I Don't Want To Be Your Cheap Cake Lady!!!!
Business By JoanieB Updated 9 Sep 2011 , 4:24pm by planetsomsom
Just a warning, this is a vent. I've recently started a legitimate home-based business. I'm working on building my clientele in a city I'm new to. So, it's slow going but I do have some great loyal clients.
However, trying to expand my business is frustrating me. I feel like I need to work more on marketing to my target market but breaking in to that seems slow. I'm giving quotes and not hearing anything back or hearing that "I found someone who can do that for half the price". Well, I don't have a nice way of saying, well then they are literally doing your cake at cost. So, I just ignore it and never respond, because really what can I say that won't sound just out right rude. I don't even charge close to what the bakeries charge but I don't think I'm cheap either.
I also know a couple of other home-based cakers that do not have a legitimate business, do not pay taxes, are not insured, and constantly make copyrighted character/sports etc cakes. I know what they charge and they cannot be pulling in very much money because I KNOW how much I'm spending on ingredients and supplies and I really don't think they realize how little they're making.
I don't know what the point of this is but I'm just annoyed that this is even bothering me. 
How do you know the other home bakers aren't paying taxes?
Well that's pretty serious...if they aren't paying taxes they are basically taking money out of your pocket (and the pockets of all law-abiding taxpayers). Luckily you can take some of that money back by blowing the whistle, and the IRS will give you up to 15% of the unpaid taxes as a reward:
http://www.irs.gov/compliance/article/0,,id=180171,00.html
Competitors charging too little is a common problem, especially in CFL states. You just need to redouble your marketing efforts, and try networking with wedding planners and venues, especially in more upscale areas where people won't be shopping with price. Also cultivate your competitive advantages so you can offer products your competitors don't.
If they haven't established themselves as a legitimate business do they even have to pay taxes? First of all, I would never turn anyone in because I'm not like that. I'm just trying to set myself apart from them so that this crap won't bother me so much.
I do like your idea of trying to network with planners and venues as well as offering products they don't that seems like a good place to start.
If they haven't established themselves as a legitimate business do they even have to pay taxes?
From the IRS' perspective there's really no such thing as not establishing yourself as a legitimate business...if you are pursuing business-like activities (i.e. providing goods and services in exchange for compensation) you are automatically considered a sole proprietorship, even if you don't apply for a business license, d/b/a, etc.
The health dept is a different story, but in some CFL states an inspection is not required for home-based bakeries that meet certain criteria. But even if you were operating illegally (i.e. no inspection if the state requires it) you would still owe tax, there is even a specific section on tax forms for reporting income from illegal activity. (That's how they got Al Capone, he was profiting from an illegal mafia crime syndicate but he didn't pay taxes on his income, so they threw him in Alcatraz.)
If they haven't established themselves as a legitimate business do they even have to pay taxes?
Yes. I think I've heard of more people having trouble with the IRS than with their local health departments.
I've had people tell me they could get a two tiered fondant-covered cake to feed 50 people for $30 somewhere else. My response, "That's an amazing deal! You'd better go snatch that up before they realize how much they're losing on it."
Usually it's a bluff to try to get you to lower your price.
I don't mean to hijack the thread here, but a friend of mine is a homebaker here in TN. She makes at most 2 (gorgeous and elaborate) wedding cakes a month, and had a facebook page. Someone must have contacted the local HD about her because of her page, and they asked her to remove it. According to the HD and lawyers, etc. she is legally allowed to back at home, no inspection, as long as she makes no more than $4,000/yr and does no more than 2-3 cakes a month. She is not allowed to advertise though, hence the facebook page being removed. And it's up to her to pay her taxes.
They told her if she was going to be doing more than that she would need to go through all the steps of getting her kitchen inspected, setting everything up legally, etc. But for that small amount no biggie.
I know CFL differs everywhere, and possibly your acquaintances are doing more cakes than this, but I just thought I would throw this out there. Some people blatantly disregard the laws (heck, I just did a Phineas and Ferb cake for my friend as a gift - gasp!), but there are some people who try to do it right and are just told they are fine and to go on their merry way.
I've had people tell me they could get a two tiered fondant-covered cake to feed 50 people for $30 somewhere else. My response, "That's an amazing deal! You'd better go snatch that up before they realize how much they're losing on it."
When people tell me this, I say, "Wow!! I need to buy a few of those myself!! I'll see you there!" 
A friend on mine prepares taxes and she told me that there are specific tax laws for some illegal businesses. Apparently your standard "street pharmacist" can deduct the cost of packaging, but not marketing. LOL I guess EVERYONE needs to pay taxes. You don't fool around with the IRS!
Don't feel bad. I get that remark all of the time. I actually had someone in my kitchen that said, "I don't know why it is so expensive, it is only cake". Now, having said that, my feelings were hurt. The lady wanted 4 stacked books and a graduation cap w/tassels, serving 75. She budgeted $50. We did a different version with smaller books on a sheet cake and charged her $85. Still probably less that what I should charge but when you live in a town where cows outnumber people, it is hard to ask for more. 
Sammie, I personally could care less whether or not they're paying their taxes or not. My issue is them charging practically at cost for their cakes. They give the customer this illusion that they're making money on these cakes. Then folks like me that have to charge sales tax plus I enjoy paying myself too and prefer not to work for free or at a loss look like I'm trying to rip them off. It's not the case at all.
If these girls would just flat out say to the customers I'm doing this for a hobby and am only charging you for materials then they wouldn't give me the attitude like I'm crazy for quoting what I do. Here's another thing, I honestly don't think these women have actually figured their costs/profits. I think they are that clueless...to put it nicely.
Texas & Johnny I completely agree with you and wish I had the b@lls to say that to their faces LOL
inspiredbymom, I love that ... where cows outnumber people.. no kidding.. the area I live in is not quite that remote.. but it is a shock sometimes when you give people a quote.. they don't get it.
to the OP, I think the idea of marketing to vendors and at bridal shows is a great idea as your home based unlicensed can not do that and wedding cakes are where the money is since they are so much bigger. Best of luck
I totally understand. That's where so many people mess up. I only do cakes for close friends and family, and they all know this is a hobby for me. I have a spreadsheet with all my ingredient and supply costs, and add in a little extra to keep the hobby funded with pans, gadgets, whatnot. They know they are getting a heckuva deal. I know I am not good enough to be opening a business yet anyway, and it's a good way to get practice in. If the day comes I open shop, they know their prices will increase drastically. But I have also made it a point to slowly educate them how much goes into it, so they appreciate it.
I'm sorry you have to deal with it, I can imagine how frustrating it must be for you. Do they do mostly birthday/celebration cakes or have they ventured into wedding cake territory as well? I think networking with some local places is definitely a good idea.
Wow!! here in Ontario if you are making under $30.000 a year the government does not really look into it, I called CRA inquirng about gst/pst tax number I was told I could apply if I wanted to but not necessary unless I thought I could possibly bring in more then $30,000 yearly.
I know how you feel! I get the same response. There's only one storefront bakery in my town, and I cost more than they do! I don't know how they bring in enough to pay the overhead, because I'd just break even with what they charge. I count on winning people over through word of mouth. I don't know what to say when they tell me I'm too expensive either.
Venting is good. There is always going to be a cheaper option available, but you have to consider the fact that it's a different market of people. If someone doesn't want to pay the price you've laid out, then they aren't your target market.
There are plenty of folks out there willing to pay top dollar for top quality, and while we're fussing over who gets to own the financially less fortunate, we are ignoring potential customers who aren't going to put up a fuss at all.
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