Hey Besties! This post has been a LONG time coming and honestly, I’ve put it off because it is a passionate and sometimes emotional topic! But I also know that many home bakers struggle in this area and so today we are tackling it. This your guide to home bakery business pricing! Buckle up because I’m breaking it all down and we’ve got a lot to cover. But this is arguably the most important part of your business planning, so it requires your focused time and energy. It can mean the difference between a thriving business and one that fizzles out. And we spend WAY too much time helping to grow those wildly successful bakery businesses to let anything fizzle out. So, let’s jump in, work through it together and the goal is for you to feel confident in your pricing by the end!
Let’s Get The Emotions Out Of The Way
Let’s be real…emotions are driving pricing decisions far too often. This industry is vastly dominated by women, especially loving ones who have huge hearts, are nurturing and seek to bring people joy. Which is AMAZING! But it can also be our downfall as entrepreneurs, if we’re not confident in our worth. We can make this process very objective, plug in numbers and arrive at a pricing structure. But it’s SO common that when home bakers arrive at those prices, their feelings don’t allow them to hold firm.
And I get it! We don’t want people thinking, “Who does she think she is charging that?!” Or maybe you yourself think, “I don’t know if I’m good enough to charge that.” And naturally, we’d rather suck it up and let ourselves down before we let others down. And of course, we want the business, so we will tend to offer lower prices to win the orders. But Bestie, this is a recipe for disaster for your business (pun intended). Letting our emotions get in the way of making smart business decisions is doing a disservice for you, your business, and for your clients.
So today, we’re going to start charging our worth. The following sections will help guide you through precisely why this is important and how charging more is better for all parties.
Home Bakeries Offer A Better Value
It’s the age-old comparison…what are the big box stores charging? What about Costco, Target, Walmart and all the rest? How do my prices compare to these places? But let me tell you why you should completely disregard what these stores are asking for their goods. What these stores offer and what a home bakery offers is apples and oranges. EVERYTHING that gets factored into pricing is different between these two models. They have overhead and employees, but they also have bulk pricing and the ability to mass produce products. Their goal is to make and sell as many cakes, cookies, you name it, as possible. They may be able to offer a better PRICE, but they can’t match your VALUE.
As a home baker, are creating top quality, unique and custom goods. You are often spending many hours or even days on one item, specific to a customer’s expectations. You are not creating something that will have a “Best By Date” of 6 months from now. It’s created with love, skill, passion using quality ingredients and a focus on flavor and aesthetics. What a customer gets from you is very different than what they get from a big box bakery.
Now, am I saying big box bakeries are bad? Absolutely not. I’ll indulge in a piece of Target cake any time. These bakeries serve a great purpose in our communities. They can sell large volumes of bakery goods at very low prices which is what a lot of people are looking for and what fits their budget. And for that, I am personally grateful. We’ll never be able to match big box bakery prices so I’m happy there are stores that can serve those customers. The problem comes in when customers want YOUR quality at the big box prices. That’s where we run into an issue.
Do not try to compete with their prices since you are not offering an equivalent product. If a customer tells you, “I can get it for X at Walmart,” then they should do that. They are not able to get your product at the big box bakery. If they truly want your product, which includes the artistry, skill, quality ingredients, customization and so much more, they can pay your price. You can respectfully point out what makes your goods different than a big box store, but the customer can decide what their priorities are.
It’s the same reason people won’t walk into a Lamborghini dealer and say, “I can get that at the Ford dealership.” No, you can’t. You can pay the Ford price for their product or the Lambo price for theirs. But you don’t get a Lambo at the price of a Ford. And Lamborghini knows they have plenty of clientele who will pay for their product.
Building the Clientele YOu Want
Whether you are just starting your business or you’re already in business, YOU set your prices. Customers are not haggling at the storefront bakeries for cheaper prices and that’s not how we do business either. Now, should you discuss with a customer what you can do to work within their budget? Absolutely, that is fair and a justified business practice. But remember that you still need to hold firm on what you can offer customers for their budget. There are several ways you may be able to accommodate a smaller budget. Either in quantity, size, flavors, level of detail and more. Be honest and transparent about what you can offer within their budget and the customer can make an informed decision.
I’m going to say this in the most respectful way…cheap prices attract cheap customers. There will always be people who are only after the cheapest price possible. And unless you’re trying to negotiate and give deep discounts on a daily basis, this is not the clientele you want to be serving. Customers with champagne dreams on a beer budget are not home bakery business clientele, plain and simple. Review the previous section and redirect them to the stores that serve them best. Otherwise, you are setting yourself up for endless haggling, inability to raise your rates and honestly, compromising your business entirely.
By charging fair, yet appropriate prices for your goods, you are setting the expectations for the clientele you serve. If you are getting ALL the orders, you need to increase your prices. Honestly, you should have a fair number (as high as 50%) of people who don’t order based on your prices. It sounds crazy, but it’s true! Having people walk away actually tells you you’re probably priced where you should be. Now, if everyone is walking away, you may need to review your pricing. But if everyone is ordering, you are not charging enough.
You want to serve a clientele that respects your skills, time, artistry, products and customer service. They want to support you as a business. If you undercharge, you’re hurting your ability to serve them in all of these ways. Create the clientele your business deserves.
SO How Do YOu Set Home Bakery Business Pricing?
Doing The Math
The simplest formula is knowing all your costs, adding in your hourly labor rate and adding in a fair profit margin. Simple as that! Haha…I know we’re bakers and not accountants. So let’s break this down.
It all starts with determining exactly how much you are SPENDING to make your goods. This needs to include ALL your costs – ingredients, packaging, home utilities and any other costs you are incurring. I realize home utilities can feel tricky to determine. What I usually recommend is adding up your monthly utility bills, and then averaging it for a day and an hour and multiply times the number of hours you spend.
Then you need to determine your hourly wage. This is mostly dependent on your skills, experience and really, a fair wage rate.
Then you need to include a fair profit margin. I always say at least 20% but it is usually in the 20-50% range and can be more dependent on market demand.
Cakecost.net is a free resource that helps break down your costs. But be prepared with all your expenses and data to input into what is essentially a fancy calculator. While the math part is never fun, it is critical to use these figures as the base for determining your home bakery business pricing. If you just wing it, you could literally be losing money, and your business won’t succeed.
Now that you have an idea of how much you should be charging, we need to consider market demand. If you are highly sought after in your area and have little competition, you’re going to be able to charge more. Conversely, if your market is saturated with bakers similar to what you offer and there is not much demand, unfortunately you’re not going to be able to charge premium pricing. Or if you have a niche product that is in high demand, you’ll be able to charge more. These are basic and supply principles.
Now if you’re in a saturated market or in a community where the price point is lower, don’t fret, you have options. This is where you’re going to want to consider a niche demographic you can serve, such as corporations, who do have bigger budgets and most home bakers are not serving them. THIS article goes into great detail on this topic, with strategies and free resources included.
Can’t I just Compare to What Other Bakers Charge?
Here’s the deal…there can be value in learning what your local competitors are charging in your community. However, once again, it’s not exactly apples to apples so you need to account for that. Baker Susie may also specialize in custom cookies but her skills, styles, offerings and customer service may vary greatly from yours. And depending on where she sources everything, including her packaging, her costs may be very different than yours. So if you’re going to compare within your community, it’s best to think of it as “the going rate” but you’ll need to adjust up or down based on everything we’ve already covered.
There is little value to comparing or even asking what other home bakers charge in other states. Every state and city are so different, just like cost of living and so much else. It’s just not a helpful exercise because it doesn’t apply to your bakery. Now if you’re considering moving to a different state, then it may be worthwhile to research going rates in that area. But that’s really the only time it makes sense.
Friends, Family and Donations!
Another common question for home bakers! Should you be discounting your goods for family and friends? This is my position. When you create your pricing, determine at that time, what is an appropriate friends and family discount. Let’s say it’s 10% (10-20% is what I recommend) but you need to decide what you’re comfortable with. When a friend or family member requests an order, let them know up front, “I do have a 10% discount for family and friends too!” This way, everyone knows you are not accommodating free orders and they know exactly what their price is. Your friends and family should want to support you and help you succeed, not take advantage of you.
Let’s talk donations! Periodically, home bakers will receive requests for donated goods for organizations or events. And because so many bakers have huge hearts, it can put them in an uncomfortable position. Here is my position and what has worked well for us. At the beginning of each year, decide on a total value of product you are willing to donate to causes you want to support. For example, say you’re comfortable giving away $200 in product. Now YOU can decide which organizations or causes you want to support. Or simply wait until you receive requests and if they are causes you want to support and you still have donation budget left, you can support! But once you use up your annual donation budget, don’t feel bad letting people know you’re not able to donate to their cause. Businesses can’t donate to every cause, or they won’t have a business.
Something we do a fair amount of is supporting fundraising efforts. Different than donations and can be a fabulous way to support causes while also growing your business, gaining exposure and making a profit. It’s a WIN-WIN. To learn more about how you can leverage fundraisers to give back to organizations you care about while still growing your business, THIS post breaks it all down.
To Discount Or Not To Discount?
I can’t even believe I’m going to go here because bakers tend to have SUCH passionate feelings about NOT offering any discounts. And I’m referring to when customers ask if you offer any discounts for larger volume or bulk orders. If you ask this question in a home baker’s social media group, you’ll be bombarded with responses like, “Large orders are even more work!” Or, “It takes me just as long to decorate each cookie. No discounts!” But here’s the thing…a home baker IS more efficient producing one large order compared to 5 smaller ones, so technically, there is a true cost savings there. And before you freak out on me, let’s talk through this.
If you receive a request for 300 cookies and let’s say there are 4 different designs within the order. Let’s also say you charge $50/dozen. So, for 25 dozen, we’re talking about an order for $1250. You worked with one customer, created one set of 4 designs, will order all supplies and packaging in bulk to accommodate the order and can very efficiently bake and decorate 4 cookie designs to be picked up on the same day.
In comparison, you could secure 7 different orders; two for 5 dozen each, six for 2 dozen each and one for 3 dozen cookies. So you’re still selling 300 cookies for $1250. For these orders, you are working with 7 different customers, designing 7 different cookie sets, and let’s say each set has 4 different designs. The time you are taking to work with 7 different customers, designing 7 different cookie sets, bake and decorate 28 different designs, all going out on different days, is SIGNIFICANTLY more than the one order for 300 cookies.
Which order would you prefer? I will choose the single customer who wants 300 cookies hands down every single time. I can complete that order in a fraction of the time that I would spend on 7 separate orders.
So, what is that time savings worth to you? Time is money. When you add up all the time spent producing this one order compared to the seven orders, it’s not unreasonable to offer a small discount for the larger order. And you will still come out way ahead compared to the seven separate orders!
As with everything, YOU have to decide what is best for you and your bakery. My recommendation is that you set a policy up front that establishes your position on this. For example, orders over 5 dozen are discounted by $2 a dozen. If that was your policy using the example above, that customer would receive a $50 discount. In my book that is a significant discount, and the customer will likely be very pleased and move forward! You also save several hours of time, in which you could either spend doing something you love or even take on more orders! Do you see how offering a bulk discount is actually a WIN-WIN?
Wow, That was A Lot!
I told you to buckle up early on, didn’t I? We covered A LOT here but it’s all really critical to successfully running a business! The good part is that once you work through the exercise of establishing your pricing and other policies around discounts, friends and family, etc, you can just revisit to update in the future. I hope this has all been helpful to confidently creating and implementing your home baking business pricing. Just because we deal with sprinkles and frosting all day, your bakery is a real business and deserves this attention. You work REALLY hard and deserve to be paid what you and your products are worth.
Let’s recap some key highlights to keep in mind:
- Take your emotions out of it; charge your worth.
- Don’t compare a home bakery to a big box bakery; you offer things big boxes can’t.
- Build the clientele your business deserves!
- Sit down and do the math; know your expenses.
- What is your local market saying?
- Comparing your prices to other home bakers offers little value or actionable information.
- Establish a friends and family discount (if you want to offer one)!
- Pre-determine what you can afford to donate to causes that are important to you.
- Establish a bulk order discount if you want to offer one!
Was this helpful? If you’d like more home baking business strategies and guidance, you can find additional great resources covering many different topics, HERE!
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