I can't begin to tell you how good it feels to be back after my long absence. For those of you who don't know, due to health issues I was away for almost two years, but I am back and so happy to be here.
I wanted reach out to you today with a video, that I made just for you where I discuss the basics of pricing for profit.
Three Basics of Pricing for Profit:
DON’T GUESS
There are a number of well-meaning folks out there sharing their own price charts of their baked goods. While these give you a general idea about pricing, they may be nowhere near where you need to be in order to make a profit or conversely, you may be losing money by using another person’s model.While it serves as a general indicator, it simply may not work for you and is no better than guessing.
1. That person may not be in your area. A cake in Miami, is much pricier than a cake in Dothan, Alabama.
2. Other people do not use the same ingredients as you are. How can you know for sure that you are paying the same price, or using the same raw materials? This is fundamental, and we discuss it a little more in detail later. You have to figure out your costs before you even think about what to charge.
3. Not selling to the same demographic- If you make $500 dollar cakes but the median income in your town is 40K per year, chances are people will not be able to afford your product but the person who provided you with their pricing schedule may have a completely different socio-economic demographic.
4. May not have the same skill-set as you- If you are a beginner, (We all have to start somewhere) it is more difficult to command a high price for cookies or cake that do not look polished and professional. Conversely, if you are making these beautiful elaborate cookies that are taking you a long time to finish because of the detail that goes into them, you cannot sell them for the same amount as another decorator.
INVEST IN A SOLID COSTING SPREADSHEET OR PROGRAM (OR CREATE ONE)
The difference between a hobby baker and a pro is profit. If you want to create a profitable business there is no way around this. You must know the cost of each and every one of your products in order to price them for profit, otherwise it’s sheer guesswork.
Figuring out how much your raw materials such as flour, sugar, eggs etc. per recipe, on your own may be a pain if you purchase in bulk, and that’s why I recommend that you either create a spreadsheet that is going to help you to keep track of how much each product is going to cost you to make . That includes Direct and Indirect costs, which we will get into in another post but here is a great spreadsheet that I invested in myself that helps me keep track of all my costs.
http://www.smallfoodbiz.com/shop/food-product-cost-pricing-spreadsheet-us/
Please note that I receive no financial compensation if you elect to purchase this program whose link I have included above. This is simply a recommendation based upon my experience. There are other spreadsheets out on the market and the Cake Boss Program. You have a bunch to choose from. Just make sure you are using something to keep track of all of your costs. It’s not a luxury, it is a necessity and I cannot emphasize that strongly enough.
Here is a link to an article I wrote for Chef Julia Usher's Cookie Connection in my former Dough to Dollars blog feature on Pricing.
KNOW YOUR CUSTOMER/DEMOGRAPHIC
In order to price your products accordingly, you need to know who your customer is, what they spend their money on, how much they earn, and how they think.
If you are creating beautiful cakes that are worth $500.00 and the people who live in your area can only afford to pay $100.00 your business will not go very far. Clearly, talent or quality is not the problem, people only have a certain amount of disposable income available and are willing to spend on a custom cake or cookies. These are luxury items, we should not forget that.
The opposite is true as well. You may be starting out and have a limited skill set. Perhaps your cakes are somewhere beyond amateur but not quite at pro level yet. There is also a group of people who are willing to take a chance on you and pay a bit less for your cakes/ cookies even if you have not yet perfected your skill set.
This is a mutually beneficial situation as they may not know how to even bake a cake out of a box and you can make them look good by helping them out, and selling them a cake at cost. Which honestly makes you money in the long run, because someone is paying you to practice.
Sure, you are not earning a profit, you are breaking even however, the practice on that cake is an asset because it adds to your education and skill set. That is as good as money in the bank.
Just be sure to be upfront with them, if this is the case so there are no disappointments if your baked goods did not turn out as well as you expected. This happens to all of us at the beginning.
The key to creating a profitable baking business is striking a balance between your costs, what the market is willing to pay, and your skill set. We live in a free market economy and there is competition everywhere.
The best way to get ahead of the game is by offering a consistently great product, knowing how much it is costing you to make it ( to the last penny), knowing who is willing to buy it and how much they are willing to pay.
Wishing you all the best this week and always remember this.. No matter how hard it seems
Persistence is the key to success, never give up, ever!
Aymee aka Cookiepreneur™
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