How to price cakes is THE number 1 question we get asked by listeners on the Podcast. And we understand why we get asked it so often. Not only is it hard to work out the maths, but it's even harder to value and put a price on your own time and skill.
Please note I am not an Accountant, and this is a very basic breakdown of how I have priced my cakes for the 13 years I have been in business. For further advise please speak directly to an Accountant.
When you price a cake you need to take 4 things into consideration;
- The costs of the sale - How much you will spend on making and delivering the cake - ingredients, boards, boxes, sprinkles, toppers, postage etc. These are called 'Variable' costs as they change depending on the amount of cakes you make.
- Business Overheads - What are the other background costs you pay. They are costs you have to pay no matter how many cakes you sell - rent, utilities and power, phone bill, marketing and advertising, accountant costs etc. These are called 'Fixed' costs as they don't change.
- Labour cost - YOU! Your time and skill. And I'm not going to lie, this one is the hardest!
- Profit - that bit extra that you use to put back into your business
1. The Cost of Sale
Lets start pricing your cake with the most basic and easiest thing to work out. The cost of the cake.
This is the cost to you if the customer took their cake away but didn't pay for it. This is the cost of ingredients and components used directly in the making of the cake.
When getting to grips with how to price cakes, this is the easiest thing to work out. There are programmes available such as Cake Boss and Bake Diary, or you could set up a spread sheet, or use an old fashioned paper and pen.
The way that programmes work is that you enter the cost of all your ingredients etc onto the database, then add your recipes and it will sort it out for you. A spreadsheet will do the same thing, if you know how to set one up. Or failing that, write everything down and use a calculator to work it out.
Don't forget to include things like postage if you send them, or mileage if you deliver.
2. Business Overheads
These are also pretty straightforward to add up. The tricky bit comes when you need to add them to the cost of the cake. For example, you might pay £50 per month for your business phone. However, how do you divide that up for the cost of the cake.
There are a few different ways, but personally I like to add it to my 'hourly rate'. I add all my overheads up, and divide it by the amount of hours I expect to work overall in the year, and that is the extra I charge per hour for overheads.
For example: total overhead costs £2000. I intend to work 25 hours per week for 48 weeks of the year = 1200 hours per year.
£2000 divided by 1200 hours = £1.60 per hour overheads.
You need to be realistic about the amount of hours you work. And may wish to track it monthly or quarterly so you can adjust your overhead cost if required.
A note on Equipment and Depreciation.
When you start a business you buy (or may be gifted) equipment - mixer, cake tins etc. These items will slowly wear out and one day will need to be replaced. If you are clever enough, you can calculate how many years each thing will last and divide the cost of a replacement by that time.
For example - A mixer costs £500 and lasts 10 years. That means it will cost £50 per year in depreciation.
Many accountants will add that depreciation cost into your fixed overheads.
I am not clever enough to be able to work out how long all my equipment is going to last, and therefore I add extra profit to my price to cover these costs. (see point 4)
3. Labour Costs - YOU!
This is the hardest thing to calculate. For 2 reasons; firstly you have to be realistic as to how long the cake is going to take you, and secondly you have to put a true value on your worth.
You must always be realistic as to how many hours you will be working on a cake. When you are first starting out I would recommend you keep a diary of your times. Write down every minute you spend on a cake, from the time it takes to deal with admin, to do the shopping, to bake and decorate, to pack and then deliver the cake. I guarantee you it's longer than you think.
Over time you will learn how long all these things take. Experience will take over. I'm not saying you'll always get it right. I still quote for cakes that take me a lot longer than I expected. Sometimes things go wrong, things get delayed, you have to re-bake etc. But all that aside, I'm now pretty accurate on my timings.
There are even times, where I have streamlined my processes so well that cakes don't take as long as I thought they would.
How much are you worth?
In April 2023, in the UK, the national minimum wage for over 23 Year old is £10.42. Therefore at a minimum you should be paying yourself that, and not a penny less!!
However, I would implore you to value yourself more than minimum wage. You are a skilled artist. You design, bake, decorate and add flourish to your cakes in a way that only you can. Only you can decide what you are worth, but I ask you - what would your skills be worth if it was your Dad doing it?
If you want to learn how to pay yourself regularly, read Paying Yourself a Regular Cake Maker Salary.
You are in business, and the aim of a business is to make PROFIT. You are not a non-profit organisation, you are a profit making business! When you are learning how to price cakes, adding profit is essential.
Therefore, and this is really simple, you must add a percentage on for Profit! It's your choice how much you add, there is no right or wrong. I have heard of people adding anywhere from 5% to 25%.
This percentage is added once you have calculated all the costs above. Once you have that total add your Profit Percentage.
But why? Profit will help you grow your business. You can use it for training, equipment, bettering yourself, expansion - all sorts of things.
I recommend the Profit First way of, every time I receive money from sales, I put aside my profit percentage before I do anything else, so I don't spend it on my cost of sales or overheads.
How to Price a Cake
Now you've read how to price cakes here is an example so you can see how it fits together. Please note this is just an example and you must work out your own numbers for your own costs and labour. I have purposely not included a size or style of cake as you must work out those costs for yourself.
Estimated time cake will take - 4 hours
Cost of Sales (Ingredients, Board, Box, Topper): £15.00
4 hours x Overhead Cost: 4 x £1.60 = £6.40
Labour at minimum wage: 4 x £10.42 = £41.68
Total Costs before profit = £63.08
10% Profit = £6.31
Total Cost of Cake = £69.39
If you are learning how to price cakes and pay yourself as a cake maker here are some other posts that may be of interest: