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