Cake Decorating Business #4: Basic Principles of Pricing Your Cakes

Basic Principles of Pricing Your Cakes

Cake pricing is the thing most cake decorators and bakers really struggle with. In part this is because this is a very emotional business we are in, so we take all of it very personally and a lot of high contact hours go into what we make. We are envolved with people on a personal level at the most emotional times of their lives – and when someone does not like what we have made or questions our pricing, it can be difficult not to take it personally. It’s also quite difficult to put a dollar value on creative talent. Have you ever seen a fairly simple painting hanging in a gallery, looked at the price tag and wondered how that artist could justify that kind of price? The same basic idea is true for cake, in so far as you’re required to put a dollar value on something which is entirely subjective. How does one put a dollar value on the years of skill, the time and expense of the classes you took, and the hours and hours of trial and error? The truth is, you can’t really put a dollar value on those things. Just like there are people who will look at the painting in the gallery and think the price is ridiculous, there are people who will happily walk into that gallery and think the price they paid is a bargain.

So if the pricing of artistic work is so subjective, how do we price our creations? First we need to look at what goes in to actually working out the price of a cake. There are four costs involved in cake that you need to consider when working our your prices:

1. Cost of production – what it actually costs you to make that cake. This might be anything from sugar to edible glitter to cake boards, skewers, ribbons, fondant, the box you packaged it in. Whatever it cost you in ‘stuff’ to get the product made.
2. Cost of overheads – what it costs you to run the business itself. This is things like rent, water and power, fees and registrations, advertising costs and so on.
3. Labour costs – there is someone making that cake, sweeping that floor and making those flowers. Even if the person doing all of those is you personally, you still need to consider that each cake you make needs to pay for your labour. If you were not doing all of those things, someone else would be and they would certainly expect to be paid for it.
4. Profit – this is the money you get to keep after the other three things have been paid for.

A common mistake that new business owners make is feeling that they either don’t deserve to be paid for their time, or they are simply not accounting for their time in the first place. Some business owners also mistake being paid for their time as “running a profitable business,” but profit needs to be considered separate to your labour cost. This is because the profit is what you need to grow the business and assist with cash flow. Making a profit is the difference between making enough to survive and making enough to thrive. If you are not considering profit in your calculations then you are not really planning for your long-term business survival.

In addition to the above there are other factors to consider when you price your cakes. These factors affect the profit portion in your calculation because they are more subjective. In the example of the artwork, an artist with a great reputation showing in an expensive gallery could charge more than a student artist showing in a local gallery. The costs would still be covered in either case, but the profit share would be different.
The other considerations to setting your prices may include:

• Your target market. Who are you selling these products to?
• Your area and what is currently on offer from your competitors. If nobody else in your area can make or is charging $1000 for a cake, you need to investigate why this is and if there is a market for that kind of thing in the first place. Perhaps nobody makes them and you’ll be the first, or perhaps that quality is being made but the price is prohibitive for people in that area.
• Your branding and business overall. If you’re a home based business, you may find it more difficult to charge what a shop front can charge, even if the quality of the work is the same. If you’ve branded yourself and positioned your business as an “everyday cakes” kind of business, you will struggle to charge a premium for wedding cakes as people will not expect that from you.

Cake pricing is one of those things which seems really difficult for cake makers to understand, and often they are looking for some sort of ‘quick guide’ to pricing. Unfortunately there is no such thing as a quick and easy guide to pricing because so much goes in to figuring that out. Each cake maker’s costs are going to be different and their circumstances are different. That being said, the better you get at pricing your creations the easier it gets to do, and over time you start to become more confident in doing it. The key to cake pricing is simply practice – take the time to do the math correctly on paper enough times so that eventually you will be able to do pricing in your head.

Written by Michelle Green 2014, Copyright The Business of Baking