What level of income are you looking for? This is an important thing to ask of any business - how much money do you need to get from every cake and every week so that your cake business is viable and can maintain a living income? An easy method to work this out is to start with a standard 40 hour working week (although most people who run their own business put in a lot more hours than this, and you should be prepared to as well). Basing the calculation on a random figure of $500 per week as the minimum required, for a 5 day week, you need to make $100 per day. If you are selling cakes for $50 each, and your profit on each cake is $20, you will need to make and sell 5 per day. I have just used random figures here, but this shows a fairly straightforward method on which to base your pricing strategy. Before you can come up with realistic prices, you need an achievable goal regarding income and profit, you must establish an accurate production time, and the cost of doing so. (See part 1 for more information on costing).
The Market - Competition Once you have completed the costing process, and know your income and profit targets, it is important to then find out what the competition is charging. You will find a considerable variation in price between more exclusive cake designers like you who discuss individual requirements with clients and create top quality cakes to order, and the supermarkets and bakeries who mass produce their products using stock designs.
This brings us to a very important point, and one that we should consider before going any further with our study of how to arrive at a realistic price for making and decorating cakes. As a personal design business, it will be very difficult for you to undercut or compete on price with the bulk suppliers, but nor will you want to. Although their products are fine for those who want them, they are catering for the convenience market - people who want a quick, easy, and inexpensive cake that they don't have to make for themselves. What you are offering is a a customer focused design service based on a first rate product made to individual requirements, and clients will pay a lot of money for this. Your selling point is a top quality, personalised product and trustworthy service.
Perhaps the most important thing to keep in mind at all times is to have self belief, and trust in your skill and ability. And don't think that you have to worry about quality of product between yours and the shop bought ones. I have yet to eat any bought dessert or cake that is any better than what I make at home - most supermarkets and a lot of bakeries now use premix for their cakes and breads, and any self respecting home baker can whip up a much better, and cheaper cake than that. In the city where I live, most of the three or four dozen supermarkets all get their premix from the same supplier - they buy it by the pallet load and just add water and eggs. Trust me - as a home baker who can follow a recipe, you have nothing to be afraid of in any kind of comparison! Your true competition is other professional designers, and this is where you should be looking to find out the sort of prices the market will bear. Ask friends and family how much they have paid for cakes (make sure you know where they got them from, so you can keep your informationr elevant to your niche market), and ring other professionals to find out what they are charging for a similar service. Many of these now have websites (as should you!), so you can usually get a good, and up to date information from these (without having to identify yourself as a competitor!).
If the standard rate seems too high, you can certainly lower your price, but why undercut yourself? If the other operators are charging this, it means that the potential is there for this to be a lucrative business opportunity. If the prices seem too low, you will need to have another look at your figures and streamline your operation.
Remember too, that all businesses struggle to make a profit when they first start out, but plenty of people just like you make a lot of money in this industry, and with commitment to your craft and the service you provide, there is no reason why you cannot be as good as anyone else in the market.
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