Monday, April 2, 2012

What's Your Real Profit?

I see people online talking about how they made a cake that cost them $10 for ingredients, and since they charged $25 for it, they had a $15 profit.

But that's not exactly right.

First, you have to take everything into account when you calculate expenses, not just the cost of your ingredients. Did you use cake boards and boxes? What about gas to get to the store to shop for the ingredients? And did you have to use electricity to run your oven? So the ingredient cost isn't the only thing to take into account as far as expenses go.

Take it one step farther...If you're licensed, you have to pay a fee for that. Then if you're incorporated you have to pay for that. And there's insurance, advertising, professional association fees, etc etc etc.

Everything that you pay out has to be factored into the cost of each cake that you make. Let's say that I paid $2000 in advertising one year, and I made 200 cakes. The cost of advertising each cake was $10, which you have to count against your profits.

So now the cost of that $25 cake is higher...Let's be extremely conservative and say that it's new cost is $15. So your profit is now down to $10.

So how long did it take you to go shopping for ingredients? An hour door to door? Plus a couple of hours to bake and decorate the cake (again, I'm being conservative. It might take you longer.)

So for three hours of your time, you earned $10. Let me break this down for you... $3.33 an hour is not good.

I'm not even getting into the idea of salary vs. profit, which technically are two different things.

So when you figure out your pricing, don't cheat yourself. If you wouldn't work for less than minimum wage for someone else, why the heck do you want to do it for yourself? Take everything into account that should be taken into account, and don't apologize for charging the price that you should.

Kara Buntin owns A Cake To Remember LLC, custom wedding cakes in Richmond VA


rosemary said...

Thank you. I do not even know how much energy I use for my cakes. Not sure how to calculate that.

lulubee said...

I struggle with this too. I'm not a professional and don't feel like I should charge like one, but my time is valuable too so I'm never sure how much is enough.

Ultimate Cake said...

Thanks! When I was a member at CC (back in the day - before the Great Purge), I used to get so irritated att all those folks who thought their profit was price of cake less cake costs. I used to always cut and paste the following, and tell them that they needed to add these costs to the price of their cakes - because the cost of a cake is not just the ingredients.

Whenever I did this certain people would always call me a meanie.

Some of these expenses are monthly, some yearly (Hd inspection, sidwalk signs etc).

rent, insurance, loan payments, electricity, telephone (land-line + cell), broadband, website costs, cleaning supplies (floor cleaner, glass cleaner, universal cleaner, paper towels, dish soap, hand soap, hand disinfectant, dish detergent/drying detergent for dishwasher, toilet paper, toilet cleaner, mop, broom, dustpan, laundry detergent), credit card machine + fees, company credit card fees, assorted bank fees, sidewalk salt, alarm system costs, accountant/bookkeeping, garbage collection, office supplies (paper, pens, paper clips, staples, post-its, scissors, mat knife, paper rolls for cash register/credit card machine, ribbon for cake/pastry boxes, stamps, envelopes), edible image ink cartridges/sheets, packaging (cake/pastry boxes in different sizes, bread bags etc), cost for yearly HD inspection, garbage bags, advertising/marketing (business cards, brochures, website), bridal show fees, fees from city planning office for sidewalk signs, telephone catalog ad, take-away cups/lids for coffee drinks, light bulbs