Learning how to price your cakes so you make a profit can be confusing. Selling cakes and desserts requires skills like; accounting, marketing, project management, human resources, negotiating, financial and business planning.
Learn how to price your cakes for profit
“Selling cakes isn’t that complicated, I can handle that,” but almost every day I see someone asking for help with pricing their food product because they aren’t making a profit. They mistakenly believe that purchasing a cake pricing program will fix all their profiting issues. Unfortunately, it takes more knowledge, and business skills than any of those programs provide to become a profitable and fruitful business.
To succeed in business, you must know your costs and overhead
Whether you are a stay at home mom looking to supplement your income or a bakery owner, you can’t make money unless cover your costs and add a profit margin to it. If you are selling your work (even if it’s only to friends) you are ‘in business,’ and you need to learn how to price your product. Be respectful of other businesses and never underprice your work, which lowers the prices for the whole industry and hurts everyone.
You are more than the crafts-person making a product; you need to be the CEO too. That means; you must know how to cost-out; your ingredients, recipes, labor and overhead. If you don’t learn those skills, you can’t develop a profitable business.
Why are you making cakes?
The very first thing you must do; sit down and look yourself in the mirror and get brutally real with yourself. Ask yourself; Why are you making cakes? I know what you’re going to say, “I do this to make money!”
O.k., tell me how much money you spent and how much you profited last year? If you can’t answer this question quickly, you’re probably not in this to make money.
If you want to make money you have to keep track of it; it needs to be your primary focus!
Know That Your Work Is Valuable.
Prioritize your time and attention. Get away from the girls in the cake decorating forums and concentrate on your business and your life.
Most of us selling cakes, cookies, apples, etc. are females. Women like to help and nurture; I believe it’s in our DNA. We cook and bake because it expresses our love and brings others happiness. I wonder if it’s because so many of us are working out of our homes, that we become emotionally attached to our food that we don’t place significant prices on our time and skills?
Selling food products from your home is not any different than any other professional artisan working from home. Crafting your product requires; skill, knowledge, and expertise. You are making and selling a custom product, and you need to put the proper price tag on your product.
What Does Your Market Want?
When your market doesn’t support designer cakes, then you need to change your product to be what YOUR market wants. You can take every class, learn every technique, own every cake mold and bake like a goddess; but if your area isn’t willing to pay for those skills, you’re wasting your efforts and developing the wrong skills.
When all of the cake decorators in your area are selling cakes for $3.00 per serving on average, you can’t expect your cake to sell for $8.00 per serving. No matter how many upgrades it has. You can only sell your product for whatever your market will bear. If your food is priced too high where the local market isn’t buying (and you hear complaints about your pricing) from you, or too low that you can’t pay your bills, you’ll be out of business soon enough.
You need to adjust to what your market is willing to pay; they will never adapt to you.
- Find less time-consuming products to sell.
- Learn how to cut your costs making your product.
- Increase your production.
Develop a robust client base. Later on, you can phase in more expensive products for people who support high-end craftsmanship. However, the majority of your customers may still not be interested in that high-end product. Understand that selling food isn’t different than other businesses.
Location, Location, Location. What does that mean to you?
Does your home base (geographical area) currently support custom products like; party planners, expensive brands of cars, fine art stores? For the few food businesses owners living in those types of areas; yes, they probably could and should market expensive one of a kind cakes. For the majority of us, that’s just not the case, and we need to adapt to attract as much business as possible.
Sara in San Fransisco makes a ton of money only selling one of a kind, expensive cakes. She tells everyone that’s what they should do also. It does sound better than working harder and making lots of cakes. But if you don’t live where Sara lives, and don’t have enough customers that will pay for one of a kind cakes all year long, you can’t model your business on what she’s doing. You have to sell what your area wants; you don’t live where Sara does.
Who Is Your Market?
Too often I see well meaning experienced decorators give pricing advice to new decorators like; “You (and your friends) are not your ideal customer” or “I couldn’t afford to buy cakes from my business, I’m not my target customer!”
What that advice is completely ignoring, your geographical area!
Your market is only a few miles around your home base, in the food business. Your market isn’t wealthy people that live an hour away from you. There is a ton of competition and unlimited options for that rich client who will pay more.
However, I do agree you should develop a unique product for your business; something people will travel for. But don’t rely on that to get your business off the ground. Becoming well known to potential clients who live hours from your area; takes time, and a lot of marketing.
Your market is the people living near you!
Establish Price Points
When you are designing your menu with diversity, definitely consider having multiple price points. There have been many business studies that show how this can work to your advantage. Let’s look at Starbucks, the difference in price between a tall, grande and a venti is so small that it drives people to buy the next large size because it represents more value for their dollar. Those sizes were not an accident; they were thoughtfully developed.
You can do the same thing with your products. Give your clients different price points and let them choose what they want. Keep the prices between your simple items and expensive items relatively small, so the expensive product looks like a better value. People love the value and upgrade often.
Having a written menu with established prices saves you the headache of dealing with the bargain shopper. So they can choose which price point is right for them, or eliminate themselves from being your customer. When you don’t have a set price list, it allows customers to contact you repeatedly giving them quote after quote, all to save them a dollar or two. While they are saving a buck or two, you as a business person are losing money every time you have to give more than one quote to the same person. If you give customers have a price list, they can look at it for as long as they want and it won’t take any of your time.
Set up price points and show people your prices, this saves you an enormous amount of time.
Appeal to as many buyers as possible by having a selection of products
Have you ever noticed that your local Chinese or Mexican restaurant has hamburgers on their menu? They do. Are those the food items that supports those restaurants, no. Well, why do they sell them? It’s because they need to offer something that pleases the entire clients family. If Mom & Dad can’t get a meal for Junior at the restaurant, they probably aren’t going to eat there often. If you limit your product line too much, you limit your potential client base.
Please understand, I’m not telling you to sell anything and everything. Too much product diversity is the death of many food businesses. Instead, you need have a smartly limited menu; that offers something for everyone. Discover which products are the most profitable for you and make this the cornerstone of your business. Then adapt that item, so you appeal to as many people as possible.
Look around your town to see if there are any untapped markets. Is there a large elderly population in your city, learn how to make cakes (or whatever your product line is) that appeal to their tastes. Is there is an ethnic group that’s not yet buying from you? Don’t be afraid to learn how to make foods that attract and bring in everyone in your geographical area. The narrower your product line is, the more people it excludes from your market area as being a potential client. You have a finite number of buyers in your area. Why not target all of them instead of a few of them?
Too Much Diversity, too many products
Sell items you are good at, diversify your product line to attract as many different buyers as possible, but don’t sell anything that isn’t spectacular. It takes some time to perfect a new product; develop it before you start selling it. Every time you sell something inferior; you kill off a bit of your potential business.
When cupcakes shops became popular, it was a great selling craze. There aren’t many cupcake shops around anymore (for SO many reasons I can’t begin to mention without derailing this article). There’s a cupcake shop in my general area, who’s marketing shtick is how many hundreds of different flavors they make. The only problem is they didn’t think about production before they advertised having all those flavors. Their menu was unrealistic in every way. Half of their product line can’t be displayed without refrigeration, and they didn’t have any refrigerated showcases. The other half of their products have too many different components to prepare every day. You should read their Yelp reviews, customer talk about what a let down the bakery is. Their clients came for a particular flavor, and the bakery doesn’t stock that flavor. They hurt themselves by not thoroughly thinking about what they were selling and if it can be achieved realistically.
Too much product diversity requires more space to store more ingredients; more freezer space, more shelf space, more items for customer representatives to memorize and explain, more tracking, more lead time, more capital to buy everything, more skilled employees to make them, more money in inventory, more EVERYTHING! Instead of offering everything and the kitchen sink, craft your menu wisely (I’ll talk about that in another article).
How To Price Your Cakes to make a profit:
- Focus on what your market wants.
- Learn how to make those items.
- Price out all of your ingredients and cost out all of your recipes, know all your overhead and costs.
- Feature the products that make you the most PROFIT. Stop selling products that aren’t profitable.
- Determine your prices, write them down and stick to them.
- Create enough diversity to attract as many clients as possible, yet not so many that you can’t put them into production realistically.
- Create multiple price points. Be prepared for the bargain shopper and the window shoppers.
Did I answer your every question and tell you everything you need to know? No. But you and I have to start somewhere, and I’m glad you took the time to read this and think about your objectives.
Don’t forget to leave your comments or a simple “o.k,” “thanks” “I read it” remarks below, so I know you your thoughts. Thanks!