these down on a spreadsheet so you can monitor
and update them as costs change. At this point
you will need to estimate how many cake orders
you expect to take during the year and allocate
a proportion of the fixed costs to each cake. For
instance if your fixed costs are ��1000 and you
expect to make 125 cakes then add ��8 to the
cost of each cake.
Now we can start to think about the time you
spend on each cake and how much you want or
need to earn per hour. As well as the baking and
decorating of the cake consider other activities
such as shopping, sketching designs, replying to customer emails, delivery, cleaning etc.
The more cakes you create the more confident
you will get at estimating the time needed. Your
hourly rate is the area where only you can decide what to charge. Some people are happy to
earn minimum wage doing a job they love whilst
others need their business to support the family
or pay the mortgage. It���s a very personal decision
but I would urge you to recognise that your customers are not simply paying for the hours you
spend making the cake but for the hundreds of
hours you have invested in improving your skills
and developing your creativity. Once you have
worked out how many hours your cake will take
simply multiply by the hourly rate you want and
add this amount to the variable and fixed costs
you already calculated.
The final element is one which is often forgotten in micro-businesses and that is the profit.
Again, the percentage profit you decide upon is
purely personal and will depend to an extent on
the amount of capital you have invested. This
is not part of your payment for working in the
business; it is the return on the investment you
have made in your business, the reward for the
risks you are taking. If you were a shareholder
in a company then this would be your dividend!
Of course, most of us will choose to reinvest it in
the businesses we love but to arrive at a proper
price for your product it should nevertheless be
factored in.
So to summarise ���
��� Variable costs +
��� Share of fixed costs +
��� (Hourly rate x hours taken) +
��� Profit margin =
��� Retail price of your cake
This is of course a broad guide to the mechanics
of pricing your products and I have not touched
on assessing your competition, finding your place
in the market and dealing with customer expectations to name just a few related issues. If you
are looking for more in-depth advice I will be
running a blog series on pricing during the next
few months over on my Cake Office blog where
you will also find a private forum where you can
ask all those awkward questions you don���t want
to ask ���in public���!
Julie Gibson is the proprietor of Ice Maiden Cakes &
founder of CakeOffice.com. For more information please
visit her blog at www.cakeoffice.com.
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