How to Price a Cake – Everything you need to know!

How to price a cake or other baked goods is one of the most difficult skills to master in your baking business. A lot of beginner bakers and even experienced bakers make the mistakes we’ll list in the article, but in this definitive guide we’re here to help you to get a fair price for your hard work and passion.

In this article we’ll cover:

• The Four key metrics for pricing
• Labour: Time is money
  • Estimating the time a cake will take
  • Hourly rate
• Ingredients: Costs and keeping up to date
  • Create a Pricing spreadsheet
  • List, List, List
  • Cost Per Unit
  • Wastage
  • Bulk Buying
  • Save time by calculating your top sellers
• Overheads: Incorporate everything into the price
  • Gas, Electric, Water
  • Licences, paperwork etc.
  • Special Equipment
  • Start-up costs
  • Delivery vs Pick-up
• Value: What value are you bringing to the event
  • Know your clientele
  • Not everybody should be able to afford you
• Top tips for starting off:
  • Use your USP (Unique Selling Point)
  • Undercutting others = Bad news
  • “Mates Rates” and how to go about it
  • Baking Karma
• Key points you need to remember!

The Four key metrics for pricing

How to price a cake should be simple, but lets be honest it can be an absolute minefield. Which is why when pricing your cakes you have to remember these 4 key points which we’ll cover in more extensive detail in the dedicated sections of this article.

Labour- Your putting your valuable time into performing a service for someone, time is the one commodity we can’t buy, we can’t get it back so let’s put some value on this precious resource. One of the most common mistakes most people make when pricing their cakes is putting a value on their labour.

This is key point number one, please, please, please value your time and make sure you are charging accordingly for it when pricing a cake.

Ingredients- Obviously right. I mean I’m not just charging for my time, the ingredients need to be paid for and make sure you keep the receipts (for tax purposes)! You need to charge accordingly for ingredients, all of them, every single one.

Overheads- This is everything else that you need to charge for. Baking the cake isn’t free, ovens cost money to run and maintain. For this particular section you will need to rummage around in the folder where you keep your bills, but trust me it’s totally worth doing.

Value- Not a lot of people talk about this, as the other 3 points are the clear and obvious things you need to calculate, but the value you bring as a baker to a person or event is also very important to talk about.

Please don’t underestimate your value and remember that by a customer contacting you, they have shown you that you have a value to them, even if they can’t afford you!

So these are the four keys that you have to remember when working out how to price a cake, now lets get into the detail and I’ll tell you exactly how to price a cake, cupcakes or any other amazing baking creations you amazing lot are making.

Labour: Time is money

Time is money honey! That’s right, you have to pay yourself a wage and that wage should be appropriate for the place your living. For instance if your baking in Leeds you will probably have a much lower cost of living than someone living in central London.

If you need to know how much people are getting paid in your area then here is a guide to average salaries across all industries for regions in the UK. Find your local region and see how much the local salary is.

Even if your just starting, the absolute minimum and I mean MINIMUM you should be paying yourself is £1 above the National Living Wage (UK only).

The reason I say this is that Baking is a skill and not everyone can do it, especially not to the standard that you do it to, so you really do want to be paying yourself more than minimum wage, as you are a skilled worker!

Estimating the time a cake will take

I’m not just talking about cooking time here. You need to take into account everything. How long the prep is, how long the bake is, how long the decorations take, literally every minute you spend on this cake, cupcakes, biscuits or any other sweet treats needs to be taken into account.

If this adds up to 3 hours then bill for 3 hours, if it takes 3 hours and 15 minutes, bill for 4 hours. I use a 15 minute cut off as if I were employed and the employer kept me there for longer than 15 minutes, I’d expect to be paid for it. So give your customers 15 minutes grace as the old saying goes, look after your customers and they’ll look after you.

Hourly rate

Working out your hourly rate. Let’s do an example so you can get a rough idea of how to do it. So I live in Plymouth which is in the South West of England and according to the average salary on the site I mentioned earlier it is £35697.

To get my hourly rate, I need to divide this by 52.

35697÷ 52 = 686.48

Now I’ve got my Weekly average we need to get the hourly rate. The average working week in the UK is 37.5 hours. So now we need to divide our weekly figure by 37.5.

686 ÷ 37.5 = £18.31

Now we’ve got this we can decide what to pay ourselves. So lets compare the different wages we’ve mentioned.

Average = £18.31

National Living Wage= £9.90 (London = £12.04)

Minimum Wage= £8.36 (London £9.18)

So as you can see we have got a different range of wages. You need to decide where your going to put yourself. Value your time and remember if your under pricing your bakes, you would be better off financially working a minimum wage job, with no stress.

So to conclude, you need to put a fair value on your time and be strong with it. Some clients may say “Oh that’s too expensive.” Well if they went to a shop, they would charge more or it wouldn’t be the same high quality as your custom baked cake.

We’ll talk a bit more about Value later which does tie in quite nicely with this section and is definitely a must read section!

Ingredients: Costs and keeping up to date

This is the bread and butter of pricing, excuse the pun! But you do need to have your costs nailed down and keep up to date with them. Cost’s change all of the time and recently with fuel going up in price and inflation running wild, prices have gone up and it looks like its here to stay.

So how often should you look at the prices of ingredients. Every 3 months. Set a reminder on your phone, calendar or to do list and make sure you check. This shouldn’t take forever, but it is super important to do, so make sure you set aside time to do it.

Create a Pricing spreadsheet

Microsoft Excel, love it or loathe it, this is where you need to create your spreadsheet(s). I personally like to use 3 different spreadsheets. I use one spreadsheet for items that I will use in 95% of my bakes like flour, caster sugar, eggs etc.

The second spreadsheet is for items I use occasionally, for instance toppers, different colour icings, sprinkles, embossers etc. The 3rd spreadsheet is where I store my top bakes and how much I should charge for them.

At Em’s Bakehouse we’ve created these spreadsheets which are all contained in this single document! Plus they are free for you to download and use yourself. I highly recommend that you download and use them as by keeping them up to date you will never under price a cake again.

List, List, List

List absolutely everything you buy, including everyday items such as flour and eggs, your occasional expenses such as embossers, cakesicle sticks, sprinkles etc. You should also list your start-up costs. Start up costs should include everything you buy to start your business, such as a kitchenaid mixer, bowls and tins etc.

Some people accept start up costs as just what you need to start, but you can charge for these and this is how I would do it.

Lets say I need a new mixer as my old one doesn’t cut the mustard for my new cake business. The kitchenaid I want is £300 for instance. With this kitchenaid I’m going to do a minimum of 2 bakes a week. I’m going to pay it off over 2 years.

£300 ÷ 104 weeks = £2.88

£2.88 ÷ 2 bakes a week = £1.44

So by charging an extra £1.50 on each bake your business has effectively covered your start up costs. These numbers are variable and if your start up costs were around £1000 it may be worth extending the period you pay yourself back over as a £5 charge on each bake for your start up costs could push your products into the very expensive range.

The key point I’m making is that you have to cost everything and make sure your getting back what you put in. Remember you’re a business not a charity.

Cost Per Unit

So the free excel spreadsheet we mentioned earlier breaks down your costs. What we want is a price per gram. If I’m using 100g of flour I need to know the cost per gram exactly rather than just estimating.

This is a simple calculation such as a bag of flour from Sainsburys is £1 for 500g. So the cost per gram is;

100÷500= 0.2p

For a recipe which contains 100g of flour the cost would be £0.20.

You need to know the cost per unit for everything so items such as eggs don’t have a gram unit per say but we still need to know the cost so let’s say a box of 15 large free range eggs costs £2.00. The cost per unit would be;

200÷15= 0.1333p which we would round up to £0.14. Always round up!

In this case the Cost per Unit of eggs would be £0.14.

All of these prices need to be monitored every 3 months like we said so I know excel can be tedious, but it is totally worth it for your business so make sure you do it.

For your non-consumables your cost per unit will usually need updating less often, maybe every 6 months and these will be a fixed cost. You need to factor in how many bakes you will do with these products. So for instance you buy 6 valentines baking embossers at £7.50 each for your valentines customers. You estimate that your going to sell 20 boxes of Valentines cookies.

Your cost per unit calculation will be;

6 x £7.50 =£45.00

£45 ÷ 20 = £2.25

So for each valentines box you need to charge £2.25 on top of your ingredients and labour and other consumables you may be using such as food colouring, cake charms and sprinkles etc.

This is purely an example, you may estimate you’ll sell 50 boxes, you may only do 5 and you can put your own numbers in.

You may also keep the same embossers for a number of years and add a few different ones each year, so you could estimate your numbers based over a few years. But it is essential that you cost these special bits of equipment into your bakes.

Wastage

What is wastage? Wastage is a commonly used phrase in the food business which accounts for bits of food you’ve bought but have been wasted. A good example of wastage is the flour you put on the counter for rolling out a dough. You’ve used it, but it’s not within the product. This is wastage and you need to charge for it.

Don’t worry it’s a really simple calculation. Lets say your using 100g of flour and it’s cost you £0.20, you need to charge between 5-10% extra for your wastage. The simple calculation is;

0.20 x 1.1 = £0.22

It’s a really easy calculation to do but you should definitely add wastage to your prices, maybe 5% if you’re a clean economic baker and 10% if you’re towards the messier end of the spectrum. I would probably be up near the

Bulk Buying

One of the ways to increase the profit you make on each bake is to bulk buy your ingredients. For instance flour has a shelf life of around 3-8 months. By buying a larger quantity of flour, enough for 3 months bakes, you can drive down your cost per unit.

If people are used to paying your prices, there is no need to change them. Nobody needs to know that your material costs have come down.

When your bulk buying make sure to shop around, since the pandemic food wholesalers who have traditionally only dealt with bricks and mortar businesses are a lot more open to selling to smaller businesses which maybe operate from home. A quick google search for food wholsesalers and a phone call could see your cost per unit drop drastically and your profits increase.

Save time by calculating your top sellers

You do not want to be calculating every order, it’s time consuming, even with all of the tools and the spreadsheets. You know what you sell the most of and what your customers are asking for the most.

Depending on how many different bakes you do, I would list the top 5-10 bakes so you know them off the top of your head. Recalculate them every time you update your ingredient costs and keep them on the same spreadsheet.

Overheads: Incorporate everything into the price

Every single thing in your bake should be paid for. EVERY.SINGLE.THING. Full Stop. You are not a charity, your time is not for free and with inflation running at around 7% and bills going up every year, you need to charge for your overheads.

Gas, Electric, Water

This is the bread and butter of overheads, every baker is going to use an oven of some sort and you need to know how much it costs you. The average electric oven in the UK will use 0.87kwH per hour. That equates to roughly 14p per hour.

Water is very cheap in the UK and costs under 1p per litre. You may think this isn’t worth charging for, but what do you do once the bake is finished. You wash your dishes, if your like me you’ll use a washing up bowl in your sink which is usually 20 litres. So there is another 20p.

Gas is going up massively in price due to a surge in demand from countries changing their energy production from coal burning to gas burning due to environmental targets. Gas is cheaper than electric currently, but in the UK when the energy price cap changes this is also likely to change and gas prices may soar.

To calculate your prices, you can look at your utility bills as see how much a kwH (kilowatt hour) is. You can also see how much your water costs, but remember to always check both the cost of having the water and also the wastage charge to take it away which is usually more expensive than having the water.

Licences, paperwork etc.

There are a number of costs that involve no baking at all that you need to take account of. Firstly is insurance, if your making food for someone you need this. If you accidently cause harm to someone, there could be huge consequences if you have no insurance. Make sure your covered from day one. Luckily this insurance is relatively cheap and should only cost £20-£30 per month.

Food safety paperwork. Before we talk about it most local authorities offer a course which is relatively cheap on how to fill out this paperwork and what you need for food safety. I highly recommend you take this course so you know exactly what you’re doing as a zero food safety rating for wrong paperwork can kill your good name!

You also need to evaluate the time it takes to do your paperwork and work it into your overall costs.

The last thing we need to talk about is taxes. If your doing them yourself, please measure the time it takes you and take account of it. If your using an accountant, work their fees into your costs.

Special Equipment

These can be one off costs, for instance a cake topper saying Happy 7^th Birthday Liam. This needs to be incorporated into the cost of the cake. Not discounted for anyone. It cost you so it has to cost your customer. That is the same for any piece of equipment your going to use once or just solely for that bake.

Now something like an embosser can be a different kettle of fish. You need to ask yourself, how many times am I going to use that embosser. If it’s a valentines embosser and you think you’ll probably use that every year or at least for 2-3 years and 20 bakes a year, that embosser would cost very little per bake.

So the one off costs are easy, but you need to really look at the special equipment and think how many times you’ll use it. Be conservative with your estimate as well. You may think that you’ll use it loads but if you underestimate how many times you’ll use it you probably won’t be out of pocket.

Start-up costs

Write these down. You may have been a passionate baker and have most of the equipment you needed when you just baked at home and if you don’t want to include these because you already had them, then that’s totally ok.

If you have had to buy equipment to start, write it down, literally everything, mixer, spatulas, measuring cups, every little thing you’ve bought to start, write it down.

Now work out how many bakes your going to do over a one or two year period. Lets say your start up costs are £500. If you do 2 bakes per week your going to charge an extra £5 per bake to cover your costs if you pay yourself back over a year.

This is the calculation I would use to pay back those start up costs;

(start up costs £) ÷ (Number of weeks to pay back (52/104/156))

                             (Average bakes per week)

Delivery vs Pick-up

Firstly lets talk about Pick-up. It should be free, if, and it’s a big if! If it’s convenient for you then yes of course it should be free. If your staying in and you could or should be somewhere else. It’s chargeable. Usually 1 hour of your hourly rate should suffice.

Now your client may question the charge if they are picking up but a simple conversation with them to say ‘look I am staying in my house to give you this cake when I could be at the beach, my childs football or wherever you need to be.’

People usually don’t want to pay for picking it up, but they have to realise your time is valuable and precious for you too. With this they will more likely be more receptive to picking up at a time which is convenient for you if you tell them you’ll have to charge for staying in.

Now delivery. You need to charge for time and mileage/wear and tear. A generous rate for mileage and wear & tear is around £0.50 per mile so this is what you need to charge this year but keep an eye on petrol prices and put them up if prices go up.

You should also charge for time. More than likely your clients live no more than an hours travel so make sure you charge for your hourly rate a minimum of 1 hour.

Value: What value are you bringing to the event

So this is something that people don’t really talk about but you need to charge for the value you bring to an event. Imagine 2 cakes, both of them are 3 tiered, and decorated beautifully. One is a birthday cake, the other is a wedding cake. Which do you charge more for? If you said Wedding you are correct.

If your charging the same money for a birthday as you would a wedding then you need think about it. A wedding cake from a shop is going to cost a minimum of 3 figures and you’re probably talking more like £250. A birthday cake even from a shop, is at most going to cost £100.

You need to charge according to the value your bringing to an event. Everyone does it. If I wanted to hire a band to play in a pub on a Saturday night your talking £200-£300, if you want the same band for a wedding your probably talking more like £1000. Make your prices reflect the event.

Know your clientele

If your clientele is picking up their bakes in their Bentleys and your cruising around in a 15 year old Ford, your not pricing correctly! You know who is buying from you and you know what they can afford and how they live. Make sure your prices reflect this.

Not everybody should be able to afford you

If you never have anyone say “Oh, that’s a bit expensive” then your probably too cheap. Not everyone should be able to afford what you make. Remember its special, its custom made!

Don’t get upset if someone says your too expensive and worry about losing customers. Those customers have come to you because you do what you do so well. If they can’t afford you then it’s a ‘them’ problem not a ‘you’ problem.

Your doing this to increase your quality of life, you need to remember that. You won’t increase your quality of life, if your constantly busy and working for £3 an hour, trust me.

In our next section we’ve got some top tips for starting off but these tips will also be worth reading for more experienced bakers.

Top tips for starting off

Whether your starting off or have been doing this for a little while, these tips and advice are a must read for those looking to make baking their full time occupation.

Use your USP (Unique Selling Point)

If your doing the same as everybody else in your local area then it’s going to be incredibly easy for customers to play bakers off against one another. They may say something like “Oh Stacey down the road does the same sort of thing for £10 cheaper”.

What you need to do is to come up with something that nobody else in your area does, something to make you unique. By doing this it will be the only place your clients can get this product and you can set your price and your clients can’t say that someone else does it cheaper.

By being unique your not going to get played off against other bakers who may not have read this blog post and are working for below minimum wage.

Undercutting others = Bad news

Undercutting others for business is bad news. If everyone starts doing this then in business terms its called a race to the bottom. In a race to the bottom, everyone is miserable because there working just as hard as they used to for less money. Keep your prices where they should be and work smarter not harder.

Let me use an example. Melanie sells 2 cakes for £100, Jane sells 5 cakes for £100. Now although Jane has 5 customers, she also has 5 lots of ingredients, overheads and labour. Melanie on the other hand has less outgoings for the same money.

Melanie has also made more profit and more free time. Be like Melanie!

“Mates Rates” and how to go about it

This can be a minefield. It’s one of the most difficult things to do, so you have to be clear from the get go. You need to know before you start, who your going to give mates rates for. Direct Family, Extended Family, Family and friends, whichever you decide on, you need to stick to it.

Secondly you need to let these people know that its only them that your giving mates rates to. If you don’t then your family and friends may tell others “Oh yeah, my sister made this amazing cake and it was only £20, you should use her.” That’s when you get put in an awkward situation when you have to tell them your charging full price. The lesson here is to make it clear from the start and make sure your ‘mates rates’ recipients know this.

The last note I would make on mates rates is, would the person who is receiving the discount do the same for you. Lets say your friend is a plumber, would they do a job for you with you only paying for materials? If the answer is no then you need to consider whether this person is worthy of the mates rates.

Baking is a skill and should not be under valued! That plumber is probably as good at baking as you are at servicing a boiler. So why is your time less valuable? The answer: it isn’t!!! So make sure your only doing mates rates for someone who would do the same for you.

Baking Karma

What do we mean by this? Well baking is a community and within this community are a bunch of people all striving for one thing. To make their lives better. To achieve this we need to all support each other. Are you insanely busy? Is your friend who also bakes quiet? Could you recommend them to one of your customers.

By being a supportive, lovely member of the community, good things will only come back your way.

So that wraps up our top tips for beginning baking in our next section we wrap up our key points that you need to remember!

Key points to remember!

The key points are:

• Value your time– Don’t work yourself into the ground for nothing. Pay yourself at least a living wage.
• Charge for everything– Make sure your charging for everything, absolutely everything.
• Your Valuable– Charge people for the value you bring to an event.
• Be Unique– You can set your own prices if you do something nobody else does.

Overall the message is to value your time and your skill. People are willing to pay £2.50 for a tiny stale brownie in a chain coffee shop, they should be willing to pay a fair price for some of your amazing, handcrafted, delicious loveliness!

I hope you’ve enjoyed this article and it has helped you to confidently put a price on your baking creations. Please leave us a comment and tell us what you think, we’d love to hear from you!