Cake Pricing – How much to charge for your cakes
Cake pricing or how to price your cakes and cupcakes can be the most challenging and intimidating question to most beginners in the cake decorating world. Pricing your cake is not just about adding the cost of ingredients and a markup. In this post, I share my pricing strategy for your homemade cakes.
One of the scariest questions – how much do you charge?
- How much would you charge for this cake?
- If I don’t quote the right price I may lose the order.
- If I overcharge, the customer will go somewhere else,
- And if I quote a low price then I will not make any money.
I’ve calculated the cost of the same cake a zillion times to make sure I got it right. Also, I try so hard to reduce my costs so that I could charge less for my cakes. And as a result, get more orders.
Sometimes, I look at the price and say – I wouldn’t pay that much for a cake! How can I change that?
Does that sound like you? I use to be that person above!!
(yup hiding face in palms here)
These are some of the most common questions I get asked from beginners. And it so resonates with me cause I’ve had the exact same questions in my head all along.
- How should I price my cakes? How to price cakes or cupcakes?
- Can you share your price-list with me? Please send me your cake pricing chart.
- What is the right price for a beginner?
- How much should I charge for this type of cake? Price of cake for this design?
- Do you have a cake pricing guide?
As much as I’d like to say, this is what I charge and you can charge the same; that’s not possible. So I thought I’d write a little post on Cake Pricing – (well, I planned to write a little bit … it’s long lol ).
How much should you charge for your cakes?
I’ll Share with you what I do and how I go about pricing my cakes.
Now, having done two degrees and an MBA – you may find that my method sounds very geeky. And yet, trust me the books are not wrong and it’s how you apply that knowledge to practical issues that make a huge difference.
So, hang in there – I will try my best to make it as simple as I can for you all to understand. In fact, I will give you more than one option on how to price your cakes. So grab a cuppa and let’s make it a date with Cake Pricing.
Of course, I’d love to know what you think not just about this post but about cake pricing, about your concerns regarding cake pricing. Please share your thoughts, questions, and comments with me, and the other readers. I might update this post and include some of your comments and address specific questions. Just write a comment below and I’ll be happy to address those questions.
Price your cakes based on their value, not their cost
The most important point I want to make is this. Pricing for decorated cakes is not about cost +. Rather, they need to be priced based on the value they provide to your customers. It’s a luxury product. Therefore, it should be priced on value not cost. It’s like the difference between the price of a dinner in a top French restaurant, and your local fast food joint. You don’t know what is the cost of ingredients that go into your 5-course French dinner. Frankly, you don’t care. You pay for the experience, the emotional value you get from it, and of course the great taste and presentation.
The same goes for custom-designed decorated cakes.
Having said that, if you decide to make this your business, you need to make sure that you have a good business model. In other words, that you can make the profits that you would like to have from this business. Otherwise, it can be an expensive hobby, or worst, a losing business.
Therefore, it’s very important to have a very good understanding of your costs. These include more than just the direct costs of ingredients that go into your cakes. I will discuss that in detail below.
First of all, let’s start with determining the value of your cakes.
The main factors that determine the value of your cake (Save/Pin this article for later)
- Where are you located and how much are your customers willing to pay?
For example, the price of a cake in New York is not the same as in Texas? (and New York and Texas are both in the US)
- What clientele are you serving? (middle-class kids birthday cakes? high-class wedding cakes?)
- or What is your expertise? What unique value do you offer?
- What is your reputation and demand for your product?
Let’s explore these factors – How to price cakes and cupcakes
1 & 2 – Where are you located and how much is your customers are willing to pay? What clientele are you serving?
I’m going to use myself as an example so it’s not so geeky.. (wink wink).
When I first relocated from the US (in 2005), I regularly made cupcakes, cake balls, and cake pops. And yet, it wasn’t very popular here in Israel and to some, it was something new and fascinating.
I grew up with a decorated cake for every birthday, weddings and holidays. But, in Israel custom decorated cake was a luxury item and very rare to find. It was not one a must-have item for a birthday party. A birthday cake was not even in the budget! I was surprised that some weddings I attended did not have a wedding cake and no one seemed to miss it.
Most birthdays that my son attends have no fancy birthday cakes. Rather, what they often had was a simple cake that grandma made in a baking foil, poured some chocolate sauce over it and sprinkled some sprinkles around.
So in 2005, there was very little awareness or demand for custom decorated cakes in Israel.
Much has changed since then. However, the market here is still lagging behind the rest of the world. And yet, this is where I chose to start my business. So as you can understand, the level of awareness, and as a result, the demand for, and value of decorative cakes has a direct effect on how much I can charge for my cakes. Hence, I had to find and focus on those customer segments where there is demand for decorated cakes. For example the expat community, and people who immigrated to Israel from the US or the UK.
You need to do the same in your location. Find out what are the trends. What types of cakes are more popular. What are people willing to pay for those cakes? In some places, sheet cakes are very popular, while in other places no one cares much about them.
Decorated cakes take a long time to make. There are some customers who view them as a waste of money. And yet, there are those who value the work and effort put into it and are ready to pay for that.
3. What is your expertise? Or what unique value do you offer?
Also, almost anyone who starts a business wants to make money. However, your success is largely dependent on your expertise and the value you offer customers.
Supermarkets cakes vs Homemade cakes (cake pricing)
One of my mom’s friends used to take the price-list of a local bakery, mark it up by 30% and use it as her price list. As a kid, I was amazed at how easy pricing was, but after doing my MBA – ah not so impressed.
Never ever compare your product to a supermarket product, not even if you are at a basic level of cake decorating. This is not a good price guideline. Why? Because supermarkets have a very different business model than ours.
- Supermarkets business model is based on low-profit margins, backed by a cost-driven, highly efficient operation.
- A bakery sells about 300 to 600 cakes a week.
- They purchase ingredients in bulk and at a fraction of the price that we buy them from the supermarket!! So the same flour that you pay two dollars for probably cost a few cents for them.
- In addition, they work on a large scale, which puts quantity before quality. We deal in quality and custom orders. There is no comparison – right?
As a home baker, you try to use top quality ingredients as compared to generic supermarket brands, and you customize each and every cake. While supermarket cakes are flash-frozen; you offer freshness, consultation, designing and much more.
There has got to be another home baker not far from you. Check out her cakes, see the value she provides – compare those to your skills and values.
What would get a customer to choose your cakes over hers? You definitely do not want people coming to you just because your prices are low? Do you?
Unique expertise and value
Identify your unique skills and expertise. Try to use them to create value for your customers.
While cake decorating was a new venture for me, baking, on the other hand, is my expertise. I have been baking for more than 20 years and take pride in the fact that I make the best tasting cakes from scratch.
Since in my present market baking a cake from scratch is considered unique and valuable, I use it as my competitive advantage.
4. What are your reputation and the demand for your product?
- Do people know you?
- Have you built a good reputation?
- Does your product have a market presence?
- If you have a good reputation, your cakes will be in high demand and you will be able to charge a higher price.
Personal example – Most of my business comes from word of mouth. I do not advertise. As such every client that comes to me, comes thru someone I know or has tasted my cakes at some event.
Because I work in a price sensitive market this is the best way for me to build my business and reputation.
Once people hear about you and your skills from a reliable source their attitude to pricing changes. I have seen that with my customers. There is real tangible value to a good reputation.
All the above factors are important factors in determining what is the value of your cakes in the eye of your customers. How much are they willing to pay for them? What price will your specific market bear?
Is your business model profitable?
Calculate your direct cake cost
You do not need to do this for every cake recipe. Pick some that are representatives of your most common cakes. Since we tend to use the same ingredients in almost all of our cakes. For example, flour, butter, eggs, milk, buttercream, and fondant cost you – 20 dollars to make an 8-inch cake. Also, keep these costs for your reference.
Other direct costs include delivery (taxi or fuel costs), set-up costs (boards, poles, boxes).
My Practice – I divide my cakes into three groups, A B & C, depending on the cost. Also, I calculate the cost of the key ingredients per cup. Then, I calculate the total cost of a batter for each cake group. For example, for group A, I might need 5 cups batter for an 8″cake plus 2 cups buttercream plus 500 grams fondant. I can just change the amounts based on the size of the cake. As a result, when I charge a client I can just refer to my basic pricing and can give a quote instantly.
Calculate the indirect cake cost (this helps determine how much to charge for your cakes)
These would include what you pay for electricity, gas, water, phone, etc. It also includes any tools or accessories that you purchase in order to make and decorate your cakes. Any cost that is associated with your business but not a direct ingredient in each cake, is considered an indirect cost.
It’s simpler to calculate these types of expenses on a monthly basis, rather than on a cake by cake basis.
For example, you can use a rough estimate that 25% of your utility costs are related to your business. Then calculate that total for a particular month and divide it by the number of cakes you’ve made that month. This will provide you an estimated indirect cost per cake.
For example in an average month, your indirect cost is about 10 dollars per cake.
Furthermore, marketing expenses, such as advertising, building and maintaining a website for your business, even your business cards are part of your business expenses.
Other business expenses
These include annual expense such as accountant fees, office equipment (PC, camera, phone, etc.).
Now you can calculate your total costs (Save/Pin)
Direct cost – 20 .00
Indirect cost – 10.00
Total Cost of your cake = 30 dollars.
So the cost per slice is 1.25 (30 divides by 24 servings)
Don’t forget to save this tutorial on Pinterest for later.
You can find a collection of my tutorials and recipes here on Pinterest.
What’s most important is that you have to charge what feels comfortable to you and what makes it worth your time and effort. When you value what you do and price it accordingly; others will do the same too.
A few points to note when pricing based on market value – Cake Pricing
My personal experience
When I began my business I priced my cakes lower than the market value, not because I wanted to get more business. No!
Unlike most professionals that go to courses and learn by practice, my practice was on the job.
While I was very confident in my baking skills, I still had to prove my decorating skills not only to my customers but myself too.
So I made a lot of cakes by just charging for the cost and was very happy about it. I let friends pay me the cost of the cake so I could learn and it was a win-win situation for us all. I considered it as if these customers are funding my education.
We all have to start somewhere. And sometimes we have to make compromises along the way to reach our goals. What’s important is what works for you. Which customers are you’re aiming to serve, and what are they willing to pay the value you provide.
The Price Tag vs the Name Tag (Cake Pricing)
To me, it doesn’t matter if the cake has a price tag on it or is for FREE. Once it leaves my hands it’s a work of art made by Veena Azmanov.
People who see the cake don’t ask how much you paid for it. They ask who made the cake. So I take pride in what I do and the value I offer.
Here’s another post that speaks on pricing cakes. I think you’ll find it a good read too. – I bet most of you are underpricing your cakes
New to cake decorating?
I hope you find them useful. Feel free to share your thoughts in the comments below – I love to hear from you be it a recommendation or a compliment.
Click here to see some of my Index of all cake tutorials from basic to advance.
You may like to see Business Related Post such as
- Where to find Inspiration for cakes,
- How to start a cake business from home,
- Cake Decorating as a Profession or Hobby ? or you may like to see some
- cake decorating tutorials here.