Determining Markup On Pricing

Business By rlowry03 Updated 29 Sep 2011 , 2:37am by coldtropics

rlowry03 Posted 30 Aug 2011 , 7:42pm
post #1 of 16

I'm just getting started selling cakes, and I don't know how to set my prices! I've read through a ton of threads on here and gotten help on what to figure into the cost.

I know what my materials/ingredients cost. And since I don't have commercial space, I have limited overhead. So how do I figure out what percentage to markup the product over basic ingredient cost?

And how do I figure out what to pay myself per hour? As it is, since I'm just starting to think about business, I don't really know how long it takes me to make things. I know that'll come with experience. But I also don't know what my time is worth...

I priced the only bakery in my town, and as it is I'm charging more than they are! And they have overhead! They charge $9 for a dozen cupcakes with buttercream! That only covers my ingredients!

15 replies
jason_kraft Posted 30 Aug 2011 , 8:27pm
post #2 of 16

Hourly wages for cake decorators are typically $10-15/hour (or more) depending on location and skill. Profit margin is usually 20-30%, but if selling homemade food is legal in your state you should have some leeway to lower that a little if necessary.

Don't worry too much about a bakery that charges $9 for a dozen cupcakes, their customers are not in your target demographic.

rlowry03 Posted 30 Aug 2011 , 9:11pm
post #3 of 16

Thanks Jason. Having a basic markup percentage of 20-30% helps me get started!

I'd love to rent a commercial kitchen, but since I'm just getting started, it's not in my budget. But if it's a goal I need to make enough to start saving for it! And $9/dozen definitely isn't going to do that!

For those who take larger orders like wedding cakes, do you already have a good idea how long it will take you and that's figured into your per slice price?

sillywabbitz Posted 30 Aug 2011 , 9:14pm
post #4 of 16

rlowery3,
I don't know how large you expect to grow your business, but I'm just starting out and purchased the cake boss software. It's been a huge help in understanding the cost of ingredients, materials, hours and profit. They offer a discount to CC members and it's downloaded. You can check it out at www.cakeboss.com. FYI if you watch their video tutorials you'll see what an amazing product it is.

I think a lot of at home decorators consider their hourly wage as their profit and that is absolutely fine. If you were looking at this from a business view, your hourly wage is actually a cost not a profit because if you had to hire someone to help you that is money you loose on that cake. These are just things to think about. It is important to look at your competition but also remember your area and your target clientelle. If someone tells me I'm more expensive than Walmart, my response is "You bet your butt I am. My cakes taste better too!"

I'm just getting started as well but I'm setting my prices by what I want to get paid for my cost, my time and my business (ie profit). Also I don't want to be that decorator who has to raise their prices all the time because they didn't figure out the correct pricing the first time through.

If you want some general ideas, I've seen the several people list $2.50 per serving for buttercream cakes and $3 and up for fondant. These are not necessarily the right prices for you and please realize, pricing is heavily dependent on your location, your experience level and your costs. If you specialize in all organic, gourmet, crazy cool flavors then your cost per serving would be much higher. A NY city baker has a per serving cost that I couldn't even begin to ask for in my area. But hopefully it will give you some ideas on how to price things out.

I hope this helps a little.

TexasSugar Posted 30 Aug 2011 , 9:46pm
post #5 of 16

Rlowry03, if you feel like you are going to do a lot of small cakes or single tier cakes, then make one, cost everything out, and keep track of the time spent doing all things on the cake.

If you feel like you are going to do some two tier cakes, then make one of those, keep track of all time spent and make sure you add plates/cardboard circles and pillars/dowels in your cost of supplies.

Then you know an average of how long it would take you to do a cake. Then you can use that information to figure our costs and even your price per serving.

How much you spend on the cakes may vary. How much time you spend on some cakes may vary. But in the end if you have a basic idea, then you can start with a basic price. If a cake takes a large amount of extra time you may need to add a little to the cost.

In general though, some cakes you will make a little more money on, and some cakes you will make a little less on as your costs or time spent on them may vary. In the end, it averages out.

TexasSugar Posted 30 Aug 2011 , 9:49pm
post #6 of 16

Rlowry03, if you feel like you are going to do a lot of small cakes or single tier cakes, then make one, cost everything out, and keep track of the time spent doing all things on the cake.

If you feel like you are going to do some two tier cakes, then make one of those, keep track of all time spent and make sure you add plates/cardboard circles and pillars/dowels in your cost of supplies.

Then you know an average of how long it would take you to do a cake. Then you can use that information to figure our costs and even your price per serving.

How much you spend on the cakes may vary. How much time you spend on some cakes may vary. But in the end if you have a basic idea, then you can start with a basic price. If a cake takes a large amount of extra time you may need to add a little to the cost.

In general though, some cakes you will make a little more money on, and some cakes you will make a little less on as your costs or time spent on them may vary. In the end, it averages out.

rlowry03 Posted 31 Aug 2011 , 2:31am
post #7 of 16

Thank you all so much! It really helps to get input from people at all levels of business. I would love to get cakeboss or something like it. I'm just trying to keep costs low until I see if I can get this thing off the ground. As soon as I have a better idea, I'll invest in software.

I don't know why it never occurred to me to make a cake and keep track of the time I spend! Probably because I'm not a big fan of having lots of cakes around because I'll load up on all that sugar! But then I guess I could always take them to work or donate them. That would also help get my name out there.

NegronsDelights Posted 31 Aug 2011 , 5:43pm
post #8 of 16
Quote:
Originally Posted by rlowry03

But then I guess I could always take them to work or donate them. That would also help get my name out there.




yes it would.

cakecoachonline Posted 5 Sep 2011 , 10:35am
post #9 of 16

I always price my cakes with the cost of the ingredients plus the cost per hour of the time I take to make it. As you get more experience you get to know how long each type of cake takes to make and you do get quicker too. If you estimate 3 hours for a cake and estimate on this length of time - it is really good discipline to try and finish within the estimated time - otherwise in essence you are not being paid for your time - and the time taken is reducing your personal home time. A lot of cake decorators seem to just work until a cake is finished - but by starting with the end in mind - i.e. how long do I estimate this will take, will mean working quickly, with focus and knowing at the end you must not keep fiddling with the cake - because now you are not being paid for your time!

rcsen Posted 11 Sep 2011 , 4:09am
post #10 of 16

Great articles on costing:
http://www.cakeboss.com/PricingGuideline.aspx
http://cateritsimple.blogspot.com/2011/07/pricing-getting-your-mind-out-of.html#comment-form

IMO, marking up based on ingredient costs might not be the most accurate way. I find the biggest cost is in labour, not ingredients.

Area makes quite a difference. Here, a dozen large cupcakes from a boutique bakery goes for about $32 CAD a dozen.

indydebi Posted 11 Sep 2011 , 4:54am
post #11 of 16

While you do want to knwo what your competition, i.e. local bakeries, are charging, don't stress too much over the idea that your prices are higher. yes, they have overhead, but they also have higher volume, which decreases their cost per cake (costs the same amount of money to run an oven for an hour, whether there are two 8" cakes in it or two complete 4-tier wedding cakes in it) and they buy in volume, getting wholesale and lower costing than what you can.

AliBakes6167 Posted 11 Sep 2011 , 4:55am
post #12 of 16

Hi! I use a recipe calculator from the website below, it's free and pretty easy to use. Just adjust price and ingredients. You can also google other ones and find one that suits you the most:

http://thecarolinaclipper.com/practical-tools-3/meal-planning/

It's obviously not as good as the cakeboss software but good for beginners who don't want to make the purchase yet.

rlowry03 Posted 11 Sep 2011 , 5:14pm
post #13 of 16
Quote:
Originally Posted by rcsen

Great articles on costing:
http://www..com/PricingGuideline.aspx
http://cateritsimple.blogspot.com/2011/07/pricing-getting-your-mind-out-of.html#comment-form

IMO, marking up based on ingredient costs might not be the most accurate way. I find the biggest cost is in labour, not ingredients.

Area makes quite a difference. Here, a dozen large cupcakes from a boutique bakery goes for about $32 CAD a dozen.




Thanks. I have read the cakeboss article and it's got great advice. I want to get the software, I just need to wait until it fits into the budget. Hopefully in a month or so I can get it. As far as markup on the ingredients, it seems like the standard is to mark up ingredients and then add labor cost. Now how much do I want to get paid an hour....

cakecoachonline Posted 12 Sep 2011 , 11:54am
post #14 of 16

Good idea to work out your price you wish to earn per hour - but while doing this, think too about any other costs associated with your business. You need to make sure that marking up the cost of the ingredients on each cake will in fact cover any overheads, buying more equipment, gas, electric, delivery costs, phone calls, marketing, insurance etc. So it is best to be truly aware of not only the cost of the ingredients to bake the cake but the true costs of any other charges it costs to run your business on a monthly basis. If you can establish this figure and then know how many hours you are going to work within a month - you can be sure that a 'marking up' of ingredient cost - truly does cover the expected costs you will incur in running your business. Just divide the monthly expected overhead cost by the average monthly hours worked and ensure these overhead costs are incorporated into the hourly charge for each cake. This way you can be certain that your overheads are covered.

coldtropics Posted 29 Sep 2011 , 2:36am
post #15 of 16

Im no expert here... and live in a market where things are super pricey esp for high end products... my advice esp if you are boutique baker is to charge what the market bears... if you can charge $9.75/serving charge it... there are people out there who will pay... keep in mind there are many who wont... cost/time are covered and it allows you to be selective with which assignments you choose while still turning a profit. maybe bad advice... but works for me. When i first started i was doing cakes for $40 bucks... I just wanted the business... but then i realized im punishing myself by doing so... now i charge as much as i possibly can.. if the customer doesnt like it... fine with me they are free to move on... i am very upfront about my pricing now... which was a real ouch at first. This is the cost... if you want to pay less i can offer you less servings, a less complex design or a referral to another baker.

coldtropics Posted 29 Sep 2011 , 2:37am
post #16 of 16

Im no expert here... and live in a market where things are super pricey esp for high end products... my advice esp if you are boutique baker is to charge what the market bears... if you can charge $9.75/serving charge it... there are people out there who will pay... keep in mind there are many who wont... cost/time are covered and it allows you to be selective with which assignments you choose while still turning a profit. maybe bad advice... but works for me. When i first started i was doing cakes for $40 bucks... I just wanted the business... but then i realized im punishing myself by doing so... now i charge as much as i possibly can.. if the customer doesnt like it... fine with me they are free to move on... i am very upfront about my pricing now... which was a real ouch at first. This is the cost... if you want to pay less i can offer you less servings, a less complex design or a referral to another baker.

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