New Business, Struggling With Pricing

Business By SugarKissesCakery Updated 2 Nov 2011 , 3:31pm by Bridgette1129

SugarKissesCakery Posted 28 Sep 2010 , 2:59am
post #1 of 23

I'm just starting out with my cake business and I'm still struggling with pricing. Most bakers in my area are charging 2.50 to 3.00 for buttercream iced party cakes. I just did this cake and charged $72 for it based upon $2 a serving and 36 servings. The cake was a 9" and a 6". I realize the prices can vary based upon skill. I know the cake isn't terrible, I'm just not sure if I really can command $3.00 a serving being such a newbie. Can you be honest with me?

http://cakecentral.com/modules.php?name=gallery&file=displayimage&pid=1816493&done=1

Thanks!

22 replies
sweetlybaked Posted 28 Sep 2010 , 3:12am
post #2 of 23

Your cake is great! Buttercream is smooth, fondant decorations are nice and crisp, and there are quite a few of them! You can definately charge the 3! My only ONE criticism is that the top tier is not straight vertically. I have no place telling flaws in anyone else's cakes, but since you asked, that is the one thing that I noticed. Great job though!

Msjckson Posted 28 Sep 2010 , 3:24am
post #3 of 23

Wow! This cake is awesome, you should have charged $3.00 per slice for sure. I couldn't even tell where it wasn't straight.. very good job. And an additonal price just for doing the tiers. My local bakery was going to charge a lady $120 for a 2 tier cake. They said that the tiers are the same as getting a wedding cake.

CakeDiva101 Posted 28 Sep 2010 , 3:33am
post #4 of 23

Your cakes are very, very good. I would go ahead and charge $3.00 a serving. You are that good. New or not, you got talent! Good luck in your new business! icon_biggrin.gif

jason_kraft Posted 28 Sep 2010 , 3:45am
post #5 of 23

If you don't already have a following, you may want to keep underpricing your competition. Once you start getting positive reviews and word of mouth, that's when you should set your "real" prices, which are determined by taking into account your costs (including variable costs such as ingredients and labor as well as fixed costs like insurance and rent) and figuring out how much profit you'd like to make.

SugarKissesCakery Posted 28 Sep 2010 , 1:05pm
post #6 of 23

Thanks for the tips everyone! And sweetlybaked, you are absolutely correct about the top tier. It bugged me so much about the cake. I guess I held my bench scraper at an angle when I smoothed the cake. I learned a good lesson to check before I call it done. By the time I noticed it, it was too well crusted to attempt a repair job.

cakesdivine Posted 30 Sep 2010 , 2:26pm
post #7 of 23

Jason if she underprices her competition the only reputation she will have is that of being the cheap cake lady. Kelley M has a great response as to why one should NOT undercut prices of your competitors on her Cakeboss website. Here is the link: http://www.cakeboss.com/PricingGuideline.aspx

Sugarkisses this article will answer every question you have about pricing.

But I don't recommend someone with your talent pricing below your competition. Price the same or even higher. When you undercut or have lower pricing you only attract the type of customer that will want cheap/free cakes. These clients generally do not want to pay for their cakes so they will be hard to please clients. Being frugal is very different than being cheap. A cheap person generally has a self image of being better than everyone else and that the world owes them something so they aren't paying. A frugal person would look at what they want and generally will have conservative tastes, not champagne tastes on beer budgets. They plan and save for that special event cake, not expect it for free. They do demand quality for the product they are purchasing. If the cake design they want is out of reach for the amount of servings they need they will certainly consider lowering their guest list to reach the price they have in mind. Don't get the two types of people mixed up. Champagne tastes on beer budget people have an attitude of "it is my (or my child's) day, this is what I want, and you should do it for what I want to pay, you owe that to me because it is my day!" We have all had that customer a time or two. Don't sweat that type of customer and don't let them bully you into taking less for your work. If you have kids think of it as taking food from them to give to a stranger. Yeah, not happening right? icon_wink.gif

jason_kraft Posted 30 Sep 2010 , 3:32pm
post #8 of 23
Quote:
Originally Posted by cakesdivine

Jason if she underprices her competition the only reputation she will have is that of being the cheap cake lady. Kelley M has a great response as to why one should NOT undercut prices of your competitors on her website.



Kelley talks about the dangers of significantly underpricing the competition down to grocery store levels, which I agree with. However, offering slightly lower prices can help grow the business more quickly and gain a following, especially for a business that's just starting up.

Once a customer base has been established, prices can be increased. Of course, if you are OK with slower growth it's perfectly feasible not to undercut.

cakesdivine Posted 30 Sep 2010 , 4:24pm
post #9 of 23

Sorry I don't agree. Set your price for what you are worth. Regardless of being new she is an excellent decorator and can/should command what others with her skill level and area are getting. If her competition is asking $3 then she should also. The customer is not going to say to her "hey you are new you should charge less". Now if she wants to offer coupons towards her work to get herself known that is a bit different. That tells the customer, come give me a try & I will give you a discount on your first order. That way her prices are already known and the customer feels they are getting a bargain and trying her product. If they come back again it is because the liked the product, but they will have no expectations of a discounted cake. Starting low then raising your price raises your customer's eyebrow, it gives a "I see how you played me you started out with a low price, got me hooked on your product then jumped the price up on me." It is all how you deliver that discount as to how your client/potential client will see it.

I know that if I am purchasing something and I am comparing apples to apples price isn't always the driving force to my decision especially if there is only a slight difference. In fact I am more likely to choose the higher priced item because in the back of my mind I am asking myself why is this one cheaper, there must be something wrong with it that I can't see. And generally customers looking for highend custom cakes want that high end quality with no room for regret later.

I have been and always will be a firm believer in you get what you pay for, and if you buy on the cheap you get on the cheap.

jason_kraft Posted 30 Sep 2010 , 4:37pm
post #10 of 23

It largely depends on how good her competition is. OP does excellent work, but I'm sure at least some of her competitors also do excellent work. Let's say bakery A has great-looking pictures on their web site, charges $3/serving, but has no reviews or positive buzz. Bakery B also has great-looking pictures on their site, charges $3/serving, and has several positive reviews. Many customers will go right to Bakery B. However, if Bakery A charges $2.75/serving, more customers would be willing to take a chance on the new business for the lower price. Yes, some of these customers might be "bargain hunters", but that doesn't matter because they will still generate buzz.

Once Bakery A is more established, the price could be increased to $3/serving (or higher, depending on customer base and reputation). Customers don't feel "played" when you raise prices, as they are not paying attention to your prices unless they want to place an order. If they ask why the price is higher than last time, tell them your costs have gone up (which is true, since the labor component of your cakes -- i.e. your decorating time -- is worth more as your skills improve).

If the customer asks for the old pricing, you just need to reiterate your new pricing, and be prepared to pass on that customer if they don't accept the new pricing...if the good experience you gave them last time is not enough to justify paying a little more, then they are not your target demographic.

I like your idea of offering a coupon, but that only works if customers actually contact you. If they bypass your business and go right to more established bakeries, you don't even have the opportunity to offer the coupon.

Now if you start out with a unique value proposition, you can command a premium price from the start. Unfortunately, simply making beautiful cakes may not be enough to set you apart from the competition. Ideally you should price for "what you are worth", but in reality you need to look at your local market and determine how much sales volume you will need to consider yourself successful, then price accordingly. If OP is fine with a low volume of orders and slow growth, then matching competitors' prices would be appropriate.

CWR41 Posted 30 Sep 2010 , 4:39pm
post #11 of 23

Pricing strategy is one of the basic elements of your business plan:
http://www.businessplans.org/market.html

TrixieTreats Posted 30 Sep 2010 , 4:41pm
post #12 of 23

This is such a great discussion. I think cakesdivine's point is SOOOOO valid because I have seen it. Once a price point is established it is hard to budge because all the referrals that are generated are accompanied by that price point...like it or not. Though, I think it feels right for a lot of people starting out to go with jasonkraft's theory because it will generate more business faster, and give you more exposure and opportunity for growth and practice. It is sort of a long term vs short term thing. I do think cakesdivine makes such a great point about the cheap people, and once those people hear you will do a cake for $50, the next person wants it for $40, then their friend wants it for $30, etc....then you find yourself fighting your way back in the black on each order. This is such a balancing act for a new business. Thanks for discussing...

online_annie Posted 30 Sep 2010 , 4:43pm
post #13 of 23

I completely agree with cakesdivine on this one!! NEVER Undercut!!! If they are shopping by price, there is a Walmart on almost every corner. Know your worth and stay firm. People will value your work only if you do! For every 1 customer that scoffs at my pricing, I have 2 that think they are getting a great price! If you want to grow your business quickly, do it by donating a cake or two to the right businesses or for charity auctions. People see and taste what your capable of and the word will spread like wild fire! Please DO NOT SELL YOURSELF SHORT! You won't be in business long if you do.

cakesdivine Posted 30 Sep 2010 , 4:48pm
post #14 of 23

Oh and Jason, the mentality of selling lower than your competition only can work if your volume dictates that you can do so. This is the Walmart mentality of business. I would rather sell one large cake for $100 than 4 smaller cakes for $25. And growth has nothing to do with price point. It has to do more with marketing, product quality, & location.

When I opened my big dance studio in Houston back in 97, I knew that 5 miles down the adjacent road was a well established school, down from her another 4 or so miles was another dance studio the studio I was renting room space from for my program was only 10 miles the opposite direction from me but a different school district, 2 doors down in the same strip center from her was another studio, and right across the street was a ballet only studio. So I knew that eventhough I was going into a newly developed area and that the people in that area were very convenience oriented I still had to launch a hugh marketing campaign. Jane Q Parent whose 3 yr. old wanted to dance didn't know my dance creds from Adam, so I had to tell her why she should choose my studio. My price point was $5 more per month than all the studios around me. My marketing materials were top notch and everywhere in the area. I was only bringing 37 students with me. That isn't even close to having enough to open where I was building, I needed a minimum of 100 to break even each month. An new dance studio generally is doing well with 50 at opening year. I opened with 170 NEW students over my 37. And enrollment increased to 240 by the time 98 rolled around. Again, my price point was significantly higher than my competition, but I only hired certifed dance instructors who were 25 or older, no kids taught for me, all the other studios around let teens teach so they could pay minimal out. My highest paid teacher back then made $40 an hour and the lowest made $25 an hour. Back then the average teacher only made $15 if they were qualified/certified. My studio was known for the quality dance/theater arts/music education a student would receive. That studio paid for my cake kitchen to be built on my home property. Marketing and quality product was the key to that launch being as successful as it was NOT my price point.

jason_kraft Posted 30 Sep 2010 , 4:52pm
post #15 of 23
Quote:
Originally Posted by online_annie

I completely agree with cakesdivine on this one!! NEVER Undercut!!! If they are shopping by price, there is a Walmart on almost every corner. Know your worth and stay firm. People will value your work only if you do! For every 1 customer that scoffs at my pricing, I have 2 that think they are getting a great price!



As you noted in your own post, even customers who are not shopping by price still factor the price in to some extent. There is a large market of people who want a high quality cake but are still somewhat price-sensitive.

You should absolutely not lower your price to Walmart levels, but a business with no customer base needs to offer something the competition doesn't. In the absence of a unique product or service, a slight discount would qualify.

Quote:
Quote:

If you want to grow your business quickly, do it by donating a cake or two to the right businesses or for charity auctions.



That's a great idea, and it is another way of implicitly lowering the average price of your cakes without advertising lower prices.

susgene Posted 30 Sep 2010 , 4:53pm
post #16 of 23

Love the idea of having the higher price to start and then perhaps offering coupons... it is difficult to raise prices... wish I had done that when I started.

susgene Posted 30 Sep 2010 , 4:54pm
post #17 of 23

Love the idea of having the higher price to start and then perhaps offering coupons... it is difficult to raise prices... wish I had done that when I started.

jason_kraft Posted 30 Sep 2010 , 4:57pm
post #18 of 23
Quote:
Originally Posted by cakesdivine

Again, my price point was significantly higher than my competition, but I only hired certifed dance instructors who were 25 or older, no kids taught for me, all the other studios around let teens teach so they could pay minimal out. My highest paid teacher back then made $40 an hour and the lowest made $25 an hour. Back then the average teacher only made $15 if they were qualified/certified. My studio was known for the quality dance/theater arts/music education a student would receive. That studio paid for my cake kitchen to be built on my home property. Marketing and quality product was the key to that launch being as successful as it was NOT my price point.



Exactly...you offered a unique value proposition to your customers (more qualified teachers) that your competitors did not match, therefore you were able to set your price at a premium level.

If your competitors also only hired highly qualified teachers, you would not have been able to command a premium.

cakesdivine Posted 30 Sep 2010 , 5:01pm
post #19 of 23
Quote:
Originally Posted by jasonkraft

Quote:
Originally Posted by online_annie

I completely agree with cakesdivine on this one!! NEVER Undercut!!! If they are shopping by price, there is a Walmart on almost every corner. Know your worth and stay firm. People will value your work only if you do! For every 1 customer that scoffs at my pricing, I have 2 that think they are getting a great price!


As you noted in your own post, even customers who are not shopping by price still factor the price in to some extent. There is a large market of people who want a high quality cake but are still somewhat price-sensitive.

You should absolutely not lower your price to Walmart levels, but a business with no customer base needs to offer something the competition doesn't. In the absence of a unique product or service, a slight discount would qualify.

Quote:
Quote:

If you want to grow your business quickly, do it by donating a cake or two to the right businesses or for charity auctions.


That's a great idea, and it is another way of implicitly lowering the average price of your cakes without advertising lower prices.





Yes Jason offer a discount "one time" first order a customer makes give them a 10% discount. That is the incentive for them to go with you instead of who they ususally use. They know it is a one time thing and if your price is equal to the company they usually use to purchase from, but they like your quality of product better then you have them, but they don't expect that low price everytime they walk through the door."

A discount for being a first time customer is the best way to go when introducing a new cake biz or service business.

Going back to my studio example...I offered free registration fee a savings of $25 with enrollment for new students. But my monthly fee was higher than others around me. The client didn't care. In there mind they would have to pay registration and the first month at the other school so at that moment the funds coming out of pocket on registration day was significantly less than if they went to the other studio.

matthewkyrankelly Posted 30 Sep 2010 , 5:05pm
post #20 of 23

It is OK to put your prices right out there and run sales on your products to drum up business. It is how it is done in just about everything.

Price at $4/serving and have a 25% off sale for October. When you are up to your elbows in work, the $4 will make a lot of sense.

But, if you have the prices out there, people know when they are getting a deal.

Also, you need to regularly raise your prices. Once or twice a year or as dictated by suppliers.

jason_kraft Posted 30 Sep 2010 , 5:07pm
post #21 of 23

If you specialize in wedding cakes, the problem with offering a percentage discount on the first order is that customers typically only have one wedding, and their first order is probably the largest they will ever place. A flat dollar discount has its own set of problems. Offering extra product for free would be another way to go.

I'm not sure why people are so against raising prices...either customers will accept the higher prices, or they won't. There's no negotiation involved.

Quote:
Quote:

I offered free registration fee a savings of $25 with enrollment for new students. But my monthly fee was higher than others around me. The client didn't care.


The client didn't care because you were offering a unique product. It's unclear whether or not that is the case in this situation, since I haven't seen OP's competition.

I do like the previous poster's idea of offering a percentage discount to everyone for a limited time. For example, if the competition prices their products at $3, you could list the price of $3 on your web site and offer a "grand opening sale" of 10% off. You can keep the sale going as long as necessary, and once you have enough of a customer base, you can discontinue the discount.

SugarKissesCakery Posted 1 Oct 2010 , 12:22am
post #22 of 23

Thank you everyone for your advice. It helps more than you know.

Bridgette1129 Posted 2 Nov 2011 , 3:31pm
post #23 of 23
Quote:
Originally Posted by cakesdivine

Oh and Jason, the mentality of selling lower than your competition only can work if your volume dictates that you can do so. This is the Walmart mentality of business. I would rather sell one large cake for $100 than 4 smaller cakes for $25. And growth has nothing to do with price point. It has to do more with marketing, product quality, & location.

When I opened my big dance studio in Houston back in 97, I knew that 5 miles down the adjacent road was a well established school, down from her another 4 or so miles was another dance studio the studio I was renting room space from for my program was only 10 miles the opposite direction from me but a different school district, 2 doors down in the same strip center from her was another studio, and right across the street was a ballet only studio. So I knew that eventhough I was going into a newly developed area and that the people in that area were very convenience oriented I still had to launch a hugh marketing campaign. Jane Q Parent whose 3 yr. old wanted to dance didn't know my dance creds from Adam, so I had to tell her why she should choose my studio. My price point was $5 more per month than all the studios around me. My marketing materials were top notch and everywhere in the area. I was only bringing 37 students with me. That isn't even close to having enough to open where I was building, I needed a minimum of 100 to break even each month. An new dance studio generally is doing well with 50 at opening year. I opened with 170 NEW students over my 37. And enrollment increased to 240 by the time 98 rolled around. Again, my price point was significantly higher than my competition, but I only hired certifed dance instructors who were 25 or older, no kids taught for me, all the other studios around let teens teach so they could pay minimal out. My highest paid teacher back then made $40 an hour and the lowest made $25 an hour. Back then the average teacher only made $15 if they were qualified/certified. My studio was known for the quality dance/theater arts/music education a student would receive. That studio paid for my cake kitchen to be built on my home property. Marketing and quality product was the key to that launch being as successful as it was NOT my price point.




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