Four tips and some useful thoughts about Pricing to make a Profit

I was going to write on a completely different topic today but as I sat down – pen poised – last night I got completely distracted by a very fabulous conversation on the Cake Makery facebook page.

 

I’ll tell you about the thread in a moment but first of all some background.

Cake Makery have developed an App for costing cakes. The idea is that you pop the cost of all your ingredients, plus your time, into the App and it totals it up for you and tells you what you should charge.

[Aside: Of course if you’ve heard me talk about pricing you’ll know I say that ‘cost’ is but one of three things you need to look at (the others being your customer’s attitude to price and your competitor pricing) but still the App is ace at helping you work out “cost price”. And if you don’t know your costs you’ll never know if you’re pricing for a profit.]

To demonstrate the App the ladies from Cake Makery posted a picture of a cake they had made on Facebook and asked Likers to guess the price of the cake. Later they followed this up with a picture of the costing calculation as done on the App and revealed the actual price of the cake.

Here’s the price calculation:

What followed were 226 comments about cake pricing. Most people thought the cake price was way too high, a few thought it was about right and loads of people commented on how bloomin’ hard it was to make a decent income from cake making. And I should add, by ‘decent income’ about 80% of the people who mentioned it said they would be happy to make the minimum wage of £6.19 (about $9 in Aus and US). One was earning as little as 20p (30 cents) an hour. Holy Moly!

We’re in business to make a Healthy Income and an hourly rate of less than the minimum wage is so not healthy. Because proper pricing is such an important part of making a Healthy Income I thought I’d share with you some of the pricing themes from the Cake Makery thread. I’ve added thoughts and suggestions of my own, so that if you’re in a low priced pickle you might be able to find a way out. And although the debate was about cake pricing this stuff applies just as well to all small businesses.

1. Customers just won’t pay that much

The biggest theme on the thread was that customers just won’t pay that price. Here are a few of the comments”

“No way I could charge that much”
“I’d have no customers left if I charged that much”
“I don’t think people would pay that where I live”

Just so you know: the price in the calculation was £138 and lots of people thought the top price they could charge would be £50. That’s a big variation.

My thoughts:

This is at the heart of the handmade pricing dilemma! I’ve spoken with so many people who, when they’ve (finally!) worked out what it costs them to make their stuff, say “But my customers won’t pay that much” It’s true, and it’s fair enough. Sometimes when a customer is faced with the proper price of a cake (or any other item for that matter) they decide they don’t really want it. That’s disappointing and pretty disastrous for business, so what do you do?Well you have three options:

1. Find customers who do value your work

They are out there! They might not live in your local area and it might take a bit of effort from you to find them. But if you do amazing bespoke stuff you will find customers who will pay a proper price for it.You will probably end up with less customers than you have now, but if they pay you properly for your work you will make more money and feel more appreciated!

2. Change your work to suit your customers

If you want to stick with your current customers give them something that fits their budget. On the Cake Makery Facebook thread Debbie Brooke mentioned how she’d been told to always ask first “How much do you want to spend?”. It’s great advice.

3.Do as you’ve always done

You don’t have to change anything. If you’re happy doing the work and getting paid what you’re paid. Stick with it.

2.Customers don’t appreciate (and won’t pay for) the skill and effort that goes into a cake

This wasn’t really a theme on the thread but I do think it’s one of the underlying problems. Most people who buy special/celebration cakes have no idea about the effort that goes into making them. It’s why customers look so aghast at the price.

My thoughts:

It really helps if you explain the cake making/decorating process a bit. You can do this with a series of photos and a timeline that you show customers. Or if you keep a blog you could do a storyboard about the cake making process. You can also find a way to drop into the conversation with customers some reference to cake decorating courses so they can see just how tricky some of the work is!

3. Hobbyists versus businesses

One of the main issues on the thread was that of competition. This was a popular comment:

“If I raise my prices my customers will just buy from some who will do it cheaper”.

A particular problem for the business cakey-types is the fact that hobbyists are happy to do a cake for no profit at all. As one hobbyist who prices her work very low said “I’m sitting at home anyway, it gives me a chance to do something I love and cover my costs” Yikes!

My thoughts:

This is a tricky situation but not as bad as you think.The truth is that most customers have no idea how to find the hobbyists who make cakes at a very low price. Truly! I know you know everyone in your industry but we don’t! My Mum does flower arranging for weddings in her local church. She does it as a hobby and prices it to just cover the cost of the flowers. She does no marketing and is both delighted and surprised when someone actually asks her to do flowers! She does about 4 weddings a year and they are mostly friends of friends. She’s certainly no threat to any of the local florists! What you do need to do though is decide whether you are in this as a hobby or a business. And if it’s business you must yank yourself out of the hobbyist “cheap” mindset. Not easy I know, but do it you must!

4. Hourly rate

Well, a huge dilemma over at Cake Makery was what hourly rate to charge. The ladies at Cake Makery charge £15 an hour and there were plenty of comments saying this was way too high. As one commenter said “Paying yourself £15 an hour, that’s just not practical”

Sigh.

What’s not practical about £15 an hour?

My thoughts:

A big part of this dilemma is valuing the work you do. Many of us have a problem with that. However if you want to have a business which makes you a Healthy Income then – and I’m going to be blunt here – you’ve just got to get over it.

Fact: if you don’t charge your time at a proper hourly rate you will never make a Healthy Income from your business.

But can you justify your hourly rate?

First of all, you don’t actually tell customers your hourly rate, so you don’t need to justify it to anyone. It’s there to help you work out your price, not defend it. Explaining the level of skill and time involved in a cake (see 2 above) is enough to help people understand the price. That’s as far as you need to go.

Another point is this. Say you charge £15 an hour for your cake work. That doesn’t mean you’ll earn £15 an hour from you business. Why? Because you don’t get paid for the time you spend on admin and marketing. If you want to earn £15 an hour for every hour you work in the business you’ll need to charge a higher hourly rate on the cakes. I’m happy to explain how to do this if you’re interested, but not here, (email me!)

If you’re a learner then by all means charge a lower hourly rate. Use the customers as practise. But don’t forget to gradually put those prices up as you become more skilled.

Finally, to help you feel better about your hourly rate, pull together a portfolio of all your work and get as many testimonials as you can. Flick through it just before you do a price quote. It will help you to remember you’re worth it!

4. I wouldn’t have the nerve to charge that

Finally you’ve done the calculations, picked the right customer, added in an appropriate hourly rate, got your price and, shucks. You bottle it. As someone on the thread said “I just wouldn’t have the nerve”.

My thoughts:

If this happens to you (you know what price to ask for but you don’t actually ask for it) try running this story through your head:

Picasso was painting over on the Left Bank in Paris one day when an American tourist spotted his work. “Wow” she said “Can you paint me?”. “Why of course” he said. The tourist posed and just five minutes later Picasso showed her the completed picture.“That’s amazing” she said “How much do I owe you?” “2000 French Francs” he replies. ‘2000 Francs?” she squealed “But it only took you 5 minutes”. “No it didn’t my dear, it took me 40 years”.

So value your skills, it’s taken you a bloomin’ long time to get them!

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