Billing for Baking - The Cake Cost Conundrum
I belong to a whole host of baking forums and questions I see come up over and over are 'How do I price my cake?' and 'Do you think the cost is too much for this?' or 'My client says this is too expensive'. Never 'Is this too cheap?' or 'I turned down a customer because they didn't understand the value of my work'
There are, of course, plenty of bakers bemoaning clients asking for high-end cakes at supermarket prices, but I don't blame customers looking for a bargain. You can't blame someone who is not in your industry for not understanding the effort required to achieve something. Or the skills you have taken the time, effort and cost to develop. Or the cost of tools and equipment.
In any industry, it is any given professionals role to help the customer understand the value of what they are buying.
Now, I am not a professional baker. I don't charge people for cakes. I mostly make them for myself to eat. That makes me a Hobby Baker. But I do own my own non-baking business and the issue of what to charge for my services and expertise is not alien to me. So I thought I'd take some time to talk about just that. Not cake, not creativity, not worrying your work isn't good enough, not fretting that because you work from home that means you should be cheap. But business. Cold, hard business.
Baking Business
Running a business is hard work. It requires your heart and soul but it NEEDS your head to survive.
working-with-donuts-cost-of-cake
So, from a business point of view when you are considering what to quote for your work what you need to do is this:
Add up your costs
For making a cake this is your ingredients plus resources (like electricity/gas) and materials as well as a % of the cost of your business existence, such as rent and marketing. Yes, all of it.
For a cake that needs a particular mold or modeling tool, you wouldn't charge for the whole tool as you will use it again or already have it - so charge a small % of what that tool cost to buy. You may need to replace it at some point so you have to cover that cost. Think of it as your equipment 'wear and tear'.
Your time is also a cost. It is not your profit. If you spend 5 hours making a cake and decorating it (and you will likely spend much more than that) then that is time you aren't out with your friends or at another job earning a living. It costs you something to do it. So work out an hourly rate you are happy with (NOT MINIMUM WAGE) and add that time in.
Once you have that total, that is your cost rate. Meaning if you charged that amount of money, you would break even and would have worked for no income. You also have no cash to invest in your business's future, like setting up a website, doing marketing, buying new tools and equipment or improving your skills with classes or books and so on.
Add your profit
You add a % on top for profit. That % is flexible and is really up to you, but I've worked alongside creative industries my whole working life and the minimum I've seen in viable businesses is 15%. The most common is between 20-40% and high end "in demand" people can charge 100% and higher.
If this is all sounding too expensive then let's look at an example. If you made a cake that took you 5 hours, and you are going to pay yourself £10 per hour and the materials, ingredients and equipment comes to £50 (just to keep it simple) then your cost price is £100. And for that, you have made no money yet. So add (minimum) 15%. That cake is charged out at £115. So you have worked for 5 hours and you've made £15. £3 per hour, profit. Does that sound too much now? Does £120 or £140 still sound so unreasonable? The cost of a cake isn't determined by how you or the client feel, it's cold hard facts. The price of the ingredients isn't set by you and whether or not you think that flour is "just" ground up wheat so it shouldn't cost "so much".
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What Else Affects Price?
What you also have to consider with your final price is your marketplace. If you are in a big bustling wealthy city like central London your rates (gas/electricity/rent etc) will be higher so you need to charge more to cover them, even as a home baker. And you can charge more because the average cost of your competition will be higher. If you are in an area with very few competitors then potential customers don't have as many companies to choose from and that keeps prices from being driven down. If you are in an area with a lower than average income and lots of competitors then you may feel like you want to lower your prices to compete.
That is certainly an option, but remember that cost is not the only thing that separates one company from another. I know a great baker/decorator who does very elegant high-end cakes and beautiful cupcakes. She gets a lot of inquiries for novelty cakes or sculpted cakes but they just aren't her thing and she has no interest in making them. Someone else will get that business and they do not need to compete with my friend on price to do it. It's a unique selling point - find yours - what do you do better than your competition? or different from your competition?
Know Your Marketplace
In order to answer those questions you have to know a lot about your competition - so research them. Google companies or sole traders in your area making cakes. Look at their websites and social media accounts to see what work they do. Some people publish prices for set designs and sizes so you can gather that information as well.
Don't think that this is underhanded. All (smart) businesses research their marketplace and competition to see if they have a viable business model. It would be underhanded is calling up competing bakers and stealing their IP and waste their time requesting quotes for things. I've even heard of people booking consultations just to take up a slot that a real customer now can't. That's unethical. If you wouldn't want someone to do it to you, don't do it to them, this is someone else's livelihood after all. If you can't make your business work without being devious, you don't have a functional business at all.
Be Practical
Think about your work load as well. If your prices dictate that you need to make 3 cakes a week to make a living is that achievable? If your prices dictate you need to make 25 cakes a week to make a living is that achievable? Can you generate that many orders in your area? Do you want to consistently be working 60 hour weeks? Does a 60 hour week look like a holiday to you from where you are now? What 'profit per cake' will mean that you can keep doing this and still love it? And not burn out. I don't want you to burn out.
plate-food-coffee-cheesecake-cake-business
What Are You Worth?
I know that's a lot of information, but I see so many creative people across industries undersell themselves. Work themselves into creative oblivion and shut up shop, not because they didn't have enough work but because they weren't generating a profit. This is especially true in the home craft market. If you undervalue yourself, your customers will too.
Let me tell you a little story.
The story goes that the great Pablo Picasso was sketching in the park when a woman approached him. “It’s you — Picasso, the great artist! Oh, you must sketch my portrait! I insist.” (Cheeky isn't she) So Picasso agreed to sketch her. After studying her for a moment, he used a single pencil stroke to create her portrait. He handed the women his work of art.
“It’s perfect!” she gushed. “You managed to capture my very essence with one stroke, in one moment. Thank you! How much do I owe you?” (at least she knew she should pay for his work)
“Five thousand dollars,” the artist replied.
“B-b-but, what?” the woman sputtered. “How could you want so much money for this picture? It only took you a second to draw it!”
To which Picasso responded, “Madame, it took me my entire life.”
This story may not be true and could be applied to every artist in history but replace 'It only took you a second' in the story with 'it's just cake'. How many of you have heard that when sending a quote? True enough it's just eggs, flour, sugar and butter but it isn't 'just cake' it's so much more than the sum of its parts. And if it were 'just' anything then the person trying to buy it from you could 'just' do it themselves. So they aren't 'just' buying a cake from you, they are buying your knowledge, creativity and time to do something they can't. Or won't.
Cheap Words Means Cheap Cake
Don't ever allow the customer or yourself to use terms that diminish the product you are providing. It isn't a simple chocolate cake with icing. It is a double chocolate fudge cake, with milk chocolate ganache on a decorated cake board with piped border and buttercream rosettes on top.
Do you see the difference? By highlighting the details, the component parts of the cake and the design you are alerting your customer to the level of effort needed. When a client says "just a simple vanilla cake with a few decorations, like flowers or something oh and a number on top, just something easy, you know" don't let that description stand. Read back to them what you will be doing. Don't be patronising or mean about it. As I said at the beginning, you can't expect them to be an expert in your industry. But you can educate them by re-wording their description back to them. It also helps you to be clear about design choices. Inspire them with your vision and the value of what you are making and they will see the true cost of what they are buying.
I hope you'll feel more comfortable with charging a price that honestly reflects your skill and business needs.
This obviously isn't the final word on the subject. There are always exceptions and special circumstances but you are earning a living so don't be too soft hearted.
More Blogs About Pricing
Here are a few more blog posts on this subject which I think should help galvanise you to genuinely charge what you are worth and what you need to, to really run a business.
SheWhoBakes:
The wonderful Britt says basically what I've told you here - but probably better How Much Should I Charge For A Cake
Craftsy:
Always a handy resource - this article is about as succinct and explains this whole issue as well as I've heard. Pricing Like A Pro
The Business Of Baking:
This is a great blog for anyone who wants to make cake a consistent source of income. Michelle, a chef and business owner, blogs about everything from Marketing and Branding to keeping your spirits up. And of course, charging for your cakes.
Helpful Links:
Energy Use Calculator for your oven