So, I was being a little nosey and called one of the ladies in my area that does cakes. I just started a couple months ago and had no idea what to charge people. I started charging $20 for a 9 by 13 and $30 for the 11 by 15. $20 for a 10 inch round also......which I thought was pretty cheap considering it is a custom cake and only a little more expensive than a grocery store cake around here. I put alot of time into my cakes too so I was thinking of upping my prices a little..until I had a friend call last night and tell me that this cake lady charges $30 for a full sheet cake.....I couldn't believe it so I gave her a call. She said that she charges $12 for a 9 by 13, $15 for the 11 by 15, and $25 for the 12 by 18 (which she called a full sheet). 
Then she said she could do a 16 inch square for $30! WOW!! I don't know how she does it! Personally, I think my cakes are better...taste and looks...but I just don't know if people will care about that around here. I live in a small town where most people don't want to pay for cake....most ppl have never even heard of fondant. So my question is...how can I compete with this?!?
You just have to show people that your cakes taste better and that quality is more expensive. Its like buying a ford escort vs a cadillac (sp).
What good is a bad cake if it isn't eaten? I wouldn't lower my prices...I just wouldn't do them for that. My time is worth more to me...
I wouldn't change a thing if I were you...you know and your clients know how good your cakes are...stay the same price 
Unless you want to go higher 
The VERY LAST cake I ever bought was from a lady who charged 10.00 for a 9 x 13!!! And it showed!!! Thought she was just being nice doing it for 10. But it really looked awful, and I bet it was only about a inch deep. That's what got me here 
Is this an actual business? Sometimes they just have set designs that they go by. Maybe all of yours are custom made and never duplicated!?
I would do a little more investigating to see what she uses for her cakes like frosting, type of cake, if she gets anything sent to her??? That way if someone asks you are ready to tell them why!
Good luck being sneaky! 
I have had the same situation at one time. I don't believe that you should lower your price just yet. Let people come and figure out yours will be better in looks and taste. And the price will be a moot point. Make it and they will come.
I agree! Don't lower your prices - you may start off with fewer customers, but your business will grow on quality. You'll be glad you didn't in the long run! I don't think people here know what fondant is either... 
I agree with sundine2. If your cakes taste much better and look much better than people will be willing to pay a bit more for a better cake. It might take a little longer for your business to begin booming, but in the long run it will be better.
she is just a homebaker...and has been doing it for a very long time. She actually made my sister's wedding cake about 10 years ago....and it sounds to me like maybe she never has raised her prices since. I guess if the people don't want to pay for mine.....they will get hers!!
I can definitely relate! People here are not real willing to pay much for something that gets eaten and has nothing left to show for the money they spent. I'm trying to find a niche doing carved and specialty cakes. I don't know of anyone who does that so hopefully that works.
I agree with everyone else - don't lower your prices. There are people who will pay for quality!
The answer is..... don't try. The best pricing advice I ever got said "Don't try to undercut the supermarket bakeries and cheaper home bakers. That sets you up for burnout and frustration. Go for quality; customers that appreciate quality & are willing to pay for it WILL find you!
I wouldn't worry about it. Pricing shouldn't be the key factor in ordering a cake. There is such a wide range of prices where I live, that I seem to be at a good average where I feel comfortable that it was worth my time to make the cake.
Angie
Also...wanted to add that your cakes are wonderful!!!
My prices are the same as yours and I know I'm cheap but that is because I'm starting out.
For the time I put in I might be making $2 an hour so there is no way I am lowering my prices.
I had a bride ask me if I would come down on my price $1.50 pp. I just came out and said no my prices are low to start with. I got the order.
Give it time maybe other who don't know who she is will order from you and your business will pick up.
I haven't read the other posts so I could be repeating things but this is my thoughts...
Don't worry about competing with her or the grocery store price wise. If people want a custom cake they will pay for it. Just give them a great product and a reason to pay more.
If they don't, it will be okay. I for one would rather not do a cake then do a cake that I am frustrated about. And if I was likely spending more making the cake then I was getting for the cake then I would be extremely frustrated.
Grocery stores can charge a low price because they buy in bulk and don't have the same overhead. How in the world that woman makes any money with her prices is beyound me.
Not pricing your product high enough is one of the biggest things that leads to burn out in cake decorators. You start to resent doing a cake for really, really cheap when you know you are putting lots of time, effort and time away from your family on it.
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