How to price your products/services?

This is a regular question in every single group, forum, chat… Whatever your products/goods/services are, the way to price is the same.

Nowadays, I am a caker, but before, I was a marketing specialist for several years (with a master in a business school); so I will try to help you to make this job the simplest way that can be done.

So, to get started!

You must know -really know- every single cost. Everything! So, keep all the receipts because you will need them to be able to price your product properly, that means:

Ingredients (even the pinch of salt and per each one of your products/services). How? Well for example, I want to know how much is a pinch of salt, we have to start to know how many grams is a pinch of salt. So 1 pinch of salt = 1/8 tspn = 0,36gr. Why? Because the bags/boxes of salt are sold in grams.

So, if the bag of salt is 1 kilo (1000gr) we will divide the price by 1000. If the kilo of salt costs 2€ we will divide 2/1000= 0.002 €. Now, we need to know how much is a pinch of salt. 0.36X0.002=0.00072€. That is the cost of my pinch of salt, and this is the way you must do with every single thing:

– Ingredientes (including packaging).

– Transport (including go shopping for the ingredients, delivering the product/service, packaging, gas, bus, etc).

– Services: Electricity, water, telephone, Internet… (make an estimate, for example: 1€ electricity/hour oven, hob, etc. This is very difficult to calculate if you work at home, so just try to make an estimate. You can see how much had increased the bills and take the difference as an estimate, and pay a percent of Internet, telephone, etc).

– Marketing (also the pay advertising in Facebook, your time on it, business cards, flyers, etc).

So, how many portions do you sell per month? Calculate it, or make and estimate : 1 cake for 50 people/day (50 portions) + 48 cupcakes/day = 98 portions. Then you divide the services and marketing, that way you will get your estimate on uncountable expenses per product.

– The most important! Your labor time. How much is the value price of it? How much do you want to earn by hour of work? (you must to count here: real quality of your products, difficulty and experience/studies, etc). Then, if you want to earn 20€/hour and make the very decorated, three tiers and per 50 people cake, take you 12 hours/labor (including the labor time on transporting, designing and making), it will be: 20X12=240€

All these small amounts you must to put together, HERE YOU HAVE THE REAL PRICE OF YOUR GOOD! (even per portion!). After this, you just have to add the taxes and VAT.

On other hand, if you want to know the price of your individual portion, the only you must do is take the total amount and divide it by the portions you got. In the case of cupcakes, this is easy, do you know what is the size of a slice of a cake? Well, it depends, some people say 1cm width. I say, at least 2cm.

And how do you know how many portions can you get? Ok, lets see. For example: 1 cake 8″ (I will work in cm, but the pans are used to come in inches), so, first we will convert inches to centimetres (1″=2.54cm). 8×2,54=20,32cm. So we have to multiply by PI (3.14) and then we will have our diameter 20,32×3.14=63,8cm.

So, we have a diameter 63cm, now divide these 63cm in 2cm per piece. 63/1,5=31,5. So you get around 30 to 31 portions of -around- 2cm, from a 8″ cake. You can cut it the way you get at least 12 (cut in quarters and each one in three), then, you will get a -very much- decent portion of 5cm approx.

You also must see the hight of the cake, the last exercise, is for a regular high cake -maximum 2 layers (10cms)- but if you go to a higher cake, maybe you will have to count (and explain to your costumer) how to serve -maybe- you will have to cut that high in two or otherwise it will be a huge piece of cake. Even if the costumer decide that wants that huge piece of cake, you count the portions it must have. So a three layers (15cm), will still being 1 portion, but higher, will start to count 2 portions per slice. Got it?

I know, I have promised it was going to be an easy tutorial, but I just was not feeling comfortable leaving all those empty spots here and there.

In this case, I will ask you “Do not follow the market”. Why? Because the big stores get the products ready done by another distributor and as from the buy big amounts, they get good prices, and the quality of the prefab products will never be the same as yours, and surely made by machines, not artisanal hand made.

Also, some bakeries and pastry shops, buy prefab productions to skip steps and basically assemble a cake. You can buy them at HO.RE.CA. distribution centre : frostings, custers, garnishes, crusts, etc. Even quenelles ice cream and substitutes of main ingredients as: heavy cream, chocolate, syrups, flavours, extracts, etc.

So, do not compare yourself and your work, with nobody else!

On the other hand, most of the home bakers don’t know the value of their work and they follow the market prices based on supermarkets and cheap bakeries. They don’t know how really to price their work, counting with price instead of quality or literally giving their work for free without knowing.

Just think about it, and think very well. Do you want your costumers coming to you because you are cheap or because you are good? The cheap people will find cheap products/services and usually will compare you and your products with supermarket ones and its prices. There is other people, that are looking for the good, artisanal quality which you can almost not find now a days, these are the people you want.

The cheap people, are also the problematic costumers who wants the best effort and quality from you almost (and if they can get it, completely) for free, they will complain for everything (most of the times) and as it is used for very poor products/services, will not value yours (because they don’t know good products/services). So if the costumer thinks you are to expensive, give him/her other options less expensive, but NEVER, EVER lower the price of your work. And if they still think you are to expensive, let him/her go.

I hope this helps you to make better your cake business or any other business you want to start.

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