Thread for People Who Like Pricing! - Page 2

While I think having a sound formula for calculating price based on expenses and profit margin is fundamental to a successful business, what intrigues me more is hearing what prices the market will support for a given cake. There are times when I do my math, come up with a final number, then I ask myself, "Is that RIGHT?" That's when I like to hear from other bakers about their prices on similar cakes. I understand that different geographical markets command different prices, so I realize the prices charged in San Francisco won't be the same as those charged in Podunk, TN, for example.

Tracking prices just fascinates me, whether it's cakes, gas prices, airfare, etc.

You're absolutely right, figuring out what the market will bear is an integral part to determining your pricing, but unless you live in a remote area there should be a variety of market segments that will each have a different price they can afford. If your calculated price is too high for the mainstream market, you can work on lowering your costs or target a premium/niche segment instead (or both).

My sister runs her own consulting firm-she made me sit down and list everything that goes into what we do"-a grand sugar production-"she calls it. No matter how small or large a prdouction the ingredients are the same. It comes out to $35.00 an hour to start. Remember the cost-sugar,chocolate, nuts and packaging (what if you have to custom make a base to accomadate your production) and gas goes up throughout the year. Everybody cannot do what we do. We produce edible art.
Happy Baking and Decorating,
Chef Angie

For 3D cakes I have a price minimum of $200. I do not do a per serving for 3D cakes, cause really, how accurate of a per serving can you come up with. What you can tell is if you have enough cake for a certain amount servings. With that in mind, I base 3D off how long I think it'll take to get the desired look with the amount of ingredients needed. And just so you know, I wouldn't do a 3D cake for say 5 people. It would be bigger and the price would cover that. And no, that doesn't cost more. It would be much harder for me to make a car for 5 people, then for 25. Can you imagine doing a car cake for 5 servings?!?

I also do a $175 minimum for 3-D cakes, and that's generally for 20-24 servings. If you go much smaller than that it would be too dinky.

I like the word "dinky". That is the word I will use the next time someone asks me for a 3D cake for I don't know, 3. I was just talking to a caterer about silly request and " dinky" works just fine. Is that unprofessional of me?

Fun thread!

Question:

How much are people paying themselves per hour? I'm trying to break down some of the prices talked about here. I'm thinking an 8" cake, simply decorated for $44 (which would be towards the high end of an accepted price range around here):

$6-$8 for batter, parchment paper, etc
$4 buttercream
$1 cake boards
$2 fondant to cover cake board
$1 bakery box
$10 overhead (liability insurance, portion of yearly annual report fee, portion of accountant fees, etc)

We're up to $24-$26 and still need a profit & hourly wage. If I spend no more than 2 hours on the cake (mixing batter, mixing icing, cutting & covering cake board, icing, etc), I'm getting paid a maximum of $6.50/hr to keep a profit of 20% ($7.40). Does that wage seem low to anyone else? Maybe I'm looking at this wrong!!

@ajwonka:
That's where making use of slack time comes in. If you can get your labor down to one hour of hands-on time for a $44 cake (where you are working on other products while the cake is baking/cooling, and your frosting is already made up in bulk) the numbers will be more favorable.

In business school I took an elective class dedicated to operations management, it was a really interesting topic with applications to just about every business. The only downside is that I now mentally redesign every process I see in everyday life to maximize efficiency, then get frustrated when the actual process is far less efficient.

Also, as you ramp up production you can buy in bulk (which decreases your ingredient costs) and higher sales volume means lower overhead contribution per sale since most big overhead expenses are fixed.

Oh my goodness, pricing scares the ganache out of me. Right now I bake cakes for family & friends, so no profit for me yet. I plan on starting a home based business (legally) by the fall, and this is the biggest hurdle for me. I look at my cakes and feel I could make a decent amount on each of them, but I don't know how to compute the figures!!

When I started considering pricing, I deliberately ignored the market at first. I made spreadsheets for frosting, cake, fondant, specialty items, boards, supports, and boxes, and overhead. Everything that goes into one cake, I listed on spreadsheets.

From there I spent one really long day running around getting prices for everything. I put that into the spreadsheets and then calculated things like 1 t. of vanilla is 1/4 of a bottle (just an example, I don't know off-hand the exact percentage) and created formulas in the spreadsheet so that when I am pricing a cake, I can put in 1 in the amount column and the price column will calculate the cost automatically. From there, I created one last spreadsheet that pulls the totals from the others to calculate the final cost of the cake.

Since I work from home, I used my last job income as my labor cost. To me, it doesn't matter if I make 20, 30, 40 dollars an hour, as long as I could make as much as my last job per hour without the hassle of dealing with "the man." Not very professional, but it works for me right now.

Once all that was done, I started my market research. I looked at what everyone else around me is charging, what products they offered, their location, their overhead, and their branding. I looked at industry report, and I looked at the average costs of weddings and such in my area. I did not want to do this part first because I didn't want to subconsciously influence the numbers in my spreadsheet.

Still, my pricing was not finalized. I had to consider who were the most likely to buy my product. What is their income? What do they typically spend on custom items, on weddings, etc...? Is there a niche market I can fill? On and on and on, I considered and researched such things. I was lucky because I was also in college at that time and my college required a lot of team work and projects. Many classes required you to pick a type of business for the project. The other students didn't care what type we picked so I led them in the cake/party planning/catering direction. My business plan, marketing plan, PR plan, etc... for college all worked into my own plans for a cake business.

I also feel very lucky to have gotten that education as it has gone a long way towards preparing me to be a business owner. I cannot imagine even starting this process without that knowledge.

See how complicated the pricing question can be? This is why I don't participate in those threads. There are so many variables that go into it. Each area is different and for me to give an intelligent answer would require months of research.

Now I just have to keep up with price changes. Good grief, the ingredient price changes this past year have kept me hopping!

That's probably the easiest part of pricing...just increase prices by 5% every year and you should be covered for cost increases across the board, at least until inflation starts ramping up (if the CPI starts rising >5% annually you'll want to stay 1-2% ahead).

Jason, a gallon of milk has gone from $1.99 to $2.49. That seems like a lot more than 5% to me.

I'm not being snarky, I'm saying that I'm not at all sure that simply increasing my ingredients costs by 5% is going to cut it right now. Sure, my vanilla is the same price so I know it evens out a bit, but I don't think it's enough to reflect the real cost of the increases.

There will always be short-term spikes that you can't account for, the main concern is long-term trends. That's the reason I suggest 5% and not the current inflation rate (3%). Plus, if you look at your total costs, the cost of milk is probably a tiny percentage...even if you used a gallon of milk in a $50 cake, with the increased milk cost the new price would be only 1.2% higher ($50.60).

Over the past 10 years the price of milk has increased by less than 5% annually.

http://future.aae.wisc.edu/data/annual_values/by_area/10?tab=prices

True 'dat, Jason. I seem to be getting stuck in stereotypical old folk thinking, so to speak. If (in my mind) milk has always been $1.99 then $2.49 is ridiculous. If I bought my first house for $38,000 and the same house is $90,000; why that's outrageous! How can people afford anything these days! However, my first house was 20 years ago so why would it cost the same today? It didn't go from one to price to another suddenly, it happened incrementally over time.

Hubby's having the same problem. When he starts talking about "I remember when gas was 50 cents a gallon" I'm telling him to hush 'cause he sounds like an old man. lol

Although milk really has gone straight from one price to another (no incremental increases here that I've noticed), that's a short-term view. It's kind of like playing the stock market. If you look at the daily changes and react to it. you'll drive yourself crazy, make changes when it's unnecessary, and forget that it's the long term trends you want to pay attention to.

I thought I was being lazy not updating my pricing sheet more often. Turns out I'm just looking at the long term. lol