glanduners Posted 23 Aug 2012 , 8:17pm
post #1 of

A woman I have met before, but don't know very well personally, has asked me if I would consider making cakes, etc. as part of party packages she offers through her childrens' themed party planning business. Here is part of what she wrote:

"How it would work is, a mom would order a party from me, either a tea party, a princess party, Under the Sea Party, or a Spa Party, and she would have the option to order a coordinating cake/cupcakes or cake pops, choc covered strawberries as an add on. Any orders that come in, would go to you, and you would provide that through me. I would bill and collect and pay you. In return I would keep a percentage of the sale, say 20% or whatever you feel is fair for the referral."

This is not a typical referral, where she would tell her clients that she recommends me and then gives them my contact information (for that, I would not pay a referral fee). Rather, when she has a client that would like to "add on" a cake to a party package they purchase through her, that client automatically goes to me, so there is regular, guaranteed work involved here. I would be her only cake vendor, so there is no competition. In this case, I don't see a problem with a referral fee. However, I'm new to this - is 20% a reasonable take? If not, what is? Do you foresee any issues I would have to watch out for? Thanks for your input!

38 replies
HalifaxMommy Posted 24 Aug 2012 , 4:59am
post #2 of

So, with her business plan she wants to be a one stop birthday planner - cake, decorations, theme etc am I getting this right?

Instead of taking a % from you as the "referal" why doesn't she buy the cake from you at your agreed upon price and she tack on the % to the person buying her services?


Say you agree on $100 for the cake set in a certain theme/size or what not why should you lose (just pulling a number out of thin air here) 20 % making it only $80 for you. Why doesn't she charge $120 for the cake, keep her 20% and give you the $100.

ibeeflower Posted 24 Aug 2012 , 6:18am
post #3 of

I agree with Halifax. I work at a kitchen and bath remodeling firm and we have our own crew to do most of the work. But we also have a tile guy, a counter top fabricator, a plumber, and an electrician that we give jobs to. We need them and they need business.

My boss gets a quote from them, and tacks on a percentage so she can still make money off of it. She supervises these people so if there is an issue they report to her and she has them do it all over again until it is up to code and has been approved by her.

The customer sees a number that includes her fee and the subcontractor's fee. She has never said to any of the subs that she will charge them a fee for throwing business their way. As far as the sub is concerned, he makes money and however much my boss makes is none of his business.

This has worked out for them for several years without any issues or resentment. No one wonders if they are getting the short end of the stick and everyone is satisfied with how much they made at the end of the day.

glanduners Posted 24 Aug 2012 , 7:32pm
post #4 of

I understand your point, and I would love if it would work that way, but then it would effectively cost her client MORE to buy my cakes through her than to just buy them from me. That gives her absolutely no benefit because she would not get any business by partnering with me, and it gives her client zero incentive to include a cake in their party package. I understand about the remodeling business too, as my family has owned multiple kitchen/bath remodeling businesses, but the contractor method they use doesn't quite work that way in this application. icon_smile.gif

HalifaxMommy Posted 24 Aug 2012 , 7:44pm
post #5 of

Yes, the cakes bought via the party planner is going to cost the host more money BUT you aren't losing money and that is business ownership 101. Chances are if the host is willing to pay some person to plan out their child's birthday party and extra $20-40 dollars is not going to break the "budget".

Sit down with the planner and design two cakes per theme and have two price points - cake A is X dollars and cake B is Y dollars and let the planner put her fee on it afterward. And have standard flavors and filling to make it easier on everyone - batta bing - steady cake business. If the customer wants to speak to you to arrange a truly "custom" cake you and the planner are going to have to work out her commission before hand.

If you give this woman a percentage of your own profit margin for the "referrals" you are going to have to widen your margin to make your set % of profit which means a higher price for your cake. If you don't you are going to become the local "cheap cake lady" and will be doing two or three birthday cakes with the same theme every weekend and giving money away hand over fist.

Why should you be doing all the work while she gets your profit?

Addictive_desserts Posted 24 Aug 2012 , 8:29pm
post #6 of

When a customer chooses a "on stop shop" then yes they will pah that little more for the cake, but then again they don't need to do the running around hence the reason they chose a planner so there is nothing wrong with Being more expensive through her!

Or like the Above poster mentioned, increase your profit margin so that 20% fee is still leaving you with a satisfactory profit!

jason_kraft Posted 24 Aug 2012 , 8:35pm
post #7 of

And don't forget that if you increase your prices the commission will also increase. For example, if you charge $100 for a cake, after 20% commission you would have $80, but if you increase the price to $120 you would only have $96 after the 20% commission. In this case you would need to increase the price to $125 to adequately compensate for the commission expense.

glanduners Posted 25 Aug 2012 , 1:01am
post #8 of

Hmm... I'm understanding what you're saying, really I am. But having her customers pay her more for my cakes than they would pay me for my cakes would sabotage her business too. Her repeat clients would never order a cake through her again, because they would know after their first time that it is cheaper through me. Right? This is what I mean when I say that it needs to benefit both of us.

crushed Posted 25 Aug 2012 , 1:17am
post #9 of

Two things. First, how would they know it was cheaper through you? The transaction goes through the other woman. And second, it isn't your responsibility to make sure the other woman makes money. This is your business and you need to make sure you are making money. She'll have to figure out how to make it worth her while, but allowing her to eat into your profit doesn't make any business sense for you.

glanduners Posted 25 Aug 2012 , 1:21am
Quote:
Originally Posted by crushed

Two things. First, how would they know it was cheaper through you? The transaction goes through the other woman. And second, it isn't your responsibility to make sure the other woman makes money. This is your business and you need to make sure you are making money. She'll have to figure out how to make it worth her while, but allowing her to eat into your profit doesn't make any business sense for you.




I would not be advertising on her website, but I when I deliver the cake, I would be giving my contact information and business cards to the client so they can tell all their friends at the party where that fabulous cake came from. I do get valuable contacts and leads from this arrangement, so that her party clients can contact me if they need a wedding cake, etc. in the future. One look at my website, and they will know they paid more through her.

ibeeflower Posted 25 Aug 2012 , 1:28am

If you are comfortable losing 20% then go for it. In the end it is what YOU feel comfortable with.

jason_kraft Posted 25 Aug 2012 , 2:13am
Quote:
Originally Posted by glanduners

I would not be advertising on her website, but I when I deliver the cake, I would be giving my contact information and business cards to the client so they can tell all their friends at the party where that fabulous cake came from. I do get valuable contacts and leads from this arrangement, so that her party clients can contact me if they need a wedding cake, etc. in the future. One look at my website, and they will know they paid more through her.



Typically this type of situation includes an agreement to refer clients through the event planner instead of directly to you for future orders, otherwise the planner would only be making a commission on the first order. The event planner's site would have a different price structure from your own site (like when products sold wholesale to a retailer are priced higher than the same products sold direct to consumers), but the whole point is for future clients to book everything through the planner instead of going to each individual vendor themselves.

paulstonia Posted 25 Aug 2012 , 2:26am

Right, if I were the party planner I would not allow you to pass out your card at my event, that would be undercutting MY business. If her customers decide to do all their own party planning for their next event they can do their own leg work. I don't believe you should allow her to cut into your profits either. She is providing a service, her party planning and if they want her to provide the cake also she has should be adding a charge for HER service.

glanduners Posted 25 Aug 2012 , 2:47am
Quote:
Originally Posted by paulstonia

Right, if I were the party planner I would not allow you to pass out your card at my event, that would be undercutting MY business.




Yes, that would be totally crazy! But she is not a party planner, in the general sense. She doesn't do weddings, showers, adult birthdays, or any other kind of party. Only these themed kids princess parties with face painting. That's why she's okay with me handing out business cards. She would not be able to help someone wanting to plan a wedding, or 50th birthday, or Bar Mitzvah... etc. But she would happily direct them to me for their cake.

HalifaxMommy Posted 25 Aug 2012 , 3:36am

If her business is planning childrens parties then yes she is a party planner.

If you are ok giving her your profit margin and barely or just breaking even on every cake you do with her then have it at it.

Losing profit or not even breaking even on a cake job will happen on occassion if it will guarentee a high ROI in the future. This is not going to happen here becasue you are giving away profit each and every time.

glanduners Posted 25 Aug 2012 , 3:49am

The main value I see in the situation is in the leads and referrals I could get. ie. lots of moms leaving the party with business cards, the client coming to me when they need a cake for a party that this planner doesn't do, etc.

HalifaxMommy Posted 25 Aug 2012 , 4:11am

Well do a few party cakes and then weigh the situation and look at the end numbers.

Personally I would never give my profit on a cake to another person unless the ROI was going to be a predicted high to cover the inital loss.

glanduners Posted 25 Aug 2012 , 4:14am

Yeah, that's kinda what I'm figuring. I won't know if it will really pay off until I see how many new "unattached" clients I get from the deal. My husband thinks that 10% would be a better place to start IF I am going to do this at all.

jason_kraft Posted 25 Aug 2012 , 4:23am
Quote:
Originally Posted by glanduners

But she is not a party planner, in the general sense. She doesn't do weddings, showers, adult birthdays, or any other kind of party. Only these themed kids princess parties with face painting. That's why she's okay with me handing out business cards.



This makes no sense...if she focuses on kids' parties, chances are most of the people at the party will be parents who are in the market for their own kid's party. So if you're handing out your business card to the people at the party, they will be able to easily book directly through you, cutting out the event planner.

HalifaxMommy Posted 25 Aug 2012 , 4:36am
Quote:
Originally Posted by jason_kraft

Quote:
Originally Posted by glanduners

But she is not a party planner, in the general sense. She doesn't do weddings, showers, adult birthdays, or any other kind of party. Only these themed kids princess parties with face painting. That's why she's okay with me handing out business cards.


This makes no sense...if she focuses on kids' parties, chances are most of the people at the party will be parents who are in the market for their own kid's party. So if you're handing out your business card to the people at the party, they will be able to easily book directly through you, cutting out the event planner.




The OP is going to have to get the business card issue in writing. I can't believe the party planner would allow herself to be cut out and lose the "referal" fee and potential party bookings. Not very good for her end numbers either.

glanduners Posted 25 Aug 2012 , 4:38am

Yes, this is one reason why it wouldn't benefit the party planner to tack on 20% to the retail of my cakes. Instead, they will pay the same price to her that they would to me, but I would directly get any orders the clients/party moms want to place that have nothing to do with a themed princess party. For example, a mom that attends the planner's party may add on my cake to her party if she books with the planner for a kids party, paying her the same thing she would have paid me.... but where I profit is when that same mom is planning an over-the-hill party or a wedding or a 50th wedding anniversary. AND she has my card, as well as experience with my cakes... and already LOVES them. icon_smile.gif

jason_kraft Posted 25 Aug 2012 , 4:44am
Quote:
Originally Posted by glanduners

Yes, this is one reason why it wouldn't benefit the party planner to tack on 20% to the retail of my cakes.



The only way I can see this working is if the planner either provided customers with a single quote for the party (including the marked-up cake) with no line item breakouts, or added an additional fee somewhere else in the party quote.

What is your current net profit margin? If you're above 20% you may be able to afford giving away a few percentage points if you need to increase volume.

glanduners Posted 25 Aug 2012 , 4:46am

I don't feel like I'm being clear....

All of this is why the PP adding 20% on top of my retail price won't work. And it's why taking a cut will work. From her client's point of view, the cake costs the same whether they get it from me or through her. So they might as well get it through her, but only if they want a princess party with face painting, because that's ALL she offers.

If they want a custom cake for another event they want to do, they can't use her anyway, so she won't be losing any business. They will have my card and contact information, the price per serving rate will be the same, and there's no middle man. The 20% (or 10 or 15 - whatever) should be made up for by referrals.

glanduners Posted 25 Aug 2012 , 4:48am
Quote:
Originally Posted by jason_kraft

Quote:
Originally Posted by glanduners

Yes, this is one reason why it wouldn't benefit the party planner to tack on 20% to the retail of my cakes.


The only way I can see this working is if the planner either provided customers with a single quote for the party (including the marked-up cake) with no line item breakouts, or added an additional fee somewhere else in the party quote.

What is your current net profit margin? If you're above 20% you may be able to afford giving away a few percentage points if you need to increase volume.




My current profit margin is approximately 40% - a bit less in summer months.

jason_kraft Posted 25 Aug 2012 , 4:50am

That seems extremely high....does that 40% include your wages and allocated overhead in your cost? And why is it less in the summer?

glanduners Posted 25 Aug 2012 , 4:52am

I am a home-based baker producing cakes under the AZ cottage baker's law, so my overhead is minimal (as are licenses and permits). I will give you this much - I don't calculate the cost of my oven usage or other home appliances, and I don't do a high volume of cakes. This is a side business for me, and not my main occupation.

glanduners Posted 25 Aug 2012 , 4:54am
Quote:
Originally Posted by jason_kraft

That seems extremely high....does that 40% include your wages and allocated overhead in your cost? And why is it less in the summer?




Summer is much slower in AZ.

More clarification: My net is closer to 26% after factoring in an approximate hourly wage of $15 per hour.

glanduners Posted 25 Aug 2012 , 4:59am

(summer is when I do more giveaways and client appreciation specials!) icon_smile.gif Less profit.

HalifaxMommy Posted 25 Aug 2012 , 4:59am

After reading the thread for the third time all I can say is this party planner's business plan is so flawed that she is allowing herself to lose money. So in that case - negotiate your "referal" fee to 5% and see what you book.

jason_kraft Posted 25 Aug 2012 , 5:00am

Well in order to make an informed decision you'll need an accurate measure of your costs and what your true profit margin is, including costs for utilities, insurance, advertising, accounting, etc.

You should definitely plan on preserving your profit margin on sales with the PP, since I doubt you will get much business from these referrals other than kids' parties.

Quote by @%username% on %date%

%body%