Costs Higher Than Charging?

Business By Naty Updated 24 Aug 2015 , 2:33am by mommychef

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Naty Posted 20 Jul 2015 , 11:28am
post #1 of 15

Hi. I recently made a homemade rum cake for work to see if i get any orders. While the cake was delicious and everyone raved, none would pay for what i was asking. The cake was an 8 x 3 frosted. The ingredients costs me $21. I would charge $35  (which should be more to account for myvtime, etc. I know the usual charge is costs of  ingredients x 3 but even at $35 everyone thought i was crazy. I dont do cake mixes, i do all scratch with butter. Any ideas on how to do this? I think I'm not going to bake from scratch? How do you keep your costs diwn and still make a reasonable profit?


14 replies
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Snowflakebunny23 Posted 20 Jul 2015 , 12:12pm
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Firstly, I don't subscribe to the 'ingredients x 3' for charging...that is a totally inflexible way of doing things and doesn't account for the detail on a cake.  Think of a simple 3 tier iced cake, then the same cake but covered with a hand piped pattern.  The additional cost for the latter is negligible but it takes hours longer to make.

Was your cake covered in fondant & decorated or just an afternoon tea style cake with frosting on?  The type you would have with coffee or was it something fancy?  If so, I've found that people won't pay for these when they can get them from the supermarket.  I don't even bother trying to sell them.  I did a similar test for family with a fruit cake last year...I made it, iced it, and asked them what they would pay.  Most said £15 (8" round cake).  It cost me more than that to make.  Even my mother in law who worked in catering for years said the same.  In their eyes, they can go to the supermarket and get something which looks like 'a christmas cake' for half the price...and they don't see the superior finish of better quality ingrediants or superior flavour.  You have to market to your specific client base very carefully.  Again, i don't generally bother with Christmas cakes either now...that said, I have the same problem with Birthday cakes.  I've found that the only time when people will really 'invest' in your skills is with wedding cakes, and even that is becoming harder and harder as the flood of bakers is driving down the prices that brides will pay.

Also, depending on where you are, make sure you comply with the relevant cottage food laws if you are selling your cakes (even if it is just to work colleagues).  Good luck :-)

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SquirrellyCakes Posted 20 Jul 2015 , 12:31pm
post #3 of 15

Naty, I can totally relate and I bake from scratch too. It is expensive. Not sure if you are working under cottage food laws, licensed home or licensed storefront or if where you live, you are able to bake and sell from home. However I know here, if you register your business you can then buy your ingredients wholesale. In fact, I am told that if you have any kind of registered business, you can do so. And that is how you can keep your costs down and make a profit.

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jgifford Posted 20 Jul 2015 , 12:41pm
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When we bought our restaurant, I was thinking "Great! Now I have a licensed commercial kitchen and I can do cakes a lot easier than at home." Nope. As I soon realized, our customer base is NOT my target market. We are in the wrong area to charge anywhere near what my cakes are worth.  These people think Wal Mart is overpriced.

So I make cakes with simple buttercream frosting (no decorations) to serve as dessert and that's as close as I get these days. Some day, maybe . . .  

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Naty Posted 21 Jul 2015 , 12:26am
post #5 of 15

Thank you for your replies. Im so dissapointed. Only us bakers can relate. I hate when they say they can get their cakes cheaper elsewhere. Yes, i love what i do but do want a little profit, enough to put a smile on my

I may just bake from cake mixes and doctor them up and use oil or margarine instead  of butter to keep my costs down.

Thanks again :-)

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Pastrybaglady Posted 21 Jul 2015 , 4:12am
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When I started I thought I would just be baking cakes because everyone would say if all you do is make your chocolate cake you'll have a business!  Not true.  If people are going to pay for what my cake is worth they don't want just cake, they want something really special and custom.  You need to offer something they can't normally find. These days just making good tasting cake is not enough.  It also takes time to find your customers who appreciate quality and are willing to pay for it.

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Apti Posted 21 Jul 2015 , 5:24pm
post #7 of 15

Naty~~You have, unfortunately, just had a brush with "hobby baking pricing reality".  There are thousands of well-informed articles on the internet which state the custom baking market is over-saturated.  There are thousands of articles that cite statistics about the failure rate of small businesses.

However, there are 100's of millions of people who watch "cake tv" and think, "Wow!  I should sell these and make a lot of extra money!"     This delusional thinking is further enhanced by friends and family who honestly think "your cake is the BEST!" and offer the highest compliment they can make:  "Wow!  You should sell these!". 

However, friends, family and co-workers are NOT your customer base. 

Custom cakes are a luxury product.  Your customer base would be those consumers willing to pay premium (luxury) prices for a taste sensation (or bragging/show-off rights). 

Many, many people can learn to bake and decorate "custom cakes".  Only a tiny handful can learn to find consumers willing to pay premium prices for luxury goods.

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indydebi Posted 24 Jul 2015 , 1:11pm
post #8 of 15

I remember making a cookie "bouquet" for a friend to take to a business meeting.  It was her day to bring a dessert (tradition in their meetings).  She told me everyone loved the cookies but "I'm sorry to tell you that everyone said they'd never pay your price for them."  I told her, "Wow, I guess they never order from Cookies by Design, then, because I'm 20% cheaper than they are."  Her eyes got wide and she exploded with "You're kidding!!!"  I guess they thought a small one-woman shop was automatically cheaper ..... but they would think nothing of paying that price at a big chain outfit.

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crumbcake Posted 24 Jul 2015 , 4:04pm
post #9 of 15

Indydebi, so true, just because our business is small or home based, people naturally think the price will,or should be.

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costumeczar Posted 25 Jul 2015 , 2:02am
post #10 of 15

I recently raised my minimum to $500 for every cake because it wasn't worth my time to do them for less than that. Once you add in the cost of ingredients and all of your other expenses, then figure out the time it took to email the clients, write up contracts, do paperwork etc in addition to actually make the cake, you realize tha you're making less than minimum wage for the smaller cakes. I've been doing this for 20 years and I don't work for minimum wage anymore! 

What I see happening in my area recently is that prices are actually dropping for custom cakes. There are so many cottage bakers and people doing it part-time without thinking about how they're pricing things, I've started having brides call with really low budgets for large weddings. In the last week I've had two people call with weddings over 200 guests and budgets of $500 for the cake. One of my friends who does cakes is getting out of the business because she cant keep up with the cottage bakers driving prices down and bidding to be the lowest price on facebook when someone says "who can do this cake for cheap?" She got a couple of people asking if she could match the pricing for a local cottage baker whose prices are way below the average last week, so brides are starting to try to get us to match pricing. Ain't gonna happen.

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Jedi Knight Posted 25 Jul 2015 , 5:03am
post #11 of 15

The race to the bottom is short and fast.

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Apti Posted 25 Jul 2015 , 8:27am
post #12 of 15

OP-Although I can empathize with your frustration, it is not realistic to expect all customers to want to pay more for something (a high quality scratch rum cake) they can get for less money (a store bought rum cake).  With cakes, it may taste better, but customers may not consider it to be $25-worth-of-tastes-better.

When I was working with adult patients, there was a concept called "secondary gain".  Here's an example I used frequently when trying to explain this concept:

Grandpa needs a scooter, which MediCare and a secondary insurance will provide at no charge.  Since Grandpa can't get around well, Grandson comes by once a week to bring groceries, help with the housework, and visits briefly with Grandpa. 

Even though Grandpa can get a free scooter and be more independent, the free scooter, somehow...., just doesn't work out.   

Secondary Gain = Grandson visits.  This is more important than increased independence and safety.

Now, let's take new cake decorators who "want to earn extra income" and/or "start a part- or full-time business". 

Possible Secondary Gains:

It's fun and challenging and you have a new title, "Cake Lady" or "Cake Guy".

People provide compliments

A feeling of "importance and being needed" may make it imperative to accept every cake order, profitable or not

The list is endless.  Added to the issues of possible secondary gain are the Really-Not-Fun-At-All issues of business logistics and study to determine IF a cake decorator can actually sell cakes profitably in their geographic location.

In other words, it's brutal if you want to make more money than you'd be paid if you worked the same hours at McDonald's. 

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Naty Posted 17 Aug 2015 , 12:37pm
post #13 of 15

To All,

My sincere apologies for the late response. Ive been stuck on a mountain (by choice. .... vacation) and had no internet service.

I appreciate all  your replies.

Bottom line, I have to change my thinking. If i dont get paid fairly what i do, I will  have to cut my expense cost when I get orders or just bake for family.

Thanks again :-)))

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Shockolata Posted 20 Aug 2015 , 9:20pm
post #14 of 15

Naty, stick to your guns, girl! You know your cakes are good. But you are marketing to the wrong people. If they are content with the supermarket crap, you won't be able to change their mind and any cake you take to work will be a waste of your money and time.

It is possible to squeeze down the costs without compromising on quality. The larger the packaging of flour, sugar, butter, etc. the better the price you pay. You can buy a sack of organic cake flour from Shipton Mill for £21.50 + £6 postage (=1.10 per kilo delivered). Sugar, 25 kgs, £18.05+4.95 del = £23, i.e. per kilo 92p compare with £1.22 per kilo at ASDA. Could not find prices for butter as it is a closely guarded secret it seems... but maybe ringing a dairy would give you an idea of what the cost would be wholesale. But essentially it is different buying just for the weekly home needs and buying in bulk. Bulk wins every time. The question is do you have larder space? 

Of course the more you bake in one go, the cheaper it is for you.

You need to find people who are willing to pay the price for your premium product. Maybe try to get a stall at your local farmer's market and push your cakes?

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mommychef Posted 24 Aug 2015 , 2:33am
post #15 of 15

A few weeks ago I heard the magical phrase" WalMart does" reference to whipped icing(Bettercreme). 

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