Wonderlandbaked Posted 11 Dec 2013 , 12:04am
post #1 of

Ok, ok...I know a lot of beginning bakers are concerned about over/under charging. I have been baking for several years but just started to form my own business within the last year. I have a request for a baby shower cake. Customer wants to feed 50-60 people. I asked her what her budget was, she answered, $50-60. *sigh* She wants to feed 50-60 and only pay $60 at most. That equals to $1.00 a slice. So, just because my curious mind wanted to know...I asked her if she had any reference pics to what she had in mind. This is what she sent me:

 

 

 

*eyeballs picture* 

 

Now, taking in cost of ingredients & then labor costs & the modifications she wants with it. I am saying at least...$125.00 for this cake. What do you guys think?????

39 replies
jason_kraft Posted 11 Dec 2013 , 12:29am
post #2 of

AIf her budget is $1/serving, wish her the best of luck with her event and send her on her way.

The cake pictured would probably be priced in the $3-6/serving range.

Wonderlandbaked Posted 11 Dec 2013 , 12:33am
post #3 of

I know. I really hate crushing someones cake dreams...but, most people do not appreciate the time & effort that go into making cakes. Quality cakes any way. It's so frustrating some times. :(

DeniseNH Posted 11 Dec 2013 , 1:15am
post #4 of

Yes, please direct her to the local grocery store bakery where she will be laughed at by the employees.  And you didn't have to be the one to do it.............bam!  Done..

jason_kraft Posted 11 Dec 2013 , 1:19am
post #5 of

A

Original message sent by DeniseNH

Yes, please direct her to the local grocery store bakery where she will be laughed at by the employees.  And you didn't have to be the one to do it.............bam!  Done..

Walmart prices wedding cakes around $1/serving.

DeniseNH Posted 11 Dec 2013 , 1:34am
post #6 of

Some brides may want a Walmart cake, but those brides are not our brides.  And who's going to bring it to the reception and set it up and explain to Aunt Martha that it HAD to be all one flavor so she can't have any because she's allergic to chocolate.  And that special design you've been dreaming of for over two years............forget about it.  And did you say you wanted a raspberry flling...................sorry. 

Norasmom Posted 11 Dec 2013 , 1:41am
post #7 of

It's a bummer but sometimes you have to disappoint people with prices.  Cost is what it is.  Maybe she will up her budget if you can explain a bit about cake being an art form.

 

I would charge at least $180 for that cake, probably $200.   If she can't afford it, you have to just say thank you for considering me.

howsweet Posted 11 Dec 2013 , 1:44am
post #8 of

That's a very simple cake and I'd charge $320 as a 48 serving.

costumeczar Posted 11 Dec 2013 , 2:03am
post #9 of

I got into it recently with a woman who posted on her blog about how expensive wedding cakes were, and how bakers are ripping people off with these ridiculous prices. After I "explained" that it's more than flour and water, and the time that it takes, she apologized and said that she had no idea how much went into cakes, and that she thought that it took a couple of hours to put a cake together. But that she HADN'T THOUGHT ABOUT IT, really...People just really have no idea how much work goes into decorating a cake, let alone how much time it takes to run a business. I watched the blog for a while and responded to about five or six other people who were saying the same kind of thing, and she eventually just admitted defeat. They got tired of me telling them they were clueless.

Wonderlandbaked Posted 11 Dec 2013 , 3:00am

Ok, so I finished talking with this customer. I showed her a cake serving chart because she had no idea what size she needed & I broke down my pricing for her. She did up her budget...but she said her limit was $100 & she couldn't go any higher. She didn't want to budge on the design/size of the cake. So, I had to tell her sorry, maybe I wasn't the right fit for her. Most people are completely clueless when it comes to our art form. What is even worse, is most people want you to create these crazy, elaborate designs for dirt cheap or even for free!! Don't even get me started on family & friends, they are the worst!! LOL

cakesbycathy Posted 11 Dec 2013 , 4:36am

Good for you for sticking to your pricing.  She's going to find out very quickly that she's not going to get THAT cake with her budget. 

leah_s Posted 11 Dec 2013 , 5:08am

AI'd be st $260 before delivery for that cake. Its very pretty.

MimiFix Posted 11 Dec 2013 , 10:31pm

Thanks auzzi, the internet is a wonderful place.

kikiandkyle Posted 11 Dec 2013 , 11:34pm

ASome people (actually quite a lot) just don't get that you can't always get what you want, especially when what you want is a custom cake at a Walmart price. Sadly some fool will tell her they can do it for her price, but that baker will be losing money on the cake and the client will be getting something quite different from what they're asking for.

luvmykids2bits Posted 11 Dec 2013 , 11:48pm

Quote:

Originally Posted by leah_s 

I'd be st $260 before delivery for that cake. Its very pretty.

If you don't mind, I'd love to see the breakdown of that price.  It would be helpful for those of us thinking of going into business to see the breakdown of everything that goes into setting the price.  Thanks.

leah_s Posted 12 Dec 2013 , 1:47am

A60 servings x $4=$240 + $10 equipment fee +$10 for the monogram and bow. Delivery is + $50.

howsweet Posted 12 Dec 2013 , 2:17am

AWhat size would the tiers be to get 60 servings and keep similar proportions? The reason I only quoted 48 servings was because I was too lazy to work out the right sizes to get at least 50- 60 servings. So mine was a 6 in round (4 layer) over an 8 which the 8 being a two tier cake internally. One a two layer a d the other a 4 layer.

luvmykids2bits Posted 12 Dec 2013 , 3:26am

Quote:

Originally Posted by leah_s 

60 servings x $4=$240 + $10 equipment fee +$10 for the monogram and bow.
Delivery is + $50.

Thanks...to break it down even further, how do you determine that this cake is $4 per serving as opposed to $3 or $6?  Just curious.  Thanks!

jason_kraft Posted 12 Dec 2013 , 4:28am

A

Original message sent by luvmykids2bits

Thanks...to break it down even further, how do you determine that this cake is $4 per serving as opposed to $3 or $6?  Just curious.  Thanks!

This is based on cost (ingredients, labor, and allocated overhead) plus a markup for profit. Check out the Pricing Formula link in my signature below for more details.

leah_s Posted 12 Dec 2013 , 4:37am

AThat was a quick punt. 6/9 would be 51 servings. I know my costs down to the ounce and I'm comfortable charging $4 per serving for any flavor/filling combo that's fondant covered. It's also what the market will bear in this area.

howsweet Posted 12 Dec 2013 , 5:09pm

I find it fascinating that you chose not to respond to me, the person suggesting the cake at the highest price and to Leah, who is selling the cake for a lower price.  You don't want to sell a cake for as much as possible?

 

Anyway, here is some useful information. If it's over your head, you have more background work to do before you start selling high end cakes for $2.08 per serving. (That's your guess of $125 divided by 60)

 

On this website, cost is over emphasized as a means for determining price. Here's an article that might help you. http://www.inc.com/guides/price-your-products.html  Please note that when they talk about your competitors, they don't cover the mind boggling problem we have in this business of people selling cake without regard to maximizing profit.  If all that exists in your town is bakers undercharging, personally, I'd find another business to go into because no one can effectively compete against someone whose business is subsidized by a spouse.

 

Please note that what a "customer is willing to pay", doesn't refer to the people you happen across as you try to start selling cakes. It assumes you are savvy enough to find and reach your target customer.

 

What is the customer willing to pay for my product?
"Pricing should only be based on what the customer is willing to pay. If the customer is willing to pay $1,000 for a product that costs you $10 or even $100 to make, you have a successful product. If the customer is willing to pay $1,000 for something that costs $1,000 to make, you don't raise your price -- you get out of that business."

How should I react to my competitor's prices?
In pricing strategy, there are three important questions: Who provides an alternative to my product? Is mine better or worse? And does the customer care? That's the view of Tim J. Smith, managing principal of Chicago-based strategic pricing firm Wiglaf Pricing. If your product is better, find the competitive price difference and price upward. If yours isn't as good, find the competitive price difference and price downward. And as your competitors' prices change, so should yours. But this strategy applies only when customers are very familiar with prices, he says, using tennis balls and tennis rackets as an example: "Stores advertise lower tennis ball prices to get people in because people are very aware of what tennis balls cost. But they can charge higher prices for tennis rackets because there is not this same type of awareness." <---- that is called strategy.

 

Should I discount to get people to buy my product?
Promotions are fine from time to time, but the full price should remain the standard. If you regularly have to discount to sell your product, you've either overstocked the product with features that people don't want to pay for or you're trying to sell it to the wrong type of customer, Johnson says. And once people start paying a lower price, it's tough to raise it back to the level you need to make a good profit.

 

 http://www.entrepreneur.com/article/227083

 

 

 
leah_s Posted 12 Dec 2013 , 5:40pm

I'm feeling a bit attached here, and not sure why.  I assure you that I understand pricing, know my costs (ALL of them) and make a tidy profit on each and every product I sell.  After all If it doesn't sell, I have a loss for the day.  Since I'm on the food truck, I'm more than just custom orders now.  My prices also cover the things that don't sell that day.  Well, unless its a really bad day.  But I don't have many of those any more.

:-)

luvmykids2bits Posted 12 Dec 2013 , 7:02pm
Quote:
Originally Posted by howsweet 
 

I find it fascinating that you chose not to respond to me, the person suggesting the cake at the highest price and to Leah, who is selling the cake for a lower price.  You don't want to sell a cake for as much as possible?

 

Anyway, here is some useful information. If it's over your head, you have more background work to do before you start selling high end cakes for $2.08 per serving. (That's your guess of $125 divided by 60)

 

On this website, cost is over emphasized as a means for determining price. Here's an article that might help you. http://www.inc.com/guides/price-your-products.html  Please note that when they talk about your competitors, they don't cover the mind boggling problem we have in this business of people selling cake without regard to maximizing profit.  If all that exists in your town is bakers undercharging, personally, I'd find another business to go into because no one can effectively compete against someone whose business is subsidized by a spouse.

 

Please note that what a "customer is willing to pay", doesn't refer to the people you happen across as you try to start selling cakes. It assumes you are savvy enough to find and reach your target customer.

 

What is the customer willing to pay for my product?
"Pricing should only be based on what the customer is willing to pay. If the customer is willing to pay $1,000 for a product that costs you $10 or even $100 to make, you have a successful product. If the customer is willing to pay $1,000 for something that costs $1,000 to make, you don't raise your price -- you get out of that business."

How should I react to my competitor's prices?
In pricing strategy, there are three important questions: Who provides an alternative to my product? Is mine better or worse? And does the customer care? That's the view of Tim J. Smith, managing principal of Chicago-based strategic pricing firm Wiglaf Pricing. If your product is better, find the competitive price difference and price upward. If yours isn't as good, find the competitive price difference and price downward. And as your competitors' prices change, so should yours. But this strategy applies only when customers are very familiar with prices, he says, using tennis balls and tennis rackets as an example: "Stores advertise lower tennis ball prices to get people in because people are very aware of what tennis balls cost. But they can charge higher prices for tennis rackets because there is not this same type of awareness." <---- that is called strategy.

 

Should I discount to get people to buy my product?
Promotions are fine from time to time, but the full price should remain the standard. If you regularly have to discount to sell your product, you've either overstocked the product with features that people don't want to pay for or you're trying to sell it to the wrong type of customer, Johnson says. And once people start paying a lower price, it's tough to raise it back to the level you need to make a good profit.

 

 http://www.entrepreneur.com/article/227083

 

 

 

howsweet - I'm not the OP.  I only quoted Leah because she was the post closest to the end of the thread.  There was no ulterior motive.  Thank you for the info, though. It's given me things to ponder.

 

Leah - thank you for responding.  I hope that I wasn't making you feel attacked, that was not my intent.  It's hard to convey things over the internet sometimes as tone, facial expressions, etc aren't present.  As a newbie, who has been thinking about the business side of things, pricing and money plays a big factor.  This aspect has been very eye-opening ever since I joined CC.  I see the huge variation in prices for a similar cake - variations that can't just be accounted for by differences in the cost of living in your area - and wonder how people set their profit margin/hourly wage.  I also know how volatile price discussions can get on here!  Yikes.  It's kind of intimidating asking questions about pricing and money on here with the intent to learn as the discussions can explode so quickly!    Costs of the cake making/ingredients is easy to figure out (thanks to CC I realize there were a lot of "hidden" costs I never would have considered), but the wage/profit margin is a bit trickier for me to figure out.  Are all of your cakes figured out by cost per serving?  Is that cost per serving the same, or does it depend on the cake?  (or do you have a base cost per serving that goes up depending on how elaborate the cake is?)

 

Thank you - I really do appreciate the information.  It helps a lot!

 

I'm just going to directly ask anyone and everyone who cares to answer - how do you figure out your hourly wage/profit margin/what you pay yourself?

 

Thanks!

howsweet Posted 12 Dec 2013 , 7:46pm

Quote:

Originally Posted by leah_s 
 

I'm feeling a bit attached here, and not sure why.  I assure you that I understand pricing, know my costs (ALL of them) and make a tidy profit on each and every product I sell.  After all If it doesn't sell, I have a loss for the day.  Since I'm on the food truck, I'm more than just custom orders now.  My prices also cover the things that don't sell that day.  Well, unless its a really bad day.  But I don't have many of those any more.

:-)

 

I'm so sorry. I should have made it clear I wasn't criticizing  you or your price.  I've gotten a little sensitive about how my prices are received on forums when i post them.   I'm not saying this applies to the OP, but I sometimes get this sense that other cakers think my prices are too high. Or they don't believe me. There just seems to be this incredible resistance to charging , what I consider to be , reasonable prices.  On a facebook forum, I was ganged up on by several who accused me of lying about my prices. I can't understand it.

jason_kraft Posted 12 Dec 2013 , 7:51pm

A

Original message sent by luvmykids2bits

I'm just going to directly ask anyone and everyone who cares to answer - how do you figure out your hourly wage/profit margin/what you pay yourself?

Your profit margin is determined by market value both on the demand side (what the customer is willing to pay for your product) and the supply side (what competitors are charging). To figure out your hourly wage, you can look at cost of living and salary surveys to see what market wages are, but the market value of your product factors in here as well, as does your efficiency.

For example, let's say a cake has $50 in ingredient costs, $30 in allocated overhead, and will take 8 hours start to finish of hands-on time. Salary surveys indicate that cake decorators average around $15/hour, so a starting point for your cost could be $50 + $30 + ($15 * eight) = $200.

Now you factor in market research and see that your competitors sell a similar cake of equivalent quality for $250, so you can add another $50 to match that price and end up with a healthy 25% markup for profit (15-45% tends to be the norm).

If your market research tells you that a similar cake sells for $200, you may be able to adjust your wage downward slightly to $12, leading to a cost of $50 + $30 + ($12 * eight) = $176. To match that $200 price your markup would be 14%, which is on the low side.

However, as your skills improve you may get more efficient over time, so the same cake six months from now might take you 6 hours instead of 8, resulting a new cost of $50 + $30 + ($12 * 6) = $152, and a new markup of 31% to hit the $200 price point. Alternatively you could bump your wage up to $15, so the cost would be $170 with an 18% markup. Your markup will also increase over time as you start filling more orders, since the allocated overhead for each order drops if there are more orders to carry the weight of your total overhead.

If market research tells you that this cake is typically sold for $100 in your area, it's time to shift to a new market, a new product, or both. Or just keep cake decorating as a hobby.

leah_s Posted 12 Dec 2013 , 8:03pm

Yes, all my products are costed to the ounce whenever possible.  When I make caramel and chocolate covered apples, I know the apple (by the case ) costs 39 cents, I average about 1.5 ounces of caramel and 1.5 ounces of chocolate.  I buy the caramel and chocolate from Dawn, so they cost half of retail pricing.  Even when I add pecans to some of the apples or mini M&Ms for example, my costs per apple doesn't exceed $1.  I sell them for $6.

With cookies, my cost per cookie ranges anywhere from 8 cents to 14 cents.  Packaging about 2 - 3 cents.  But again, I buy in quantity from wholesalers.

 

Cake is similar.  White cake is the cheapest for me to produce (50 pound bags of flour and sugar)  and carrot is usually the most expensive, mainly because I don't buy all those ingredients in bulk.  Instead of having one price for each flavor, I make all cake the same price.  I make a little less profit on carrot and way more on white cake.  In my experience it works out at the end of the day.  

 

Back when I was in culinary school, the formula for "quick and simple" pricing was ingredients X 5.

luvmykids2bits Posted 12 Dec 2013 , 8:33pm

Thank you, Leah and Jason.  That was the information I've been looking for!  Even in my area, among professional bakeries, there is a huge disparity in prices.  It makes figuring out pricing/profits very confusing!

howsweet Posted 12 Dec 2013 , 9:01pm

ABut if you look at Jason's example, how was the price actually determined? By checking the market prices. Obviously you need to know your costs. But as usual, it was cost that was emphasized, not the real determining factor.

jason_kraft Posted 12 Dec 2013 , 10:19pm

A

Original message sent by howsweet

But if you look at Jason's example, how was the price actually determined? By checking the market prices. Obviously you need to know your costs. But as usual, it was cost that was emphasized, not the real determining factor.

I wouldn't say costs were emphasized, to me it's more of a 50/50 split between factoring in cost and value to set prices (e.g. targeting cost + markup as a price and using value as a check) and determining whether it's worth it to sell a specific product to a specific market. Everyone needs to know their costs anyway for tax purposes.

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