How to price cakes is a tricky topic. It's difficult to choose a number that we feel represents our time and effort. But it’s important to take the time to price cakes accurately to make sure you’re not losing money! In this tutorial I’ll walk you through 4 steps to calculate your cake prices.
The first step when you think about how to price cakes is to calculate your direct costs.
These are the costs of whatever you’re selling. The ingredients of your cake, filling, frosting, and any garnishes, and also any packaging materials.
For the ingredients, refer to your recipes and take out each ingredient. You’ll also need receipts showing the cost of each ingredient. If your supermarket or grocery store has their prices online, you can use their websites instead. This is a bit time consuming for your first recipe but gets much quicker after that!
There are three ways to work out the cost of each ingredient. I’ll show you how to do it for ingredients measured in grams, and also in cups or teaspoons, and in units, for example 2 eggs.
First, in units or items, for example eggs. Find the cost of the carton of eggs that you buy. Then divide that cost by the number of eggs in that carton. That’s the cost of one egg. If your recipe says 2 eggs, just multiply the cost of 1 egg, by two! Write down that cost on a piece of paper.
I’ll show you how to use my free recipe cost calculator spreadsheet in a minute, which makes this process really fast for all of your other recipes!
For any ingredients in your recipe that are measured in grams, check the packaging. Find out how many grams are in the package and write that down. Then look at your recipe and see how many grams you need and write that down.
Divide the total weight by the weight that you need and write down that number too and circle it. Now write the cost of the whole package and divide that by the number you circled. This is the cost of the amount of ingredient you need for your recipe:
For any ingredient measured in cups or tablespoons or teaspoons, look at the nutritional label. Look at what the serving size is, and how many servings are in the package.
If the serving size is 1/4 of a cup and there are 75 servings in the bag, that means the bag has 75 1/4 cups in it. Multiply by 4 to get the full cups and you'll see there are 18 3/4 cups of flour in this bag. If the bag of flour costs $5, each cup of flour is going to cost 5/18.75 = 0.26 (26 cents). If your recipe uses 2 cups of flour, that will cost you 26 x 2 which is 52 cents.
Use these methods to calculate the cost of all of the ingredients in your recipe.
You might be shocked to see how much your ingredients cost per cake. Perhaps they add up to more than the price of a huge sheet cake at a grocery store or supermarket! We’ll talk about why that’s important in a minute.
If you use my free recipe cost calculator spreadsheet instead of just writing these numbers down, you can calculate the cost of all of your recipes in minutes.
The other direct costs to include are the costs or packaging. This includes the cake board, the cake box, and any ribbons or stickers. I’ll share more details for custom cakes and deliveries in a moment.
You might be thinking there are a lot more costs to making a cake, and you’re right! Those are coming up next, starting with your indirect costs.
Indirect costs are the things that aren’t going to be boxed up and given to your customer but still play a part in making it possible to make your cake. For example:
We’ll come back to the mixer and any other investments you make to be able to make cakes.
Make a list of all of the other indirect costs that are necessary to make your cakes. Include how much each one costs per month or per year. Then work out how many cakes you sell each month. This could be an average of how many cakes you sold in the last six months.
Now it’s time to spread out your indirect costs between your cakes so that you include them in your prices. For example, maybe you need to drive to Costco once a month to buy your baking supplies. If you estimate that the fuel for your car is going to cost $5 and you make 5 cakes a month, that’s a $1 cost added to each cake you make.
Maybe your gas or electricity or water costs are $20 higher on the months you make cakes. Again, let’s say you make 5 cakes a month so that’s $20/5 = a $4 cost added to each cake. This sounds trivial because the numbers are small but everything adds up!
For investments like a bigger mixer, first think about how long you’re planning on using it for. If it’s 5 years, divide the cost of the mixer by 5 years. Then divide that number by 12 to calculate the cost of one month. Divide that by however many cakes you sell in a month. Now you’ve spread out the cost of that mixer between every cake you sell for the next 5 years. Approximately at least!
The next thing to include when you price you cakes is the cost of your time. You might think you don’t have to charge for your time because you enjoy making cakes. Or because you’re at home anyway. But if you weren’t making a cake for someone else you could be doing anything else that day! When you dedicate time to make a cake you need to include that as a cost of that cake.
You might start by charging the minimum wage in your area, say $10 an hour. If you spend 4 hours baking and frosting and decorating you’ll add $40 to the price of your cake. But as your skills improve you might increase your hourly rate and increase the price of your cakes.
Before moving onto the final part of the price (profit!) let’s talk about how to price custom cakes.
For custom cakes you have to consider the additional cost and time of any custom details of that cake. If someone wants a particular cake topper, the topper and shipping are a direct cost. These should be included in your price. If someone wants a time-consuming design like layered stencil character, estimate how much time that custom design will take. Then multiply that by your hourly rate.
When I had a cake shop I had set prices for simple, more elaborate and very elaborate decorations. The prices were based on how much time I thought the decorations would take me to make. This saved me a lot of time pricing out the decorations individually for each cake order. I would add on the cost of any special materials like an icing sheet, for example. It was a quick and simple way of pricing custom cakes.
I’ve also worked at bakeries where they have set prices for every single detail. For example they charged for each colour and for the percentage of the cake that would be covered with decorations. Charging for each detail added to a cake will give you the most consistent and accurate pricing. But it’s also very time consuming to prepare a cake quote with that method. Especially if the customer wants quotes for a few different designs!
Now, back to my comment earlier about cakes from supermarkets or grocery stores. A custom cake is obviously very different because the ingredients are better quality and the style of decorations is very different. So don’t panic when you see that your costs are going way beyond the price of one of those cakes. You’re making and selling something completely different and the price will reflect that. People know (or should know!) that prices will be higher for cakes that are homemade or from a small business or high-end bakery.
For deliveries you’ll also need to incorporate your costs. These are your gas or petrol and the wear and tear on your car. If you’re in the US there’s an IRS standard mileage cost for employees to cover both of these. Then you’ll need to include your time. This is your hourly rate multiplied by your estimate of how long the delivery will take, including setup if necessary.
The final thing to add to your price is profit! Your price so far covers the costs of making a cake: the direct costs, indirect costs, and labor. But adding on a percentage of profit is essential to be able to grow your cake business. Then you can invest in new tools, cake decorating courses, marketing like social media posts or hiring help. You might also want to save up to rent a commercial kitchen or a storefront.
It sounds like a great idea, but how do you know how much profit you should make on each cake? This might be somewhere between 20% and 40%, depending on your experience and your location. And this is where your competition comes in to play. Look around and see what your competitors are charging for similar cakes in your area. Obviously, a supermarket or grocery store cake isn’t going to be the same price as a custom cake. And a buttercream cake probably isn’t going to be the same price as a fondant cake. And a cake in New York City is going to be more expensive than the same cake in a small town because costs in those cities are so much higher. So look around to find local cakes that really are similar to yours and compare your prices to those. Then see what percentage you can add to your prices to be similar to those.
You can find your current profit margin is by using the costs you’ve calculated and the prices you’ve set. Your profit is the price you sell your cake for minus your cakes to make it, divided by the price. Multiply this number by 100 to make it a percentage. If your cake price is $50 and it costs you $40 to make, your profit is 50-40 = 10 divided by your price ($50) = 0.2. Multiply this by 100 to make a percentage: 20% profit.
You can do this the other way around by choosing your profit margin first. If you know your costs are $40 and you want to make a 20% profit, flip the formula around:
Start with your desired profit and divide by 100: 20% / 100 = 0.2. Take that away from 1, which here is 0.8. Then take your costs, $40 for this example, and divide by 0.8. This gives you the price you should charge ($50) to get a 20% profit.
I really hope this is helpful! I think the key points to remember when you’re pricing your cakes are:
Please use the comments section to ask me any questions you have about this! Or tell me about your cake business - a success, a struggle, or what stage you’re at!
And if you want to improve your cake decorating skills, visit my cake school to learn hundreds of cake decorating techniques and designs!
You can also watch a video of this tutorial on How to Price Cakes:
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I'm happy it's useful!