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Pricing and Commercial Kitchen Space

post #1 of 18
Thread Starter 
Hi everyone! I've been a longtime Cake Central reader, but this is my first post. I'm in the process of officially starting my own special-order cake/dessert business. I've worked in the industry for a while, but have decided that it's time to start my own company (it's called Boujie Baking Co. Fancy Schmancy Goodness)!

I'm doing special orders only to start, I live in a small town and want to get my name out there and get a following before I open any sort of storefront. Also, I have very little start-up capital.

I have pretty much all my licensing, permits, etc., but have a couple of questions for those who've done similar things:

1) What are some creative places I might be able to find commercial kitchen space? I've found several local options, but most of them want a minimum of $17/hr, which just doesn't make sense if I'm only baking one or two cakes at a time. I would have to mark up the cakes like crazy just to cover costs, let alone making a profit... (Or do most people just bake at home and not tell their customers??)

2) Speaking of making a profit, how does everyone price their cakes? I've come up with an Excel spreadsheet that lets me figure out the cost, but then with hours baking, decorating, shopping, etc... again, I'm finding it hard to figure out how to actually make a decent profit. I still have a full-time job, but I would like this to bring in some cash, too. I won't be touching any of the profits for at least the first year, but I'd love for the business to grow itself.

I think that's all! Thanks so much in advance!
www.boujiebakingco.com (Just got the website up and am super excited... had to share!)
post #2 of 18
You have some very unique and interesting ideas. I love your website! Keep looking for a commercial kitchen where you can bake legally - try small bakeries, restaurants, bars, delis, churches, schools, social service organizations. Surely one place in your community would appreciate some extra income that won't cut too deeply into your profit.

I strongly suggest doing the legal path. Too many new businesses try this shortcut and find that some opportunities are only open to legit businesses; and not being legal means you are one phone call away from being closed down.

For pricing, the baking industry uses a standard system: triple the cost of ingredients for wholesale; quadruple ingredients for retail. For products that are more labor intensive (such as wedding cakes) keep track of hours and add for your time.

Good luck to you!

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post #3 of 18
Thread Starter 
Thank you so much for the input! Wow, quadruple the ingredients cost sounds like a lot, but I guess it's not too bad. Really, it's the only way for me to make any sort of profit. I just feel like for the smaller cakes, that sets a high price. But I suppose we don't always know the value of our own products, and if it's good enough (which I think it is icon_smile.gif ) people will pay for that quality.

I definitely am planning on doing everything legally. I have most of the permits and licenses, just need to get a couple more, and then that darn commercial kitchen space. I'm sure I will find something eventually...

Anyway, thanks again for your feedback, and I would love to hear any other thoughts, tips or suggestions anyone might have.
post #4 of 18
$17/hour is not too bad for a commercial kitchen, you should be able to make a profit if you price your cakes accordingly and target the right audience. For specialty baked goods you should be able to charge at least $5/serving.

4 x ingredients is a good rule of thumb but you'll want to make sure you factor in labor and overhead as well as your profit margin. For example, if a cake uses $50 of ingredients, takes 8 hours to complete (including baking, decorating, cleanup, etc), your wage is $15/hour, you have $30 in overhead per cake (assuming 50 orders a year and $1500/year in overhead), and a 25% profit margin, the price of that cake should be $50 + 8 * ($17 + $15) + $30 + 25% = $420. If you only charged 4 x ingredients you would be at $16 below cost assuming your wage is $0/hour.

Of course if the cake is much simpler and only takes an hour, the price would be $50 + 1 * ($17 + $15) + $30 + 25% = $140, which is considerably less than 4 x ingredients.
post #5 of 18
17/hr is cheap. Here in GA, nothing less than 25/hr
post #6 of 18
I am in sort of the same position, but not as far along as you are. I was trying to figure out how to make a profit while starting small renting a kitchen. Thank you, Jason, for the formula. With that formula, I'm still coming out way too high for my market for the smaller cakes. Is it common to "weight" the larger cakes? I feel like I can charge more for the larger cakes and maybe use that increase to discount the smaller cakes to bring them within the market where I live. Is that a smart thing to do?
post #7 of 18
Quote:
Originally Posted by kmstreepey

I am in sort of the same position, but not as far along as you are. I was trying to figure out how to make a profit while starting small renting a kitchen. Thank you, Jason, for the formula. With that formula, I'm still coming out way too high for my market for the smaller cakes. Is it common to "weight" the larger cakes? I feel like I can charge more for the larger cakes and maybe use that increase to discount the smaller cakes to bring them within the market where I live. Is that a smart thing to do?


With this formula we actually end up charging more for smaller cakes on a per-serving basis due to fixed cost components and the fact that there isn't too much of a labor difference in decorating, say, an 8" cake vs. a 12" cake.

If you need to adjust your profit and discount your hourly wage for smaller cakes you are of course free to do so (and it may be a good idea based on market prices), just make sure you don't adjust your profit and wage too low. But even with a lower profit/wage on a smaller cake they do still provide a benefit by contributing to your overhead, especially if you can utilize slack time to complete the smaller orders.
post #8 of 18
Thread Starter 
Yes, it's the smaller cakes I'm having a hard time with. If I only charge $20 for a simple 6" cake, for example, how could I possibly cover costs? The ingredients alone cost ~$7, and then the mixing, baking, cooling, and decorating time in a kitchen that runs $16/hr automatically run it up quite a bit. That's not to mention my labor. But I don't really see how I could charge more than $20 or $25 for such a small cake. And I don't have enough orders coming in right now to be able to do much multi-tasking, yet don't want to turn people away, as I'm just starting out. Very frustrating! I guess I could only offer cakes of a certain size, which I could actually make a profit on?

A price per serving was mentioned.. do some people price their cakes that way, so the buyer has some sort of justification for buying a $80 9" cake (or whatever price...)?? The numbers of this whole situation are making it seem very unfeasible, yet I know special order cakes IS a business, so there has to be a way to make it all make sense.

Thanks for all the imput, everyone!!

Oh and PS: I got an email from the California Board of Equalization telling me that I don't need a Seller's Permit because I don't charge sales tax on baked goods. I'm still going to call them and double check, but have other Californian's found that to be true?! Crazy!
post #9 of 18
Quote:
Originally Posted by rubiarubia

Yes, it's the smaller cakes I'm having a hard time with. If I only charge $20 for a simple 6" cake, for example, how could I possibly cover costs?


You can't, which is why many bakeries set a minimum order. For example, the smallest cake we make is an 8" round, which starts at $44. If someone wants a 6" round we can make it for them (and we have), but it still starts at $44.

When you are just starting you should be prepared to take losses as you grow your customer base, the great thing about renting a commercial kitchen is that you usually have flexibility to scale up or down as demand changes.

However, you should make sure that you really have a viable market that can sustain your business in the long term. Your area might be tough...the demographics ($22-25K median HHI) and size (~40K) of the Arcata/Eureka metro area don't look very promising for a premium custom bakery, but that doesn't mean you can't still make it work, you just may have to target more business customers and look for wholesale opportunities, or do some research with more local data to find more affluent pockets within the area.

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Quote:

A price per serving was mentioned.. do some people price their cakes that way, so the buyer has some sort of justification for buying a $80 9" cake (or whatever price...)??


We set a flat starting price for single tier cakes, since that's what people who buy those kinds of cakes are used to. For multi-tier cakes we charge per serving.

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Oh and PS: I got an email from the California Board of Equalization telling me that I don't need a Seller's Permit because I don't charge sales tax on baked goods. I'm still going to call them and double check, but have other Californian's found that to be true?! Crazy!


That's correct...if you don't have a seating area of a certain size, then you are not required to collect sales tax on to-go items. We needed an exemption letter from BOE saying this in order to get a business license from our city, since they normally require a seller's permit.
post #10 of 18
Thread Starter 
Wow, so much great information! Thanks!

I will definitely be doing minimum orders. The demographics around here are a bit weird, there is a lot of money in the community (and people really care about good food!), even though the official median income seems low. I really just need to get my wording and marketing together so that people aren't shocked by the prices. And I feel like my ingredient costs are still kinda high, mostly with the frostings. But I guess that's what I get for using so much buttercream (?) ...

Good news: I found kitchen space! It's VERY small, but very close to my home, and just perfect for what I need for now. We're going to start with a trade my labor producing some things for him for his kitchen space. It's really ideal, except that I still need to build overhead into my cake prices, and right now my overhead is labor. I guess the pricing is just a lot more difficult than I anticipated.

Quick question regarding cake boards: I'm looking at the simple corrugated ones from BRP Box Shop: http://www.brpboxshop.com/2744.html . The price is right, and I've heard great things about their products (and free shipping!), but I'm not sure about the exposed edge. What boards do most people use? Of course for tiered cakes I'll have to look into cake drums, but I'm just thinking about simple one-level cakes, for the day-to-day.

Thanks everyone!
post #11 of 18
Congrats on the kitchen space! Quick question - did you know this person beforehand or just approach someone? I was thinking that sort of arrangement would be ideal, but am not sure how to go about asking. I don't currently know anyone who would be in a position to provide such a space. So, I was just curious as to how you went about getting to that agreement.

Also, you asked about the boards. This is just my opinion, but I think the exposed edges make the cake look less professional. I'm sure those boards would be fine, but I would still try to cover the edge with a ribbon. And I know it's not as cost-effective, but I like even smaller cakes to have a cake drum type board underneath. I always make mine from 1/2-inch foamcore board covered with fondant and edged with a ribbon.
post #12 of 18
Thread Starter 
I actually approached the coffeeshop about them being a pickup point for my cakes. Since I still have my day job, I was worried about delivering cakes to people, schedule-wise. So I was seeing if they would be a place where I could drop off finished cakes, and my customers could come pay for them and pick them up. We got to talking about kitchen space, and it turns out he has some that I can use!

Yes, I agree that it looks a little unprofessional, which is why I'm concerned. I could finish the edges with ribbon, but I think fondant and cake drums for every cake is a little much for me right now (except for wedding cakes, etc...). I want something efficient, effective, and nice looking. There are also these: http://www.brpboxshop.com/215.html, which are a bit more expensive but may be worth the extra $0.40 per board...
post #13 of 18
Sounds like it was meant to be! That is really great! It also inspires me to at least start a conversation with someone. There is a little bake shop near me that does to-go baked items but no custom cakes, so I was thinking of approaching them about some sort of arrangement. Thanks for giving me something to think about!

I do like your second choice of board better and I agree about the time/expense of doing a custom board for every cake. In the end, I don't think the average person will notice or care about the difference in the boards. They both look sturdy and are food-safe, which are the most important things. And certainly better than plain cardboard! So, I would go with whichever your gut tells you so that in the end you are proud of and comfortable with the entire finished product that you give to your customer.
post #14 of 18
Thread Starter 
@Jason: Thanks for the info about the BOE. I called them (just to be sure!) and they confirmed this. However, what I didn't think about was buying ingredients wholesale. I know I need a seller's permit to do this (at least at my local restaurant supply store). But is that even an option for me if I'm not charging the end user sales tax? In other words, as far as tax is concerned, am I the end user? Thanks!
post #15 of 18
Restaurant supply stores should be OK with a business license if you don't have a seller's permit (if not, the BOE exemption letter explaining that a seller's permit is not necessary should suffice).

You can certainly still buy wholesale, but since you do not collect sales tax from your customers you would have to pay the sales tax yourself when you buy ingredients.
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