In this post you are going to learn how much to charge for cupcakes.
So about a decade ago, while I was fresh at college, our church had a short financial course that I enrolled for and found enlightening.
My mom owned a retail shop and it run for over 24 years. The problem is at that point, thanks to the financial course I realized we didn’t exactly have a particular way to track if we were actually making profits.
I think it was just a side hustle to perhaps complement what my dad was bringing home.
You know, mom could bring home something too but there wasn’t a major financial goal or something.
My siblings and I had the chance to run the shop as we grew old enough to run a shop.
After doing this course at church, I thought I could use that knowledge to run my mom’s shop better and have more focus.
I asked for help from one of our teachers who unfortunately didn’t follow through.
Eventually, I let it go after awhile and our shop also gave way and we closed it, sadly after we were now evidently making losses.
Luckily, somewhere in my college course, one of my course units was business planning and here I learned the basics of starting a business or a side hustle with the goal of making profits.
Using that knowledge and some I have seen being used in the business world, I am going to take you through a summarized process of starting a business, pricing as the focus.
I am going to emphasize pricing cupcakes. And if your side hustle is not a bakery, you can still use this knowledge to start a business and ultimately cost your products or service.
The baking industry has been growing steadily over the past few years and with indicating trends that there will be even more growth in the coming years.
Consumers’ tastes are also evolving, with some preferring stronger, more intense flavors.
Limited edition and seasonal flavors too can meet this demand because customers are willing to pay a premium for a unique, high quality product.
To have your business up and running, you will need to look through the following steps;
- Name the business
- Specify the form of business
- Determine the location of the business
- Do some Market research
- Price your product or service including Labour and make a financial forecast for a year
- Set goals, both personal and business goals.
- Highlight Staff particulars where necessary
- Legal responsibilities and insurance where necessary
1. Name the business
Give your ideal business a name, state what it is about and what the service or product will be, write down your customer target and the needs you will meet.
Keep in mind that a creative name will, in most cases, go a long way in attracting customers’ attention in the long run too.
In relation to the type of business you have in mind, analyze your strengths, weaknesses, opportunities and threats you might encounter.
For instance, a bakery; your strengths might be that you can bake a mean cake, you market real good and are very creative in designs/art etc.
Your weaknesses might be a lot of competition or limited start up capital.
Your opportunities might be that the community you intend to start this up from has a culture of celebration that requires cake, or many malls and stores, supermarkets are coming up in that area and you could use them to sell your cupcakes or advertise.
Competition from other bakeries or restaurant or so might be a threat to you and you would have to work out ways to beat them.
2. Determine your form of business.
Generally, a partnership would be cheaper and easier to start up since it has shared efforts.
However, going solos is also a peaceful way to go as long as you have your financial needs covered or you can sail through somehow.
3. Determine the location of the business.
Since you are looking into cupcakes and might later venture into cakes generally and other confectionery, you might decide to do this from home if you have the space for it or as a starting point.
Otherwise you will looking into renting a space somewhere perhaps accessible to your target customers.
This will require you to also think about how you intend to distribute your cupcakes; individually or to retail shops or super markets or restaurants.
Have options because one way alone limits your market base.
4. Do Some Market research.
This is basically giving you an overview of what has been happening, what is happening now and what is expected to happen in that business basing on the similar businesses currently running.
So, it will look like this;
[table id=4 /]
5. Marketing your business.
The current age has made it easy to be known. Start with your inner circle, your family and friends.
See if any of them needs cupcakes, say, very attractive and highly decorated for a wedding or simple but attractive and tasty ones for a child’s birthday party.
You can also reach out to restaurants and supermarkets and tell them about your upcoming business, leave them a business card with your details or just your contact, give them your Facebook business link or website if you have one already, keep their contacts and keep them posted on what is coming up.
Social media marketing is a trend on which customers rely primarily.
Not only do they want to know about the bakery’s history and manufacturing processes, but because most consumers are concerned with some issues like accessibility.
I take it you can use as many social media platforms as you like and are comfortable with.
Marketing is a broad subject but know the basics and it will grow as your business grows and your knowledge of it too.
6. Catering for the different preferences of your customers.
In the market, you will find customers that do not consume cakes made using ingredients with gluten in them.
Also, there are those who are vegan or some that are on a diet and just prefer their cupcakes without some ingredients and in this case, you will have to make special cakes for this group of would-be customers.
Special cakes will cost more than ordinary cakes, partly because their ingredients are hard to find or they are costly and that’s something you should consider when prices as well.
7. Price your product or service including Labour and make a financial forecast for a year or six months.
This is our main focus and here is more detail to it. The reason for pricing is so that you make profit.
These are some of the factors that will affect your price;
1. How much customers are willing to pay;
This you will learn in your market research. How much do people usually pay for cupcakes; plain or decorated cupcakes, small or medium or large cupcakes?
Say you found it to be 2.0 USD for each large size cupcake or 5.0 USD for 6 small size cupcakes.
2. How much your competitors are costing;
Also, you will learn this from research and it might not deflate much from what the customers are willing to pay.
3. Your cost of production or service;
i.e the direct and indirect material you will use to have the finished product or service, plus your Labour/expertise/skill or time used. This is usually the problem area.
Let’s dive right in so that you can go ahead and start pricing your cupcakes.
Working out your cost of production to figure out your price of product or service.
1. First, outline your direct, indirect and Labour particulars.
Let us assume we want to price 6 cupcakes.
What are our direct, indirect and Labour particulars in detail?
[table id=5 /]
[table id=6 /]
2. Cost all the items above and divide them by the number of cupcakes we are making.
Have a look at what I have done in the table 3.
I have left out certain items I think are optional and may vary depending on the preference of your customers/market.
You can work those out separately to perhaps charge them as extra.
Prices will vary depending on the price of the items in your community or where you shop from or the value of your indirect materials.
Just a little break down for some items;
a) Indirect items, say rent. Get the amount you pay monthly, divide it by the number of orders you estimate you will receive in a year.
So, estimate you are receiving 5 orders of 6-cupcakes-packs a week, times 52 weeks; bringing it to 260 orders.
5 orders *52 weeks= 260 orders
Monthly Rent/260=fee per order
b) Direct items, say sugar. Depending on the recipe you are using, get the amount of sugar you will need in grams, get the price of the sugar grams needed. So, if 1kg of Sugar costs 0.83$, and you need 100g of sugar of that kg. A kg has 1000g.
This is what it looks like;
(0.83$/1000g)*100g, giving us 0.083$ for 6 cupcakes
c) Other costs category (Here you have Labour, packaging, etc)
The packaging cost is constant and definite, not much flexing is needed here.
For instance where I live, a packaging/box for 6 cupcakes costs 0.83$ and so I will add that to the costing the way it is.
The labour cost if flexible. Charge what you feel is fair, you can adjust as you see fit, based on your other findings of competitor prices and customer willing-to-pay price.
In my case, I went with 1.67$. and since this affects my cupcakes by having a few cents over 1$ per cupcake, I can adjust my price in the labour I am charging.
This pricing process will take a lot of your time but it is worth it as it gives you insight in the nitty-gritty and helps you understand business profit making better.
It will help you figure out where you can discount or not, where you can over price or not and so on.
This way, you know you are making profit.
It is important to know that you profit will build up over time because even if we know how much to charge per cupcake, you can’t buy 100g of sugar at the supermarket; you will buy a kg or so.
So, you will notice your profits with the orders that come in.
Once you are through with the pricing, you can create a financial forecast for 6 to maybe 12 months; showing your expenses and income flow to give you insight on your cash flow.
This will boost your confidence and also, prepare you for what your start-up capital should probably look like.
Now onto the last few steps to look into while you set up your side hustle/business;
8. Set goals, business and personal.
One of the most important aspects in any business is being able to accomplish the goals you set at a certain time.
In this case, we will focus on;
As you start up, set a goal, whether daily, quarterly or even up to six months.
Be realistic about this goal in that it is within manageable limits of both you and the business itself.
This will help you keep track of the profits made by the business adequately.
As you grow your business, make it a goal to keep your expenses within a specific limit that is workable and try not to spend where it’s not necessary.
3. Time you commit to processes in the business.
For example, after determining the amount of time you will take baking each cake or batch of cakes, make it a goal to spend that same amount of time daily.
This will be important because spending more time than you should baking one batch of cakes will reduce the number of cakes you bake in the long run.
Remember, time is money! So more time means less cakes, and less cakes mean less profit!
9. Highlight Staff particulars where necessary.
You will need to write down the structure of your business should it have staff and business partners included.
State their titles, their roles, their pay. You need this information clearly stated and documented.
However, if it is a solo business, this will not be necessary.
You could just write your particulars then.
10. Legal responsibilities and insurance where necessary.
With every business depending the country you live in and hope to run your business in, there will be certain legal responsibilities/regulations/permits/insurances prerequisites that come with it.
Some responsibilities include, sales tax, employee’s tax, business profit tax in case of partnerships.
Some regulations may also apply say, working hours, public holidays, leave days, minimum wage.
You might require a license or permit, say a producer’s license.
You might need certain insurances to run, say a property insurance.
Conclusion: How Much to Charge For Cupcakes?
It can seem daunting to look at the details sometimes, but START somewhere.
Read into the business ideas you have.
Ask questions. Collect information. Save up money. Start small. Start where you are. Perfect a skill.
See different ways others in the industry are doing what you love and see how you can do it even better.
Get a loan. Partner with someone.
Once you start, keep going.
It can get tough in the first years but KEEP MOVING.
You will thrive! And if you believe in Prayer and God, pray for it all and Keep moving.
All in all; dream or venture, you should definitely try this out. Good luck!