Starting a Home Based Cake Decorating Business - Pricing, Part 1
If you want your cake decorating business to be profitable, it is vital that you know exactly how much to charge for your product and service. It can be difficult to strike a balance between maximising your profit and pricing at a level that people are prepared to pay, but there are a few factors to consider before getting to this stage.
Part 1 of this series will look at how to arrive at an accurate figure for how much it costs you to create a cake and provide a high standard of service, and in part 2 we look at the importance of market research in actually setting a price, and the need to work out how much you actually want or need to make from the business.
How much does it cost you to make and decorate the cake? Work this out by calculating exactly (to the cent!) the cost of every ingredient used in the cake, and do the same for all decoration ingredients. Leave nothing out - weigh everything precisely and be parsimonious. If you use five M&Ms to decorate a clown face for a children's birthday cake, count the number in the packet and divide it by the cost of the packet to find a per unit price. It may seem that the cost of a drop or two of food colouring is too insignificant to bother about, but seemingly inexpensive items add up quickly.
Every single thing used in the process must be included - electricity for running your oven, dishwasher, food processer, blender, electric knife etc (your power company should be able to give you this information), your telephone (a mobile is essential if you want to give good customer service), dishwashing liquid and other cleaning supplies - there are all sorts of peripheral costs that you need to be aware of.
It is worth noting here that if you are just buying domestic quantities of ingredients and supplies at normal retail prices, then your costs will be significantly higher than if you buy in bulk at wholesale prices wherever possible. If you want to test the market to start with, by all means buy smaller quantities, but you should then work out pricing based on both approaches. The difference in cost here could make the difference between making a profit or not.
Factor in your time The biggest cost factor in this, or any other creative, service based enterprise, is your time. You need to keep an accurate record of every minute you spend on a cake, including time spent researching designs, talking with clients, baking, decorating, cleaning, shopping for ingredients, and delivery and installation of the finished product. Don't forget to include time spent on administration and accounting - all businesses incorporate this into their pricing structures as part of the cost of doing business.
You need to know how long it takes to produce a cake for two reasons: 1. So that you know how many you can promise to deliver within a certain time frame, and 2. So you know how much time to factor in to your costing. It pays to remember that you will spend more time per cake when you first start out, and as you gain experience you will get a lot quicker at the creative part of the business as well as the more prosaic things like bookkeeping, but it is best to work out pricing based on current information, and revise it as necessary.
Part 1 of this series will look at how to arrive at an accurate figure for how much it costs you to create a cake and provide a high standard of service, and in part 2 we look at the importance of market research in actually setting a price, and the need to work out how much you actually want or need to make from the business.
How much does it cost you to make and decorate the cake? Work this out by calculating exactly (to the cent!) the cost of every ingredient used in the cake, and do the same for all decoration ingredients. Leave nothing out - weigh everything precisely and be parsimonious. If you use five M&Ms to decorate a clown face for a children's birthday cake, count the number in the packet and divide it by the cost of the packet to find a per unit price. It may seem that the cost of a drop or two of food colouring is too insignificant to bother about, but seemingly inexpensive items add up quickly.
Every single thing used in the process must be included - electricity for running your oven, dishwasher, food processer, blender, electric knife etc (your power company should be able to give you this information), your telephone (a mobile is essential if you want to give good customer service), dishwashing liquid and other cleaning supplies - there are all sorts of peripheral costs that you need to be aware of.
It is worth noting here that if you are just buying domestic quantities of ingredients and supplies at normal retail prices, then your costs will be significantly higher than if you buy in bulk at wholesale prices wherever possible. If you want to test the market to start with, by all means buy smaller quantities, but you should then work out pricing based on both approaches. The difference in cost here could make the difference between making a profit or not.
Factor in your time The biggest cost factor in this, or any other creative, service based enterprise, is your time. You need to keep an accurate record of every minute you spend on a cake, including time spent researching designs, talking with clients, baking, decorating, cleaning, shopping for ingredients, and delivery and installation of the finished product. Don't forget to include time spent on administration and accounting - all businesses incorporate this into their pricing structures as part of the cost of doing business.
You need to know how long it takes to produce a cake for two reasons: 1. So that you know how many you can promise to deliver within a certain time frame, and 2. So you know how much time to factor in to your costing. It pays to remember that you will spend more time per cake when you first start out, and as you gain experience you will get a lot quicker at the creative part of the business as well as the more prosaic things like bookkeeping, but it is best to work out pricing based on current information, and revise it as necessary.
