Question About Etiquette

Business By TheDomesticDiva Updated 12 Oct 2009 , 1:30pm by cakeandpartygirl

TheDomesticDiva Posted 11 Oct 2009 , 6:03pm
post #1 of 20

I am finally legal to sell cakes!! This is something I've been praying for and working toward for a LONG time. I have the use of a commercial kitchen to make cakes, but I don't have an actual storefront. I also don't have any employees to worry about having to pay, etc. It's just me, a commercial kitchen, insurance and my supplies.

Here's where my question about etiquette comes in. There are only two bakeries near me (15 minutes on the other side of town, and 15 minutes in the next town over) that do custom cakes. I've done cakes for people before, as favors, for $6 per serving. I'm comfortable charging that; it covers all my costs with a little left over for my time. The problem is that both the other bakeries in my area charge starting at $8/serving for cakes. I don't want them to think I'm trying to undercut them at all, because I'm definately NOT. I just don't have the same type of overhead as they do, and would feel that I'm taking advantage of people if I asked that much. So what do I do??? Do I raise my prices to match theirs so that they don't feel that I'm trying to steal business away from them, or just not worry about it since I don't have the same amount of bills to pay???

I'm trying to do the right thing. Any advice???

19 replies
kelleym Posted 11 Oct 2009 , 6:15pm
post #2 of 20

Charging the going market value is not "taking advantage of people".

Charging less than they do lowers the market value of the product that they've worked hard to get where it is. Charge market value. thumbs_up.gif

prterrell Posted 11 Oct 2009 , 8:04pm
post #3 of 20

How "little" left over for your time? How much do you want to make an hour? Personally, I'd pay myself AT LEAST $10-$15 an hour.

cakesdivine Posted 11 Oct 2009 , 8:23pm
post #4 of 20

You went into business to make a living right? So do so, don't short yourself, charge the market rate! Sometimes being the lowball person makes a customer think twice about the value of the product, If it is well known that these two other custom cake businesses charge $8 per slice, and you go in starting at $6 the consumer may think that you are using less quality ingredients or producing a lesser quality end product to afford being able to offer it at such a lower price. $2 is a significant difference icon_wink.gif

sugarandslice Posted 11 Oct 2009 , 8:33pm
post #5 of 20

And surely your overheads have increased now that you're in a commercial kitchen and are paying insurance etc. If your overheads go up then your prices have to go up. Perhaps find the middle-ground so you can feel good about giving people a good deal without undercutting the competition too much or feeling taken advantage of. But personally, I don't feel bad about undercutting the competition a little (that's the heart of capitalism, isn't it?)
icon_wink.gif

Doug Posted 11 Oct 2009 , 8:44pm
post #6 of 20

Charge $8.

Offer special promotions a few times a year -- 10% off if book by xyz (like book Christmas by Nov 1 and get 10% off)

Book your June, July, or August wedding cake by Feb. 14 (AWWWW) and get 14% off! (mushy romantic)

----

note how close in price clothes/cars/etc. of different brands are and how it's the SALE price that makes the difference.

-K8memphis Posted 11 Oct 2009 , 8:46pm
post #7 of 20

I mean it's just math though.

If the already-in-business-one charges $8 and the newcomer charges $6 it is undercutting. What's in your heart about it doesn't factor in. Oh but she means well--Oh ok then there's no longer a $2 difference? See what I mean?

If you don't intend on undercutting then don't. You can't have it both ways. You can't undercut & say you're not & figure that's gonna make it ok somehow.

I mean, you're not taking advantage of your clients, you're taking advantage of the competition. I mean just decide if that's the way you wanna go. I don't see any other way to look at it.

And I mean more power to yah for being able to truly profit and charge 25% less than the competition--you just can't do both, undercut and not undercut at the same time. Simple math.

I don't know. This is making me loopy.

sugarandslice Posted 11 Oct 2009 , 8:46pm
post #8 of 20

Oh, and also, I don't think it's a question of ettiquette; it's about business!
But I do understand you not wanting to step on any toes!
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-K8memphis Posted 11 Oct 2009 , 8:47pm
post #9 of 20
Quote:
Originally Posted by emcm51

Oh, and also, I don't think it's a question of ettiquette; it's about business!
But I do understand you not wanting to step on any toes!
icon_smile.gif




Exactly.

Mike1394 Posted 11 Oct 2009 , 9:33pm
post #10 of 20

Are you comfortable with your profit margin? If your comfortable then that's all that matters. This is business, it doesn't matter what other people think in your area.

Mike

TheDomesticDiva Posted 11 Oct 2009 , 10:02pm
post #11 of 20

Wow thanks so much for all the replies!! I am comfortable with my profit margin because after all is done, I make about half of what I charge for the cake. If I charge $200, I make $100. It works for me being a stay at home mom, just hoping to contribute a little something to the family budget. I'm hoping to get at least one cake a week, and if I can do that, I'll be more than happy. icon_smile.gif I guess I *could* raise my prices. I don't think I'll do nearly as much business as them though, since they have an actual storefront for people to visit and mine will mostly be word of mouth.

tracycakes Posted 11 Oct 2009 , 10:20pm
post #12 of 20

I just got legal and am renting a commercial kitchen also. Although I am not in the area I really want to be, there are several bakeries around me. I priced about 5 or 6 custom cake shops in the local area, including some that are part-time like me and put my prices right in the middle of their prices, which was a raise for me. I didn't want to overprice but didn't feel it was fair to me to underprice. There is a bakery in the area about 20 miles away that does way underprice and it kills me. I don't know how they stay in business as the prices they charge. It does hurt everyone when someone undercuts, which is charging less than the local market.

indydebi Posted 11 Oct 2009 , 10:29pm
post #13 of 20

and how much of that $100 are you able to put back toward the "famine" part of this feast or famine industry? to put back toward future rent increases? toward unexpected expenses?

Money in your pocket is not the same as profit.

buttercuppie Posted 11 Oct 2009 , 10:32pm
post #14 of 20

Also remember that eventually your costs will go up when you do set up an "official" store front...so you don't want to shock your customers...I'd go with $7 or $8 and then the extra money you can put into savings for when you do make changes.

cakeandpartygirl Posted 11 Oct 2009 , 10:39pm
post #15 of 20
Quote:
Originally Posted by TheDomesticDiva

Wow thanks so much for all the replies!! I am comfortable with my profit margin because after all is done, I make about half of what I charge for the cake. If I charge $200, I make $100. It works for me being a stay at home mom, just hoping to contribute a little something to the family budget. I'm hoping to get at least one cake a week, and if I can do that, I'll be more than happy. icon_smile.gif I guess I *could* raise my prices. I don't think I'll do nearly as much business as them though, since they have an actual storefront for people to visit and mine will mostly be word of mouth.




Just one question...how long did it take you to create that $200 cake? Because if it took you any more than 5 hrs total labor you aren't making enough of a profit margin. Consider the time that it takes you to pick up your supplies, make any icing, shipping costs etc. Don't forget the gas for your car. your support systems and cake boards etc. I know I didn't take that into consideration. We (myself included) have to make it worth the time and dc is an expensive area to live in

-K8memphis Posted 11 Oct 2009 , 10:48pm
post #16 of 20

Know what? If the going rate in your area is eight bucks and you want one cake a week. You should charge $8.25-$8.50, Girlfriend. Just watch your calendar fill up.

indydebi Posted 11 Oct 2009 , 10:51pm
post #17 of 20
Quote:
Originally Posted by TheDomesticDiva

Do I raise my prices to match theirs so that they don't feel that I'm trying to steal business away from them....




...because after all, the whole POINT of being in business is so that people will LIKE us and so we don't hurt other people's FEEEEEEEELINNNNNNNNGS.

Ok, I'm putting my mom finger away and getting back to serious.

cakeandpartygirl is right .... if you keep track of every single solitary minute you spend on this cake, you'll end up being surprised. To be a busienss you have to think like a business. Put it in perspective: If you had to pay an employee for every second of time spent on this cake, what would your payroll EXPENSE be? Don't tell me that you don't have an employee .... if you are putting money in your pocket, then YOU are your employee. PROFIT is what is left AFTER you write the check for payroll. As you get a pricing structure in place, you have to factor in expenses ... now AND later. Do NOT fool yourself by thinking whatever cash is left over after you go to the store is "profit". For example, your payroll expense would include:

- phone time to take the order
- figure out what supplies are needed
- drive to get supplies; reimburse employee for mileage and/or gas
- time spent unloading and putting away supplies.
- mixing icing, batter, baking cake, cooling cake, trimming, ..... all aspects of actually MAKING the cake.
- clean up time
- time sitting around waiting for client to pick up cake OR time spent delivering the cake; reimburse employee for mileage/gas.

itsacake Posted 12 Oct 2009 , 1:45am
post #18 of 20

Exactly what indydebi said.

I actually wouldn't have any problem with you charging $6.00/serving even if the others in your area charge $8.00/serving as long as you really are comparing apples to apples. I think it is only undercutting if you are losing money on purpose to take away their clients. If you are profitable at a lower price, then you just have a better business profile.

But going back to your original post. besides the commercial kitchen, insurance and supplies, you probably have to pay for a business license, health department registration or permits or whatever, and income taxes.

Also, you probably want to pay for things other than "supplies" from your earnings. What about cake books or new cake toys or a cool class? What about business cards?

I assume you will have a separate business bank account. If you want to make $100.00/week put anything above that amount that you collect into the bank account after paying all your specific cake expenses. When you go to pay rent, insurance, your permits, your supplies, or you want to take a class or buy a toy and you have enough money in your account, then you know you are charging enough. If you don't always have enough money to pay all your bills then you aren't charging enough.

Just one more observation. Even if you are happy with taking $100/week you may want to limit how much time you spend. When April 15th comes around and you have to pay taxes on that amount, there will not be much left and you will wonder why you spent hours for little return.

TheDomesticDiva Posted 12 Oct 2009 , 3:55am
post #19 of 20

Indydebi I hadn't thought of it like that. I see yours and everyone else's point. Even though I'm not having to pay rent on anything (the commercial kitchen is a private Christian academy and they're letting me use it for free), I am still having to pay my liability insurance ($500 a year), the gas to get there, and the supplies for the cakes. On top of insurance, with all the registration/fees it's costing about $1000 to become legal.

I am a stay at home mom, and every single second I spend on a cake is time that I would otherwise be able to spend with my family. I hate having to say "Mama will come read with you in a little while baby, I've got to finish this cake." My husband has been on me about not selling myself short from day one of me doing cakes for friends, and friends of friends. He has always said for me to make sure it's worth it and to make sure that I'm not letting anyone take advantage of me. I'm the type of person who always tries to figure out a way to make it cheaper for people "just in case" they really can't afford it. Which doesn't make any sense to me at this moment because why would you go to a custom baker if you couldn't afford it?? (Apparently I've been irrational.) This is one reason I'm trying to figure out prices before I ever even let the general public know I'm doing this. I want to be firm on my prices so that when/if someone tries to negotiate I can just point to my price board and say, "Those are my prices. If it's out of your range, I'm sure Safeway has something more like what you're looking for." and just walk away, without fretting about how I'm not helping someone. My husband is always a LOT more mindful of the time put into cakes than I am. We actually had a really close friend call the other day to ask for a cake for his birthday, and he said, "I just want something super simple, no design or anything. How cheap can you do that?" And i was sitting there all worried, trying to come up with a way to make it cheap, basically settling on a price that would have been giving it away, and my husband called our friend back and told him he'd be better off just going to the grocery store, because even my "cheap and simple" ain't cheap and simple. I was so happy he did that. I have to strengthen my backbone. My time needs to be my priority, I see that now. icon_smile.gif I have had a whole day pass before and I'll have forgotten to even eat I'll get so caught up in it. I'm sure you all know what I mean. Time just slips by before I know it.

I suppose I haven't been really charging for my time as much as I've just been doubling the cost of ingredients. Depending on the cake, it usually takes me about 5 hours to do. Well--the t-rex I made for my son's last birthday took me 12 hours. I felt like such a slowpoke for it taking me so long but I was really happy with how it turned out. I'm getting faster though.

After reading all your replies, Im starting to think I really MUST be undercharging for my area and not paying myself as an employee. I've always held my breath when I tell people how much the cake will be, but then they are always super excited when they find out how much it is. Maybe it's because they know what it SHOULD cost in this area and I had no idea.

THANK YOU ALL FOR PUTTING IT INTO PERSPECTIVE FOR ME!! Looks like I'm raising my prices. Hope I can still sell cakes doing it! thumbs_up.gif

cakeandpartygirl Posted 12 Oct 2009 , 1:30pm
post #20 of 20
Quote:
Originally Posted by TheDomesticDiva

Indydebi I hadn't thought of it like that. I see yours and everyone else's point. Even though I'm not having to pay rent on anything (the commercial kitchen is a private Christian academy and they're letting me use it for free), I am still having to pay my liability insurance ($500 a year), the gas to get there, and the supplies for the cakes. On top of insurance, with all the registration/fees it's costing about $1000 to become legal.

I am a stay at home mom, and every single second I spend on a cake is time that I would otherwise be able to spend with my family. I hate having to say "Mama will come read with you in a little while baby, I've got to finish this cake." My husband has been on me about not selling myself short from day one of me doing cakes for friends, and friends of friends. He has always said for me to make sure it's worth it and to make sure that I'm not letting anyone take advantage of me. I'm the type of person who always tries to figure out a way to make it cheaper for people "just in case" they really can't afford it. Which doesn't make any sense to me at this moment because why would you go to a custom baker if you couldn't afford it?? (Apparently I've been irrational.) This is one reason I'm trying to figure out prices before I ever even let the general public know I'm doing this. I want to be firm on my prices so that when/if someone tries to negotiate I can just point to my price board and say, "Those are my prices. If it's out of your range, I'm sure Safeway has something more like what you're looking for." and just walk away, without fretting about how I'm not helping someone. My husband is always a LOT more mindful of the time put into cakes than I am. We actually had a really close friend call the other day to ask for a cake for his birthday, and he said, "I just want something super simple, no design or anything. How cheap can you do that?" And i was sitting there all worried, trying to come up with a way to make it cheap, basically settling on a price that would have been giving it away, and my husband called our friend back and told him he'd be better off just going to the grocery store, because even my "cheap and simple" ain't cheap and simple. I was so happy he did that. I have to strengthen my backbone. My time needs to be my priority, I see that now. icon_smile.gif I have had a whole day pass before and I'll have forgotten to even eat I'll get so caught up in it. I'm sure you all know what I mean. Time just slips by before I know it.

I suppose I haven't been really charging for my time as much as I've just been doubling the cost of ingredients. Depending on the cake, it usually takes me about 5 hours to do. Well--the t-rex I made for my son's last birthday took me 12 hours. I felt like such a slowpoke for it taking me so long but I was really happy with how it turned out. I'm getting faster though.

After reading all your replies, Im starting to think I really MUST be undercharging for my area and not paying myself as an employee. I've always held my breath when I tell people how much the cake will be, but then they are always super excited when they find out how much it is. Maybe it's because they know what it SHOULD cost in this area and I had no idea.

THANK YOU ALL FOR PUTTING IT INTO PERSPECTIVE FOR ME!! Looks like I'm raising my prices. Hope I can still sell cakes doing it! thumbs_up.gif





party.gifthumbs_up.gifparty.gif I am so happy for you!!!! You will be suprised at how many orders you will get. Just don't underestimate your talent. Oh and listen to your husband icon_smile.gif

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