If you’re starting up a new cake business, and running it from home while trying to scale up, chances are, you get the occasional customer gripe about the cost (usually your mates who don’t understand the cost, time and effort it takes to put into them).
You might even, at some point, have tempted to shave the cost down just to get the order. After all it’s only eggs, butter, sugar and flour, so how expensive could it be – right?
Wrong! In the first year or two of my cake business, I made the very big mistake of repeatedly discounting prices, because I felt guilty about putting my cakes at a price where I felt I could make a reasonable profit.
This led to that dreaded Tax Return result, a big fat “Loss!” Not a nice feeling….
Thankfully, it didn’t put me off, but instead caused me to change my thinking. There are two main elements to consider for any shrewd cake maker or decorator, looking to run a successful business.
The first is that there are hidden costs, which you need to incorporate into the cost of your product.
The second, and probably biggest element, is your time.
Other than the cost of your raw materials (eggs, sugar, butter, etc), you have hidden costs. These are things like:
- Board, Box, Ribbon
- Coloured icing (which is more expensive than white icing)
- Cost of fuel (electricity/gas) for baking
- Travel to suppliers to purchase items
- Cake decorating equipment and materials, etc.
A really useful way of pricing your cake so that you have a rough guide is to create a chart which shows the cost of materials for each cake of different sizes. Then have a section where you add in the variants e.g. that you have used coloured icing (which is much more expensive than white), or that you have used diamante trim instead of standard ribbon.
When I first started my business, I was making smaller, less elaborate cakes which obviously did not take as much time as more elaborate cakes. I figured I could afford to a basic rate of pay. You might decide to do the same, perhaps using the minimum wage as a guideline and adding to it as you feel appropriate. Now that my cakes are more elaborate and take longer, obviously I have a higher rate per hour.
So you can see that with the cost of your raw materials, hidden costs for extras and your hourly rate, this will give you a good idea of how much you should charge for those gorgeous cakes you take hours to make.
For now on, whenever people ask for a reduction in price, you can confidently turn them down!