Hi girls!
Please help with my query, I'm wracking my brain thinking about it. I'm new to the cake business. I supply my cakes to my brother in law's cafe. I am yet to receive any payments and we never discussed profits.
My questions are:
When you work out costs, you include your hourly rate right?
On top of this, you get a percentage of the profit surely? Otherwise it wouldn't be worth our precious time! What would be a reasonable profit share that we should expect?
The reason I'm asking this is that my hubby has confused me. He thinks that if we are getting paid hourly, should we claim percentage of the profit unless we are business partners? Would it make more sense to set a price and sell it at that price to others and they can mark it up for their own profits?
Any help would be appreciated as I need to sort this out asap!
There are a number of different ways to approach this situation.
1. Get hired by the cafe as a employee or independent contractor. In this case you would be paid an hourly wage, and all ingredients and supplies would be provided by the cafe.
2. Become a partner in the cafe where you would share in the profits. Usually this accompanies an investment of cash or sweat equity.
3. Maintain your own business and sell wholesale to the cafe. The cafe would buy your products, mark them up, and sell them at retail. This puts the risk on the cafe unless there is a clause where you buy back unsold products.
4. Use the cafe as a retail storefront for your own products. This is similar to option 3, except your business would be selling the products directly to customers at the cafe, and the cafe would either charge a flat fee or take a percentage of your products sold.
I hate to bring is up but to sell retail I assume you are a legal business.
A separate legal business should only be necessary for options 3 and 4 above, for options 1 and 2 OP would be able to operate under the legal umbrella of the cafe (assuming the cafe has all their licenses in order).
Please also see:
http://cakecentral.com/cake-decorating-ftopict-729681-.html
HTH
Hi girls!
I LOVE this...lol... as Jason has the BEST and complete reply. 100% spot on, Jason!
There are a number of different ways to approach this situation.
3. Maintain your own business and sell wholesale to the cafe. The cafe would buy your products, mark them up, and sell them at retail. This puts the risk on the cafe unless there is a clause where you buy back unsold products.
I like option 3 because I'm thinking about doing something similar. I was thinking of this...the more a cafe wants to buy from me, the bigger the discount they would receive. The product is now theirs and they do whatever as they see fit.
My only concern is if the cafe then sells my items for way more than I would charge and it sells...am I doing something wrong with the wholesale pricing or my pricing in general? If a catering company hires me to do their cakes at a fixed rate then sells them to brides for a crazy amount, should I not care?
My only concern is if the cafe then sells my items for way more than I would charge and it sells...am I doing something wrong with the wholesale pricing or my pricing in general? If a catering company hires me to do their cakes at a fixed rate then sells them to brides for a crazy amount, should I not care?
When looking at a wholesale deal it is important to know the retailer's markup, reputable retailers will tell you this number in advance. If the markup is too high you are faced with either selling to the retailer below cost or having the final retail price well above market rates, neither of which is a good situation. We were looking into selling wholesale with Whole Foods a while ago, but with their 45% markup we just couldn't make the numbers work.
If your products still sell after a crazy markup, that means you are probably pricing them too low yourself.
Plus you will ideally have a different product assortment when selling wholesale vs. retail, in order to avoid cannibalization. For example, your retail business could be focused on higher end custom cakes, while at the same time selling more basic cakes or cupcakes wholesale.
thanks for the replies guys. Jason, your replies were very helpful, thank you. I decided to go with opion 3.
I've decided to only do cupcakes for the cafe though. There is someone else who can do these a lot cheaper and I told him to go with them. I value my time and effort too much. The funny thing is, a number of customers went to the cafe and tried my cupcakes as well as other person's. They fell in love with mine and asked him a few days later whether he had sacked the other one! Oh well if profit is more important than quality....
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