Tuesday, June 23, 2015

More About Minimum Order Amounts

I'd written about minimum orders recently but I was just talking to another baker about it, so I wanted to address this again.

Consider this scenario: You work in an office. Your boss tells you that he wants you to do a project for a client. You'll need to research it, consult with the client, write up the report and prepare a presentation to go with it, present the paper, and you'll be paid $500.

The following week, he asks you to do the same thing. All the same amount of research, consults, preparation, presentation etc, but this time the report should be 8 pages long, not 10 like the last one. And because of that, he'll only be paying you $250. When you ask why, he says that there won't be as much work involved, so why should he pay you as much?

You may think this is kind of an extreme example, but think about it in terms of doing a wedding cake. I raised my minimum order amount to $500 recently, because I can't continue to spend as much time on teeny cakes as I do on regular-sized ones and still make a profit. Eggs are getting expensive...

A lot of customers (and bakers) don't seem to think of a wedding cake as a single object, but instead they think of it as a number of servings. The truth is that as far as time invested in making it goes, the cake is a thing that, on average, takes about as much time to make whether it's a tiny 4-6-8 or a larger 6-8-10-12. The only variable is really the decorating time, and sometimes that isn't even as different, depending on the design of the cakes.

For your comparing pleasure:

So the place where I save time on smaller cakes is on the decorating. And sometimes that isn't even accurate. I can probably decorate a five-tiered rustic iced cake in a shorter time than I can a hand-painted teeny three tiered cake. So who knows.

But assuming that the chart is correct, I'm basically selling the same amount of time and skill for $250 less for the smaller cake. Given that my profit margin is about 54%, and I spend about 10+ hours on each cake once you add everything up, that's about $12 an hour that I'm keeping when I make a small cake.

I could go work at the local grocery store stocking shelves and earn $9 an hour to start, plus I wouldn't have the aggravation of running the entire business myself. That would be worth the extra $3.

To run a profitable business, you need to eliminate the time suckers, and for me that happens to be any cake that isn't making a certain profit after expenses. The threshold might be different for you, and you might have different time suckers, but I guarantee that if you sat down and looked at your numbers you'll find what your limit is.

Not everyone will want to pay my minimum, but that's okay. If people don't have that in their budget that's understandable, they can find someone who either does a higher volume of cakes to make up for less profit, or they can find someone who's willing to work for less. It won't be me, but that's because I'll be doing something that makes the profit I need to justify my workload instead of working for close to minimum wage.

Look at your numbers and be honest with yourself...If you don't know what amount of profit each cake brings your business, you need to figure it out and decide if it's worth it to you. Leave your comments below...

Kara Buntin owns A Cake To Remember LLC,  online cake supplies at  www.acaketoremember.com and www.acaketoremember.etsy.com

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