IT'S NOT A MUST TO FOLLOW HOOK LINE AND SINKER, GRAB THE RELEVANT PARTS THAT APPLIES TO YOU
Mindset + (Labour + Ingredients Costs+
Sundry Costs+ Utility Costs) x Profit = Total Cake Price
1.
Mindset
Gaining control
of our mindset is the key to unlocking your pricing struggle. Your Mindset is
often the first hurdle we bakers have to overcome. We are very good at letting
our own personal fear control our pricing. We are fearful of having no
customers, we are scared of pricing too high or too low, we think we are not
good enough, and to make it all worse we are actually fearful of pricing correctly!
So you need to get your mindset right before you move on to the next step.
2.
Labour
Labour often the
undercharged part of the cake pricing formula. However, when you know you are
being paid a decent wage/salary then you making a cake becomes more enjoyable. But
if you aren’t getting any good wage, then it can be like a chore job and you
will feel demotivated. You do not want to work for nothing. To help you gain a
control on the labour aspect, make a note of what you honestly want your hourly
rate to be. This can be anywhere from N500-N5,000 per hour. It all depends on
you and what you think you are worth.
If you are just
starting out, you may charge N500- N1,000 an hour, When you start getting better
in your skill level, you can increase your hourly rate to maybe N1,500 or
N3,000 an hour. But let me tell you something. No matter what, we always never
know our worth, so that is why, I will say, whatever the hourly rate you
decide, increase it by 20%. If you are still unsure or feel it is too high, then
just keep the rate as it is without increasing it by 20%.
So now that you
know your hourly rate. Next start to monitor how long each type of cake takes
to create. Record everything, from the initial enquiry, shopping to the mixing,
baking, cooling, cleaning, decorating, delivery, set up, etc. So if it takes
you 5 hours to do a vanilla cake and your hourly rate is N1,000 an hour, then
your labour wage/salary is N5,000.
As you do this
will you start to build up a spread sheet of times you take for different size
cakes
3.
Cost of Ingredients
I know this can
be quite time consuming part. If you are making cupcakes or small individual cakes
it is important to know the price of one so make sure you calculate every
batch. So when you are shopping for ingredients, take note how much the eggs,
flour, butter, margarine, etc costs. If you buy in bulk or a whole bucketful of
margarine, you just need to calculate the unit cost. Let’s say you buy 500grams
of flour at N1,000 and you only used 50g of flour, then the cost of that is
N100. The formula is: N1000 /500g x50g
So use this
formula for every ingredient you use. If this is too time consuming, then just come
up with an estimate of how much your ingredients cost. And remember to cost out
every single recipe and recipe variation you work with.
4.
Sundry Costs or Extra Costs
Similar to step
3 this is fairly simple to cost and again. Sundry costs are things like cake boards,
boxes, ribbons, dowels, etc
5.
Utility Costs
I know
calculating Utility costs are a little trickier to calculate as you have to
look at your bills or think of an estimate or figure to cover your utility. If
you get bills and want to be very accurate. Find your electricity bill or your
meter, and water bill then calculate the total yearly costs. You can then
calculate your daily or hourly costs.
Daily Costs =
Yearly total bill divided by 365 days
Hourly Costs =
Yearly total bill divided by 8760 hours in a year.
This is how you
can calculate the utility costs per day or per hour (whichever you prefer). But
how many of us have time for this, again if this is too much trouble, just come
up with an estimate amount.
6.
Profit
If you want to
grow your business this is the most important part. So far if you follow the
process until this step you will be paying yourself a wage, covering your costs
and not losing money. If you add this part this is where you will see your
business grow. The profit will allow your business to grow without you sacrificing
your wage.
The profit is
money that you can invest back into your business. So that you can afford that
shop you want, buy new cake equipment, create a website, buy flyers, generally
market your business, and outsource your bookkeeping, admin, etc. Do not overlook this step. How much
profit you add to your cake pricing formula is your choice. But aim for at
least somewhere between 20%-60% profit.
7.
The Total Price
The final step
is calculating steps 2-6
(Labour + Cost
of Ingredients + Sundry Costs + Utility Costs) x Profit = Total Cake Price
Practical
Example,
Bose of Bose Cakes and Bakes has an order
for a 10 inch fondant vanilla birthday cake with small piping detail and a few
fondant roses on an iced cake board and packaged in a box.
Bose starts calculating:
Labour–N1,000 x 5 hours = N5000
Ingredients Costs = N2000
Sundry Costs = N600
Utility Costs = N450
Profit x 30%
The Formula (N5000+ N2000+ N600+ N450) x
30% = N10,465
Therefore, the total price Bose will quote
to the customer is N10,465.
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