Prices!! *facepalm* Someone.help.me.
Decorating By Wonderlandbaked Updated 14 Dec 2013 , 12:01am by costumeczar
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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!
There can be a big range in prices based on who is producing the product. If you hire a "master" carpenter, you know you will most likely (not always but usually) receive a better product than from a carpenter's apprentice. The skill factor is taken into account on the price also. You wouldn't expect RBI to work for minimum wage just as you wouldn't expect someone with a low skill level to get top dollar for work that isn't very well done.
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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.
Today has not been my best posting day. I went back and reread it, excellent post. And I admit you emphasized it less in that post above than any other post of yours I've seen. I think I'm guilty of skimming and assuming you wrote what I've seen mostly before. But I believe a number of people take what you've said (in other posts) , repeat it in this forum and only include the cost part. Many need just as much instruction on how to get a market feel as they do costing... because I'm pretty sure more than a few are believing they know prices in their area based on checking out a few cheap cake ladies on facebook and a few customers complaining about their prices.
How about this method of pricing...I've been doing wedding cakes for almost 20 years and have made a profit every year, so you can take that for what it's worth.
I know what the average price per serving is around here, so I can't deviate too much from that, but I'm not going to go in on the low end of it, either. I know what my year-to-year gross vs. net is too, after a few years of that being pretty consistent.
Now let's say that I want to make more money than minimum wage. If I know what my net will be, and how much I want to make for the year, I can figure out what my gross needs to be, and then plan pricing accordingly. So for argument's sake let's say that I want to clear around $40,000 for the year and I know that my expenses are about 40% of my gross. That means that I need to earn about $65,000 gross to make that much after expenses. So, considering that wedding season is from about March through October around here, I have about 32-34 weeks to make that. So I should aim for about $1900-2000 worth of business per week. If I only want to do three cakes per week, I need to charge about $600-700 per cake. And if the average servings per cake around here is something like 100-150, I would need to charge somewhere between $4.50-5 per serving.
Now I can go with that, or say forget it, I'm not going to kill myself trying to make that much cake per weekend, and raise the price to $5.50-6. That's on the high end of what people are willing to pay in this area, but it could still work. And of course there are the other 18 weeks that are slower but I can still book business then. So I could leave the prices around $5 per serving and just try to spread the business out throughout the year and not concentrate it all in the 34 weeks of peak season. Or I could hit the jackpot and get a couple of clients who want a huge cake that will be the one project for the week but who will also make the $2000 mark with that one cake. More likely than that is someone who wants a wedding cake, groom's cake, and cookies, like the client I had this week. That adds up, so one client like that can take care of more than the usual percentage of the gross.
Planning prices that way does require that you know what your expenses are going to be, though. Like I said, I've been doing this for a long time so I know what my gross and net tend to be percentage-wise, which helps when figuring it out based on how much you want to take home at the end of the year.
Also, these figures are not the ones that I use, I just chose some that would give nice round numbers ;)
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How about this method of pricing...I've been doing wedding cakes for almost 20 years and have made a profit every year, so you can take that for what it's worth.
I know what the average price per serving is around here, so I can't deviate too much from that, but I'm not going to go in on the low end of it, either. I know what my year-to-year gross vs. net is too, after a few years of that being pretty consistent.
Now let's say that I want to make more money than minimum wage. If I know what my net will be, and how much I want to make for the year, I can figure out what my gross needs to be, and then plan pricing accordingly. So for argument's sake let's say that I want to clear around $40,000 for the year and I know that my expenses are about 40% of my gross. That means that I need to earn about $65,000 gross to make that much after expenses. So, considering that wedding season is from about March through October around here, I have about 32-34 weeks to make that. So I should aim for about $1900-2000 worth of business per week. If I only want to do three cakes per week, I need to charge about $600-700 per cake. And if the average servings per cake around here is something like 100-150, I would need to charge somewhere between $4.50-5 per serving.
Now I can go with that, or say forget it, I'm not going to kill myself trying to make that much cake per weekend, and raise the price to $5.50-6. That's on the high end of what people are willing to pay in this area, but it could still work. And of course there are the other 18 weeks that are slower but I can still book business then. So I could leave the prices around $5 per serving and just try to spread the business out throughout the year and not concentrate it all in the 34 weeks of peak season. Or I could hit the jackpot and get a couple of clients who want a huge cake that will be the one project for the week but who will also make the $2000 mark with that one cake. More likely than that is someone who wants a wedding cake, groom's cake, and cookies, like the client I had this week. That adds up, so one client like that can take care of more than the usual percentage of the gross.
Planning prices that way does require that you know what your expenses are going to be, though. Like I said, I've been doing this for a long time so I know what my gross and net tend to be percentage-wise, which helps when figuring it out based on how much you want to take home at the end of the year.
Also, these figures are not the ones that I use, I just chose some that would give nice round numbers ;)
I actually do a form that, but on a smaller scale :-) I know what cakes go for around here, per serving, and I figure out how much money I will make off the cake, and figure out how much time I can spend on it to get what I want per hour, after my costs and overhead. Then I determine the best method to get to that number, if it is possible or not. If it is not possible, I either add a bit more to the price per serving, or pass on the order, if it isn't worth my time.
That was fascinating! 
In my opinion, most people don't do even a tiny bit of that. And won't. So if we can get them to just find out how about much a cake should really cost, maybe they will charge something closer to that. That's not going to cause them to lose money --their prices would go up. They can just figure out the costs at tax time, assuming they're paying taxes...
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Original message sent by howsweet
That was fascinating! :D In my opinion, most people don't do even a tiny bit of that. And won't. So if we can get them to just find out how about much a cake should really cost, maybe they will charge something closer to that. That's not going to cause them to lose money --their prices would go up. They can just figure out the costs at tax time, assuming they're paying taxes...
Knowing your cost is integral to costumeczar's method. In her case costs (excluding labor) are 40% of the target price based on market value, without having this information it's impossible to determine how much you will actually bring in after expenses.
Her method is slightly simpler since it combines wage and profit margin, but there are some cases where it is important to work out these numbers separately (for example, if you will be bringing in another decorator you need to know what their wage should be), and using a fixed expense percentage that covers only ingredients and overhead may not accurately take into account labor cost if you have products with varying degrees of labor required.
AI assume that info wasn't for me even though you quoted me? And it was all pretty clear in her post, anyway. Maybe I should have started a new paragraph after the smiley.
Like I said, most of the people who need this info aren't going to use it. If they did, there would be a lot less undercharging. Even people who respond with "thank you, I will get on that right now".
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Knowing your cost is integral to costumeczar's method. In her case costs (excluding labor) are 40% of the target price based on market value, without having this information it's impossible to determine how much you will actually bring in after expenses.
Her method is slightly simpler since it combines wage and profit margin, but there are some cases where it is important to work out these numbers separately (for example, if you will be bringing in another decorator you need to know what their wage should be), and using a fixed expense percentage that covers only ingredients and overhead may not accurately take into account labor cost if you have products with varying degrees of labor required.
Most of the people asking "how much should I charge" are single owners working from home, or just starting out. In cases like that it's one thing to talk about profit and wages, but for the way that most people will file taxes the IRS treats all money after expenses as income, it doesn't get divided out like that. By the time you get to the point where you want to have an employee I'd assume that you've been around long enough to know what you can afford to pay someone without having to ask about it on here.
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Original message sent by costumeczar
Most of the people asking "how much should I charge" are single owners working from home, or just starting out. In cases like that it's one thing to talk about profit and wages, but for the way that most people will file taxes the IRS treats all money after expenses as income, it doesn't get divided out like that.
Agreed, your method works very well for entrepreneurs who want to keep things small. If and when they reach a point where they need to hire employees they can use the more detailed process at that point.
By the time you get to the point where you want to have an employee I'd assume that you've been around long enough to know what you can afford to pay someone without having to ask about it on here.
You would think so, but we've both been around here long enough to see plenty of examples to the contrary. :madhatter:
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Original message sent by jason_kraft
Agreed, your method works very well for entrepreneurs who want to keep things small. If and when they reach a point where they need to hire employees they can use the more detailed process at that point. You would think so, but we've both been around here long enough to see plenty of examples to the contrary. :madhatter:
Original message sent by jason_kraft
You would think so, but we've both been around here long enough to see plenty of examples to the contrary. :madhatter:
I don't know, I think that by the time people have enough business to hire employees they're generally not coming here for business advice anymore.
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