to charge basic wages for non-decorating tasks).
You need to account for things such as:
Designing, consulting, emailing, speaking on the phone, creating a quote, shopping, baking, making icing, leveling cakes, icing cakes, hand making items, piping patterns, etc.
6. Now take all those figures and do some math!!
I hate math. It’s my least favorite of all the subjects I learned in school
I would much rather be reading or writing than sit around doing math problems. Ugh.
But we have to do math to know what you should be charging for your cakes. It’s actually not as difficult as it seems. What you’ll do is take each item you wrote down the full price of and divide it by however many ounces, pounds, individual items per package, etc. Once you have this you can plug it into an equation and figure how much each cake costs you to make.
After you get all of your material/ingredient costs you will then add your monthly bills/utilities, and hourly wage costs to that number.
And just like that you have what you bare minimum should be charging for a cake or other product!!
Here’s an Example
Let me show you an example of what I mean. In the following example I used completely fictitious prices for ease. This is just to show you how to do the math. I also used percentages for my tools/materials that I use on nearly every project. It’s easier than trying to decide which tool I used and how much it cost per use. For the hourly wage section I figured my shopping/baking time at the basic rate and my actual decorating time at the premium. This fictitious example was for an intricate cake.
As a side note: I use excel spreadsheets in my actual business with all my formulas plugged in so that I don’t have to do the hard math every time I create a quote. I just plug in my quantities and it gives me the numbers! This example doesn’t have the formulas, it shows the math.
As you can see, if I were only charging for the cost of my ingredients, or even including the cost of my tools and materials, but not my time, I’d still be way undercharging! You absolutely, positively must charge for your time and talent as well!
No more Per Serving business!
Did you happen to notice something else??
I didn’t use a per serving figure to decide what to charge!!
I stopped doing per serving figures because they are way too basic. You can’t really know how much you have in a cake when you are only using a generic per serving equation. However, there is a way to make the per serving figure work a little more accurately. I’d like to talk about that in my next post when I also address how to make this process a bit quicker and give you a starting place on your base prices for future orders. But we had to start here to get there, because we need to know how much things cost to create those new base prices!
So hopefully this wasn’t super confusing. If it was, please reach out to me with any questions.
Now that you know how to cost your time, materials, and ingredients allowing you to charge appropriately, read this next article on how to streamline the pricing process. It includes a free printable for you to reference as a quick quote guide.
Did you get your free printable order form as well? If not, be sure you get that too!
Oh, and of course, don’t forget to Pin for later!