Do Even New Cakeries Charge A Min Order?

Business By ConfectionsCC Updated 8 Jan 2011 , 10:59pm by DebBTX

ConfectionsCC Posted 24 Dec 2010 , 4:03pm
post #1 of 32

I was thinking...Some of the cakes I have done over the past few months are so incredibly small and simple, I wouldn't charge over 18 dollars for. I don't feel that would be worth my time for one order! Considering I am opening a "custom cakes" bakery, A lot of my orders will be over the $50 mark...is it ok to charge, say a $30 min on orders?

I don't want to push customers away, and I will always do small cakes for friends and family, but just wondering if that is a WRONG way to run business? If they are getting a bday cake, even you can't find a cake cheaper than $30 even at the other full bakeries, only their dessert cakes are cheaper, but their lowest price is $18 for that...

I am not doing dessert style cakes...just made to order. (working from a home kitchen, maybe only part-time until the babies are in school) I know, new business owners have lots of questions and ask too many lol icon_razz.gif dont worry, i DO have thicker skin!

31 replies
genevieveyum Posted 24 Dec 2010 , 4:25pm
post #2 of 32

I wouldn't bother with it if the cake was going to be under $50- because the time it takes just to bake and decorate a simple cake is not the only cost!

Think about the cost of ingredients, time spent planning the design, dealing with the customer, time spent away from your kids, etc. Also think about the clientele you want as you grow your business. Do you want the same folks who will pop out to WalMart for a cake, or do you want customers who value your work and are willing to pay what a custom cake costs?

Costumeczar has a great book that you can order from Amazon- http://www.amazon.com/dp/1453891277/?tag=cakecentral-20 with great advice about finding and setting limits for a home-based business.

Look seriously at your pricing and make sure that you are really including the costs you incur as well as paying yourself for the time and skills involved.

kelleym Posted 24 Dec 2010 , 4:27pm
post #3 of 32

Think of it this way - working at a loss IS the wrong way to run a business. It's very likely that anything under $50 (and DEFINITELY under $30) is not worth your time.

Dayti Posted 24 Dec 2010 , 4:31pm
post #4 of 32

When you start out doing cakes for friends and family, lots of the time they are small and simple because you are trying out new things and perfecting other techniques.
I charge a 45 minimum which includes 10 portions. After that, its a price per portion.

This is to avoid people coming in and asking for a cake for 5 and for me to price accordingly. They still have to have a cake for 45 and cut the slices bigger or have leftovers. They can take it or leave it, but I wouldn't want to mess around making an even smaller cake, it takes you the same amount of time if not longer, because of the PITA factor!

If they still don't want to pay your minimum, they have other options locally, but the cake may not be as nice and it certainly won't be a one-off design just for them.

Just make sure your minimum price still makes you money - figure out what it should be and don't just pull a number from nowhere because it sounds about right icon_wink.gif

-K8memphis Posted 24 Dec 2010 , 4:33pm
post #5 of 32

And be careful about overdosing on the friend & family cakes.
I mean like for my family--I got the by from them on doing whoopitee cakes once they got into their teens-- a nice 9x13 served from the pan would do just as well.

I didn't need to impress them nor extend my work hours.

Consider this: your friends and family will want to help you build your business so charge accordingly. Let them be there to support you. Charge well or you could be loosing a lot of money. This is now a business why short change yourself on purpose.

cabecakes Posted 24 Dec 2010 , 4:42pm
post #6 of 32

I don't see how you are making much even with a $30.00 minimum. How can you do even a basic cake and be making anything off it for $30.00. You must remember all your expenses...time traveling for ingredients, gas, wear and tear on vehicle, electricity/gas, time baking/decorating, time meeting with client, drop-off/pick-up time are just a few that get forgotten by home-based businesses. It involves a lot of effort...you should be paid for your time...or it is just a waste of your time. This is why I don't forsee myself doing it when I get good enough at it. I just do it as a hobby and for family and friends, but I know how expensive it can get.

ConfectionsCC Posted 24 Dec 2010 , 5:07pm
post #7 of 32

Thanks yall for the replies! DH has mentioned the same things, but I think I just kinda brushed it off thinking he was just partial to my cakes because he loves me icon_biggrin.gif This pricing thing seems to be one of the most difficult part of planning the business...I HAVE to make enough to keep from loosing money, but its hard thinking about actually charging people! Oh, another question, possibly more appropriate for its own post, can I donate cakes to charity events even though I am not licensed yet? Either for them to auction off or to serve at their events??

jason_kraft Posted 24 Dec 2010 , 5:10pm
post #8 of 32

Depends on how much idle time you have. If you have the time and capacity to make multiple small cakes assembly-line style (i.e. baking the cakes one day and decorating them the rest) then I would stick to a low minimum order.

Of course you need to take into account the cost of your ingredients, the cost of your time, and your overhead when you work out your pricing. So if a small cake costs you $10 in ingredients and overhead, and it takes you one hour to bake and decorate (with your time valued at $15/hour), your cost is $25 for a local pickup cake. Add a 20% profit margin and you have a $30 price, so it's certainly possible to make a nice profit selling cheap cakes.

cakegirl1973 Posted 24 Dec 2010 , 5:12pm
post #9 of 32

This is a great thread. I have had my legal home based biz for about 6 months, and I am to the point where I am asking the same question. I think when you are first starting out, you can trick yourself into thinking that, if you do an awesome job on a small order (say $30) that they will be a repeat customer with a bigger order next time. This has not happened to me yet. The folks who only need a small cake and only want to pay $30 want a small, $30 cake the next time, too. Because of this, I am thinking a $50 minimum is a good way to go for me.

cakegirl1973 Posted 24 Dec 2010 , 5:15pm
post #10 of 32

This is a great thread. I have had my legal home based biz for about 6 months, and I am to the point where I am asking the same question. I think when you are first starting out, you can trick yourself into thinking that, if you do an awesome job on a small order (say $30) that they will be a repeat customer with a bigger order next time. This has not happened to me yet. The folks who only need a small cake and only want to pay $30 want a small, $30 cake the next time, too. Because of this, I am thinking a $50 minimum is a good way to go for me.

DSmo Posted 24 Dec 2010 , 5:26pm
post #11 of 32

Also, don't forget to include income tax in your list of expenses. You are required to report income and pay taxes, even if it's only a hobby. And, if you run a business, you're taxed at a higher rate than your regular personal income tax because of the extra Social Security taxes.

jason_kraft Posted 24 Dec 2010 , 5:28pm
post #12 of 32
Quote:
Originally Posted by DSmo

And, if you run a business, you're taxed at a higher rate than your regular personal income tax because of the extra Social Security taxes.



You only need to pay Social Security taxes if you have payroll. Our business is taxed at regular personal income tax rates because my wife and I don't draw a salary and our only other employee is an unpaid intern.

DSmo Posted 24 Dec 2010 , 5:39pm
post #13 of 32

Not true. If you are a sole proprietor, you have to pay the portion for yourself that your employer would normally pay. Been there, done that.

DSmo Posted 24 Dec 2010 , 5:41pm
post #14 of 32

And there's still the matter of the tax on the income. Plan to set aside 1/3 of your profit for taxes.

leah_s Posted 24 Dec 2010 , 6:07pm
post #15 of 32

DSmo, you only pay "both sides" of the Social Security tax if you are your own employee. I just became my employee recently. I Things are different if you are an owner and *not* an employee or an owner *and* an employee.

cownsj Posted 24 Dec 2010 , 6:49pm
post #16 of 32
Quote:
Originally Posted by ConfectionsCC

! Oh, another question, possibly more appropriate for its own post, can I donate cakes to charity events even though I am not licensed yet? Either for them to auction off or to serve at their events??




Check your local laws. Sometimes it's fine, even in states where you can't have a home based business, but you may have to post a waiver sign stating that it's from a home kitchen and not covered under the health dept. laws.

DSmo Posted 24 Dec 2010 , 9:03pm
post #17 of 32
Quote:
Originally Posted by leah_s

DSmo, you only pay "both sides" of the Social Security tax if you are your own employee. I just became my employee recently. I Things are different if you are an owner and *not* an employee or an owner *and* an employee.




Yes, and that's what I assumed as the OP said she would baking from a home kitchen. Unless she incorporates, that's a sole proprietorship and she'll be required to pay the self-employment tax. But my main point was that regardless of how she structures her business, she'll have income that will need to be claimed and pay taxes on, therefore, she should include that as part of her expenses when calculating a reasonable minimum price.

indydebi Posted 25 Dec 2010 , 8:49am
post #18 of 32
Quote:
Originally Posted by ConfectionsCC

I don't want to push customers away,


As mentioned earlier, doing a job that puts you in the red is NOT better than turning away the customer.

You pay minimums every day. I only need 2 slices of bread for a sandwich but I have to buy a MINIMUM of a whole loaf. I only want a sip of Coke but I have to buy a MINIMUM of a whole can. I only need 2 Tbsp of margarine but I have to buy a MINIMUM of 2 cups (1 lb box). I only need a cake that serves 5 but I have to buy a MINIMUM of one that serves 24 (8" round).

My shop rent (in round numbers) was $1500/month = $50 per day that I had to set aside for the rent payment. If I only sold one or two cakes a day at $30 a cake, I'd be in the red before I even turned on my oven. THAT'S why there are minimums.

If I were selling 20 of these cakes a day (x $30 each = $600 gross sales), it's not a problem because my overhead is covered. so unless you are covering the overhead in high volume, you pretty much need a minimum.

jason_kraft Posted 25 Dec 2010 , 4:06pm
post #19 of 32
Quote:
Originally Posted by indydebi

My shop rent (in round numbers) was $1500/month = $50 per day that I had to set aside for the rent payment. If I only sold one or two cakes a day at $30 a cake, I'd be in the red before I even turned on my oven. THAT'S why there are minimums.



It really depends on your current utilization. If you are operating at max capacity then it would be preferable to accept one $200 order that takes 4 hours over four $30 orders that take one hour each. But if you are idle 50% of the time it certainly makes sense to fill in the gaps with smaller orders so they can contribute towards your fixed overhead...after all, if you don't have any orders a certain day you still have to pay the rent for that day, unless you have a home bakery or hourly kitchen rental (in which case there would still be annual fixed overhead items such as insurance).

Of course you still need to run the numbers to make sure the smaller orders are profitable, but it is entirely possible to profit from a $30 order (and even a $10 order!).

ConfectionsCC Posted 25 Dec 2010 , 5:43pm
post #20 of 32

I will be running a home bakery, start up is paid for in cash, so no mortgage. I may end up charging some materials flour, fondant, sugar.. on the credit card, but I can pay that off in one month easily. So as far as overhead, I am looking at basically just taxes and materials right? well, electricity...we have well water so none of those prices...hmm. I still think to make it worth my time, I have a minimum of a $30, which would be an 8in buttercream covered cake, with just simple piping boarders, no fondant accents and such. Prices around here are quite possibly the lowest anywhere, I know cost of living is one of the lowest in the country....I know Feb. is coming up faster than I expected, I need to get on the ball making sure all the bases are covered before I begin construction!

jason_kraft Posted 25 Dec 2010 , 5:57pm
post #21 of 32
Quote:
Originally Posted by ConfectionsCC

I still think to make it worth my time, I have a minimum of a $30, which would be an 8in buttercream covered cake, with just simple piping boarders, no fondant accents and such.



There are three types of costs: ingredients (flour, sugar, etc.), labor (the cost of your time = the amount of time it takes to make a cake * your "hourly wage"), and overhead (including taxes, utilities, and liability insurance -- the last of which is a must-have). Usually labor is the highest of these three costs. How long will it take you to make that $30 cake?

-K8memphis Posted 25 Dec 2010 , 6:03pm
post #22 of 32
Quote:
Originally Posted by jasonkraft

Quote:
Originally Posted by indydebi

My shop rent (in round numbers) was $1500/month = $50 per day that I had to set aside for the rent payment. If I only sold one or two cakes a day at $30 a cake, I'd be in the red before I even turned on my oven. THAT'S why there are minimums.


It really depends on your current utilization. If you are operating at max capacity then it would be preferable to accept one $200 order that takes 4 hours over four $30 orders that take one hour each. But if you are idle 50% of the time it certainly makes sense to fill in the gaps with smaller orders so they can contribute towards your fixed overhead...after all, if you don't have any orders a certain day you still have to pay the rent for that day, unless you have a home bakery or hourly kitchen rental (in which case there would still be annual fixed overhead items such as insurance).

Of course you still need to run the numbers to make sure the smaller orders are profitable, but it is entirely possible to profit from a $30 order (and even a $10 order!).




Because you can pop out the thirty/fifty dollar orders from leftovers of the big orders. It takes seconds to pour off batter into another pan--use up fresh leftover icing from the week's work. Stuff like that.

cakeandpartygirl Posted 25 Dec 2010 , 8:31pm
post #23 of 32
Quote:
Originally Posted by ConfectionsCC

I was thinking...Some of the cakes I have done over the past few months are so incredibly small and simple, I wouldn't charge over 18 dollars for. I don't feel that would be worth my time for one order! Considering I am opening a "custom cakes" bakery, A lot of my orders will be over the $50 mark...is it ok to charge, say a $30 min on orders?

I don't want to push customers away, and I will always do small cakes for friends and family, but just wondering if that is a WRONG way to run business? If they are getting a bday cake, even you can't find a cake cheaper than $30 even at the other full bakeries, only their dessert cakes are cheaper, but their lowest price is $18 for that...

I am not doing dessert style cakes...just made to order. (working from a home kitchen, maybe only part-time until the babies are in school) I know, new business owners have lots of questions and ask too many lol icon_razz.gif dont worry, i DO have thicker skin!




I don't call it a minimum but I just have the smallest cake that anyone can order is an 8 in or 1/4 sheet cake. Anything else like it has been said before, it unfortunately is not worth my time. Of course if I was doing a larger volume of cakes on a weekly basis than I probably would.

indydebi Posted 25 Dec 2010 , 8:34pm
post #24 of 32

jason .... I agree. that's what I was trying to convey in my "20 cakes a day" example: high volume can cover the overhead whereas onesy-twosy's most of the time won't. Thanks for helping to clarify the message! thumbs_up.gif

aligotmatt Posted 25 Dec 2010 , 9:11pm
post #25 of 32
Quote:
Originally Posted by ConfectionsCC

I will be running a home bakery, start up is paid for in cash, so no mortgage. I may end up charging some materials flour, fondant, sugar.. on the credit card, but I can pay that off in one month easily. So as far as overhead, I am looking at basically just taxes and materials right? well, electricity...we have well water so none of those prices...hmm. I still think to make it worth my time, I have a minimum of a $30, which would be an 8in buttercream covered cake, with just simple piping boarders, no fondant accents and such. Prices around here are quite possibly the lowest anywhere, I know cost of living is one of the lowest in the country....I know Feb. is coming up faster than I expected, I need to get on the ball making sure all the bases are covered before I begin construction!




I have a licensed home kitchen, we can't use well water for a home bakery in North Carolina. I don't know what your laws are, but that would be worth looking in to before building and connecting to your well.

costumeczar Posted 25 Dec 2010 , 9:34pm
post #26 of 32
Quote:
Originally Posted by ConfectionsCC

Thanks yall for the replies! DH has mentioned the same things, but I think I just kinda brushed it off thinking he was just partial to my cakes because he loves me icon_biggrin.gif This pricing thing seems to be one of the most difficult part of planning the business...I HAVE to make enough to keep from loosing money, but its hard thinking about actually charging people!




Genevieveyum, thanks for the plug, haha! ConfectionsCC, the idea of charging for what you've been doing as a hobby is what seems to get people into trouble. Don't feel bad about it, because if you're going to run a business you have to run a business and have cakes not be a hobby anymore. It's a mental shift that you have to make, and just be ready for your friends and family to not like it!

I do have an entire section in my book about how friends and family can be your worst "customers" and how you shouldn't rely on them to be your client base. Of course they're going to be the ones to say "Oh, you should go into business!" but when it comes down to it, they will probably be the most reluctant to pay a decent price. Don't be surprised if the same people who encouraged you are the ones who don't want to pay you later on. You need to charge enought o pay for ALL of your expenses, down to the gas it took to go to the store to buy your ingredients, plus make a profit. Otherwise, you're running a charity, not a business.

Mac Posted 25 Dec 2010 , 11:13pm
post #27 of 32

costume czar is right you have to add in ALL aspects of doing one cake...the "planning and design" time, gas to get the ingredients, LIABILITY insurance (so very important), baking time, electricity (for the baking plus for storing your ingredients), water (most places will not allow the well water...please check into that), TIME to do all these things as well as the decorating and supplies (boards, boxes, tape, board coverings). EVERYTHING counts when you have your business!

ConfectionsCC Posted 25 Dec 2010 , 11:56pm
post #28 of 32

Genevieveyum, thanks for the plug, haha! ConfectionsCC, the idea of charging for what you've been doing as a hobby is what seems to get people into trouble. Don't feel bad about it, because if you're going to run a business you have to run a business and have cakes not be a hobby anymore. It's a mental shift that you have to make, and just be ready for your friends and family to not like it!

I do have an entire section in my book about how friends and family can be your worst "customers" and how you shouldn't rely on them to be your client base. Of course they're going to be the ones to say "Oh, you should go into business!" but when it comes down to it, they will probably be the most reluctant to pay a decent price. Don't be surprised if the same people who encouraged you are the ones who don't want to pay you later on. You need to charge enought o pay for ALL of your expenses, down to the gas it took to go to the store to buy your ingredients, plus make a profit. Otherwise, you're running a charity, not a business.[/quote]
My friends and family are the ones insisting that they DO pay me for my cakes, I tell them no because I can't legally do it yet...I do go to them with questions like, "how much would YOU pay for this cake, if ordering it from a bakery", I do have very blunt family and friends lol! Even they end up telling me they would pay more than the # I have in my head...about the well water, I can use well water! If its an existing well, they have to check to make sure its not too close to the septic and stuff, but with new construction, they won't allow that to begin with, so I am not too worried!

costumeczar Posted 26 Dec 2010 , 12:49pm
post #29 of 32
Quote:
Originally Posted by ConfectionsCC

My friends and family are the ones insisting that they DO pay me for my cakes, I tell them no because I can't legally do it yet...I do go to them with questions like, "how much would YOU pay for this cake, if ordering it from a bakery", I do have very blunt family and friends lol! Even they end up telling me they would pay more than the # I have in my head...!




That's good to know...I know that my best friend would pay me for what I was charging, but the number of stories about people being taken advantage of by their so-called friends far outweigh the ones of people who will pay you. Keep those friends if they're the ones who are willing to pay you what you're worth!

ConfectionsCC Posted 26 Dec 2010 , 4:21pm
post #30 of 32

That's good to know...I know that my best friend would pay me for what I was charging, but the number of stories about people being taken advantage of by their so-called friends far outweigh the ones of people who will pay you. Keep those friends if they're the ones who are willing to pay you what you're worth![/quote]



Yes, I am blessed to have those friends, as well as the friends on CC that help me too icon_biggrin.gif

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