I am newish to selling cakes. I work out of a registered kitchen in New Zealand. I have sorted out my pricing to cover ingredients and material cost and my own time. After reading on here i still need to add in for other bits and pieces including a profit on top of my time.
What I am struggling with is how to price my tools and equipment in. How do you work out how to do this. There are the basic tools that are used for every cake so that wouldn't be too hard to price but what about the more speciality tools like stencils, moulds etc. These ones aren't used for every cake but are obviously more expensive to buy. At the moment I don't include any cost for these but I need to.
Also while i have been writing this, i have been thinking about things like cake pans, cake mixers and bits like that too.
I charge a cost rate and then an hourly rate for my time rather than a price per serving.
I have read through a lot of the posts about pricing on here but I can't really find an answer.
Can anyone please direct me to a thread that discusses this or is able to help me out?
Businesses will usually handle this by dividing the cost of the equipment over the life of the equipment. So if you buy $1000 worth of cake supplies (not consumables) that you expect to last 5 years, your cost for the supplies is essentially $200/year. If you average one order per week, the cost for each order should include $4 to cover supplies.
Now if you buy equipment that will only be useful for one cake, you should be charging the full price of the equipment plus markup to that customer. If you're not sure how much use you will get out of an item, just use your best judgment and err on the side of getting less use rather than more. For example, if you think you will be able to use an item on one cake a year, you can charge 20% of the cost of the item (plus markup) since you will probably recoup the rest of the cost down the road. But for simplicity's sake unless the equipment is a true one-off it might be easier to just include it in the supply overhead allocated to all orders.
Thanks for that Jason.
That explains a lot for me. I take it that everything else would be charged in this way too, like cake mixers and stuff like that.
Reading through other threads, it seems like 20% profit on each cake is about normal?
When you talk about charging the whole piece of equipment to a client when it is purchased just for their cake, what do you mean about the markup? Is that the overall profit on the cake or is that something you add onto each piece of equipment.
So something like a broach that would only be used for that client and then they keep it. If you buy it for $10 would you charge it to them at $10 only or do you add a markup on that, or do you add it into the price of the cake and then add the 20% profit on top of that?
Sorry if these are dumb questions!
The net profit margin will vary depending on your costs and market prices for your targeted customer segment, but they are usually between 10-30%.
Generally anything that's not consumable and not directly related to a specific order can be allocated this way. Ingredients would be costed separately based on the recipe, but the overall cost of storing ingredients would be allocated out, as would things like professional fees, insurance, utility costs, web site costs, and so on.
When charging back the cost of one-time use equipment, by markup I was referring to making sure your standard profit margin is applied to the chargeback. For your $10 broach example (assuming a 20% profit margin), if I worked out the cost of the broach separately the price would be $12. If you include that $10 in the cost of the cake before you apply the markup you would reach the same result.
Note that the cost of the broach would typically not be separated out on the invoice even if you separated the cost for your internal calculations.
The same would apply to something like an oddly-shaped cake pan...even if you charge the customer for the full cost of the item plus markup you are under no obligation to give them the item. In the case of the pan they would have already benefited from a lower labor charge for the cake.
Hope this helps! And BTW the only dumb question is one that hasn't been asked.
Thanks for that Jason. I need to do a big review on my pricing and adjust quite a few things and this information/help you have given me is awesome, thank you!
i don't include the cost of stencils or other speciality equipment that I will keep dollar per dollar into the cost of the cake. I will reuse a stencil again on another cake, and charging $60 extra on a $400 cake just doesn't seem competitive. I was in the stencil situation for a damask cake a few months back, and I basically absorbed the cost of the requested stencil set as business overhead and adjusted my charge for the per price piece of cake. This is why I have 'fondant 'starts at' $X.XX a slice' in my information. I was able to take what i wanted to get from the supplies (i thought 30% total cost would be equitable) and increased the cost per slice to get that covered. When a customer is asking for a speciality technique, and if they understand it requires extra molds or tools or time, you can upcharge from your 'starting at' price for the design and it is accepted.