Those Who Are In Small Towns - Pricing

Decorating By dreamsville Updated 30 Mar 2011 , 4:02am by scp1127

dreamsville Posted 27 Mar 2011 , 11:29pm
post #1 of 16

Hi all!

I know in larger more affluent cities we can charge more for our cakes but where I live the town is just too small for people to afford higher prices which would eventually mean no business for me. For example - a friend of mine wanted to order a three tier topsy turvy cake from the company across town and they wanted 120 bucks for it. Obviously that sounds pretty reasonable but she ended up leaving because she couldn't afford it.

So my question is, how low can I go and still make money!?

Can some of you from smaller towns tell me your pricing policy?

My competition starts at $3.00/serving. I'm thinking of starting at $1.50/serving and then charging some other sort of fee on top........

advice on how to handle this? I'm just getting my business started and need to decide once and for all what my pricing will be.

Thanks guys!!

15 replies
jason_kraft Posted 27 Mar 2011 , 11:58pm
post #2 of 16

As with any pricing decision, you'll need to first figure out what your costs are, including ingredients, labor (a reasonable hourly wage * the number of hours needed to make the product), and overhead (insurance, licensing fees, etc. on a per-order basis).

$1.50/serving is probably not a sustainable price long-term, you will likely end up paying yourself much less than minimum wage (if anything). It's quite possible that in your town a high-end retail custom order cake shop may not be feasible.

indydebi Posted 28 Mar 2011 , 12:13am
post #3 of 16

I may live in a "big city" but spent the first 40 years of my life in small towns so I know exactly what you're talking about.

Trust me, there are people in the "big city" who can't afford $120 for a cake either, so where you live has nothing to do with it. Minimum wage in a big city is the same as minimum wage in a small town. People who live in small towns commute to high paying jobs in a big city. People get laid off in a big city.

My sister, who lives in a one-stop-light town (and its not even a real stop light ... its a flashing light!) has, all of her life, made twice as much money as me. I dont' think businesses price their product based on how much people can spend in a small town .... when I visit my sister, her gas prices are higher than mine. Under the logic of "you can't price it high in a small town", her gas should be cheaper than mine.

That said, there is also a reason that Nordstroms doesn't open a store in every small town in America, because the demographics aren't there to support that business. So if the demographics in your town can't support a custom cake business, perhaps the message is "dont' open a custom cake business".

One should never sell a product for less than its worth, and by "what its worth" I mean doing the business math to determine your costs, expenses (including your payroll, which is NOT "money leftover after I buy the eggs and oil"), plus a profit. If this computes to $120 for a 3 tier cake, then that's the price. No, not everyone can afford it, and if its a small town or big city, that statement holds true regardless. Some can, some can't. You need to market to those who can....... Unless your market research finds out like Nordstrom did that the demographics can't support a "profitable" custom cake business.

P.S. As a customer, the old switcheroo of enticing me with a low price then adding on a bunch of add'l fees just pi$$es me off more than bad service or bad tasting cake. I will happily pay extra for extra work or premium flavors, but a planned "trickery-pricing policy" that sets a low price to get me in the door, then adds an extra fee for stuff that's not "extra" is what I consider unsavory business practices. I will give a restaurant or bakery a second chance on bad service/food, but this trickery-style of pricing won't fly and the biz will get much more bad PR from me over that than anything.

But that's just me. icon_rolleyes.gif

dreamsville Posted 28 Mar 2011 , 12:48am
post #4 of 16

I couldn't agree more about the adding extra price on. I'm so new to this business (spent last 9 years as a teacher) that I'm having trouble wrapping my head around the idea of selling my "wares" and "services" and actually having them be WORTH something.

I guess I'm just not sure yet how to go about marketing myself as an affordable cake business that will get people in the door and keep returning AND be able to make money at the same time.

Can you tell me how you price your cakes? Do you list a price (for example: $3.00/serving) or do you simply tell people that every cake is different because they are uniquely designed for each individual customer? And if that's the case, how do you privately come to your decision on what to charge?

Example: My husband and I have worked out that a plain white fondant covered two tier (8inch 6 inch) cake would cost us 30.00 to make. This doesn't include decorations. How do I decide then what to charge someone?

jason_kraft Posted 28 Mar 2011 , 12:55am
post #5 of 16
Quote:
Originally Posted by dreamsville

Example: My husband and I have worked out that a plain white fondant covered two tier (8inch 6 inch) cake would cost us 30.00 to make.



Does this include labor as well, and if so how many hours are you budgeting for labor and what is your hourly rate? Also, how much do you have in overhead costs?

dreamsville Posted 28 Mar 2011 , 1:08am
post #6 of 16

That is with no labor costs. I don't have any overhead yet since I'm at home (haven't gotten a store front yet). I'm looking at getting a storefront with a very low rent but I don't know when that will be happening for sure. Obviously that means when I DO get into a storefront my prices may need to be higher (i have NO idea what my overhead costs would be yet).

ps. thanks so much for helping me figure this out!!

indydebi Posted 28 Mar 2011 , 1:16am
post #7 of 16
Quote:
Originally Posted by dreamsville

Can you tell me how you price your cakes? Do you list a price (for example: $3.00/serving) or do you simply tell people that every cake is different because they are uniquely designed for each individual customer?


i am the exception to the rule. a definite exception. I priced my cakes as a flat-fee per serving regardless of the decoration, with only about 5-6 exceptions over the years. But understand that i've been making BC cakes for 30 years, so I don't charge for the extra time to make a cascade of roses because it doesn't really take me any extra time. And while I (will admit now) was afraid to dive into fondant, once I did I found it so easy and fun to work with that my thought was "We get to charge extra for this? COOL!" thumbs_up.gif

Since I am the exception to how most folks do it and priced what worked for me, I encourage you to solicite advice from other CC'ers on this aspect and to read as many pricing threads in the business forum as you can find. thumbs_up.gif

Quote:
Quote:

Example: My husband and I have worked out that a plain white fondant covered two tier (8inch 6 inch) cake would cost us 30.00 to make. This doesn't include decorations. How do I decide then what to charge someone?


I'm going to ask you to back up a minute because I dont believe youve included everything in that $30 figure. (goodness, the cost of fondant must be close to half of that figure, isn't it?) icon_confused.gif

Gas to travel to pick up all of the supplies? Wear and tear, depreciation on your vehicle? Pro-rated cost of car insurance needed for comml deliveries? Time spent (hours times a dollar value) on the phone with the bride/client to take the order? Time spent on tasting/sampling appointments? cost of running the oven, your mixer, your refrigerator, the hot/cold running water, soaps, paper towels, parchment paper, wax paper, trash bags, cost of items that may already be in your cabinet (you spent money on that and they will need replaced one day). Liability insurance? Phone expense, computer expense, office supplies (you didnt carve the order in a rock, right?)

And then my tongue-in-cheek question: Pretend you are a real business and you have an employee making this cake. Picture yourself as an employee since Im assuming you want to earn a paycheck from this adventure. Lets assume it takes you, the employee, 5 hrs to make this cake and you want to earn only $10/hour. Thats $50 in payroll. If you have an employee in your biz, your material cost is $30 PLUS the $50 payroll = $80 in COSTS to make the cake. Now . add on how much you want to make in PROFIT. If you make no profit, then you have nothing to plow back into your business and you dont grow.

So, no . I dont think $30 is what it costs you to make that cake. icon_wink.gif Be sure you include EVERYTHING when you set up your costing spreadsheet. thumbs_up.gif

cheatize Posted 28 Mar 2011 , 3:30am
post #8 of 16

You do have overhead, as mentioned above. We all have overhead. Your oven would not be on, your mixer would not be mixing, if not for that cake order. All that is overhead.

TexasSugar Posted 28 Mar 2011 , 2:41pm
post #9 of 16

Not everyone can afford $120 for a cake, thought unless it was a really small topsy turvy cake that sounds like a very low price as is.

There are alot of things that I can't afford or won't pay a high price for. This doesn't mean I expect people that sell things to lower the price. I either find something I can afford or rethink what it is I want to buy in the first place. I'd love new bedroom furniture, but instead I'm painting the set that I got at a garage sale 6 years ago.

When it comes to cakes, I'd say that 90% plus of the cake burnt out stories I have heard have all been about pricing, they priced too little and began to resent doing awesome cakes that took hours for a very cheap rate. While we went to help people out and give them something great, you also have to remember and think about how much money is coming out of your pocket, not to mention how much of your time you are using.

Sometimes people need to rethink what it is they want. You can often still give them a great, smaller less detailed cake at a price than can afford, rather than a huge cake with lots of little details and tons of work involved.

scp1127 Posted 28 Mar 2011 , 8:01pm
post #10 of 16

I agree with TexasSugar. My web site has smaller, simply decorated cakes with prices so that they are more affordable to more people. Buddy Valastro has 8" fondant cakes right in his display case along with the cannolis. That was where I got the idea. Some designs take so little time. I know you artists out there (which I am not one) want more challenging cakes, but these can fill in until the big ones come.

tryingcake Posted 28 Mar 2011 , 11:24pm
post #11 of 16

First of all cakes are luxuries and they cost what they cost. You can turn 30, 5 and also 18, have a baby and even get married all without a cake. They are not a necessary part of life - cakes are simply an added bonus to those who can afford them. So charge what you need to charge. Any less than that and you may as well stay home doing nothing.

When I first started I figured my hard costs, stuff I could actually calculate, and charged 3.5 by multiplying 3.5 times. So, if your hard cost is $30, then you charge $105. In theory, this gives $30 to cover the original hard costs, $40 for things too hard to measure (gas in your car, utilities to bake, paper towels, dish-washing, laundry - everything involved in making that cake that you can't quite calculate yet), and the rest for your paycheck.

It's not a perfect science, but it gets you started to a point where you know you are at least charging "enough."

Cookingkimber Posted 28 Mar 2011 , 11:40pm
post #12 of 16

Dreamsville, I am in the same spot that you are. I live in small country town that only has one stop light (an actually light) and I ask myself the question as well should I lower the price so that I can at least get some orders. I am finding that some people are so used to their grocery store cakes for $20 that when they come to me they nearly fall on the floor.

I hate doing the math and I know I need to count in all my overhead but i just dread it. I normally charge $80 for a simple 2 tier fondant cake but I normally tell people this is what it STARTS at and depending on final design the price varies.

I normally tell people that all my cakes are custom designed to each person so every cake is priced differently.

Be careful when making the leap to the store front. I did the same thing and have spent more money painting and getting into shape then the actual cost of my rent for the whole year and after all that money realized the plumbing was way more than I could afford so now I have a ton of money sunk into a consultion area

tryingcake Posted 28 Mar 2011 , 11:48pm
post #13 of 16
Quote:
Originally Posted by Cookingkimber

I am finding that some people are so used to their grocery store cakes for $20 that when they come to me they nearly fall on the floor.




Don't forget - Grocery stores, as a rule, do not do fondant cakes - and they don't do custom cakes. So you are comparing apples to bananas - not even close to the same.

I lived in a one horse town most of my life - so I completely understand. We didn't even have a policeman in the area. If something happened we had to wait a good hour or so for the neighboring town (50+/- miles away) to arrive.

These people go to work in the big towns nearby. They either want your cake or they don't. It costs what it costs.

indydebi Posted 29 Mar 2011 , 12:53am
post #14 of 16
Quote:
Originally Posted by tryingcake

I lived in a one horse town most of my life - so I completely understand.


Me, too. Only we had to quit calling it that when the horse died! icon_lol.gif

tryingcake Posted 29 Mar 2011 , 1:32am
post #15 of 16
Quote:
Originally Posted by indydebi

Quote:
Originally Posted by tryingcake

I lived in a one horse town most of my life - so I completely understand.

Me, too. Only we had to quit calling it that when the horse died! icon_lol.gif





Too funny!!
thumbs_up.gif

scp1127 Posted 30 Mar 2011 , 4:02am
post #16 of 16

I'll post the same thing I always post on these "small town" issues. Look around town and on the internet. How many luxury cars, neighborhoods with $300k plus houses (can be found in real estate sales magazines), country clubs, private schools, golf courses, spas, etc.. On the internet... how many pool companies, landscape artists, pricey restaurants... you get the picture. This ought to tell you if the area can afford high priced cakes. You also have to take into consideration how many competitors and the startup cost. If the area can sustain your business, don't expect them to walk through your door. You must go to them, and that's another issue.

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