It’s one thing to be a talented cake decorator, but something quite different to be the owner of a successful cake business. In fact, we’ve seen many technically talented bakers suffer through difficult times, while observing others with less experience and skill achieve great success in business.
I would chalk up the difference in these two different results to the person’s understanding of business knowledge.
You’re A Cake Business Owner… Not A Cake Decorator.
Most people who start bakeries aren’t business people; they’re what E-Myth author Michael E. Gerber calls “technicians.” As a result, it’s not the most talented cake decorator who thrives, but the best marketer and business-minded baker. Here are a few of the most common mistakes in staring a cake business that you should strive to avoid.
#1: Undercharging For Your Time And Talent
This is a typical mistake that almost all new cake decorators make, usually because they start out as an amateur who realizes they can earn money doing what they already love to do. They spend years making cakes for free or at cost, so switching over to charging a profitable price is difficult.
The thing you have to realize is that the moment you charge for a cake, you’ve moved from amateur to professional. That shift requires a change in thinking, especially when it comes to how you view the value of your time. In most cases, selling your cakes means you’ve already made an investment in becoming legal and licensed. Your pricing structure must reflect that overhead. All that is needed is a simple change in perspective: from amateur to serious business owner.
If you are really in business and not just “making some extra money on the side”, you must take seriously the cost of keeping the business open and appreciate the great responsibility just to turn on the oven. With this change in perspective and a realistic valuation of your time, you can calculate healthy prices that correctly value your work and time.
#2: Setting Prices Without Knowing The Total Cost of Goods Sold (COGS)
Pricing is not an arbitrary decision. Successful business owners know how to calculate their COGS (cost of goods sold) in order to produce a menu that will sustain a healthy business. COGS includes all the direct costs necessary for making a sale, but not fixed costs such as internet, telephone, rent etc. Our book provides a COGS calculator, and there are other tools such as Cake Boss software that can assist.
The one thing a lot of bakers omit from their COGS is their time. This is a mistake. Your time is your most valuable asset and you need to charge for it, even if it’s only a small hourly rate.
Having determined the COGS for any cake you sell (typically calculated by serving), it’s good practice to mark that up at least 3 times to produce a final retail price. This is the point at which many beginners hesitate and reduce their prices with the fear of not being able to make a sale.
#3: Failing to Write and Follow A Business Plan
When you’ve decided to switch from hobbyist to business owner, the inertia of the excitement and income can prevent you from pausing to create a business plan. After all, for the creative person, this can be pure drudgery. Unfortunately, without a plan, you are unlikely to achieve long-term success. How can you reach a goal without at least writing it down and tracking your progress?
A business plan is not an abstract document only for large corporations. Rather, it is an actual written plan providing a frame of reference for your cake business, defining your goals, and making you accountable. A business plan doesn’t have to be complicated. In our book, we provide a template and step by step plan for writing a clear, simple-to-follow business plan.
#4: Working For Free
If you’ve spent any time at all in the online cake forums you’ve read about this one: The idea of making a cake for free (or at cost) in the hopes of future orders. You can’t be in any creative service business for very long without someone asking you to take on a job for a very low price with the assurance that your sacrifice now will lead to more high-profile and highly-paid opportunities in the future. “I’m doing you a favor because of all the people who will attend this wedding…”
This is an insult to any baker and does a lot of damage to your business and the cake industry at large. You risk being known as the low-cost cake provider who will negotiate on price. Even if you are newly established, our advice is to always ask for what you and your cakes are worth, and refuse to negotiate when only a promise of exposure is offered.
#5: Magical Thinking
Running a professional cake business, whether at home or in a retail shop is tough business. We like to say, if you’re lucky this is a “get rich slow” business for those that work hard. Most cake business owners will admit that they were naive about the difficulty of running a cake business. The reality is that the cake baking and decorating (the technical piece) is only about 20% of your business efforts. The rest is selling, accounting, marketing, more selling, social media, customer service, ordering supplies, negotiating with just about everybody, etc. Those business-related tasks are a lot like the ones many people hope to leave behind in a job working for someone else. In reality, these are the same tasks required in running any business! The upside is that now when you’re doing those tasks, you’re doing them for yourself and investing in your future, long-term success.