The price is what it is. Your time is worth x value. Your ingredients cost x amount. That’s is it; black and white. You want to grow your business? Then you need to learn why changing your mindset about pricing will help you grow your business.
Pricing… oh, it’s the bane of our existence. As bakers and business owners even without a storefront, we spend so much time talking about and questioning our pricing.
As all female entrepreneurs in our company, I have noticed that we spend a lot of time second-guessing our products, our pricing, our time, and our value.
It’s something that drives my husband crazy. He is always saying, “well, how much time did it actually take you?” When I answer, he always follows that up with “how much time did you spending researching and developing on top of that time.” As usual, I just undervalued my product again.
He never hesitates to charge his customers for every part of his time. It is silly to think that I spend all this time on projects and hesitate to value my time enough to include it in the pricing.
This mindset has to change. Now, you may be someone who says, “that is not me. I never undervalue myself and my products.” That is great. I am so envious of you and hope to be like you in a few years.
I can’t wait to be that confident and comfortable in my business even without a storefront, but for the rest of you, let’s really talk about changing our mindset when it comes to pricing our products.
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How We Price Our Products
Because in our business, we can identify the fact that we undervalue ourselves way too much, we have built this pricing calculator here. Read how we set up our calculator to ensure we recoup our costs, time, and labor here.
Using raw numbers has helped us feel confident in our pricing, our products, and our business even without a storefront. The facts are the facts. We input the data into the pricing calculator, and it provides us a calculated price that includes costs, value, and profit mark-up. The numbers don’t lie. They are what they are. PERIOD!!
How To Look At The Raw Cost When Changing Your Pricing Mindset
Let’s start with the cost of ingredients. When we go to the store and purchase an item, the price is what it is. There is no haggling. If the store says $2.99, then guess what? You are paying that price. PERIOD!!
You didn’t get a discount, and so you should not provide a discount to your customer. The price of the ingredients is the price of the ingredients; therefore you charge that price to your customer. There is satisfaction and confidence in the fact that it is what it is. PERIOD!! Remember that.
Mark-Up On Ingredients and Supplies
When we first started our business, charging a mark-up on ingredients and supplies made me bulk. It made me feel dishonest. Why would I not just charge my customer what it cost to procure that item?
I’m going to let you in on a little secret. By not charging your customers the mark-up, you are undervaluing yourself again. As business owners, our time is valuable even without a storefront. Did you have to look for the products? Did you have to go get the items? Did you have to pay someone else to get those items?… Exactly.
It took you time, energy, and resources to get the items needed to produce your final product. None of this time was included in the raw cost of the ingredients.
Remember how I said we need to stop undervaluing ourselves. Here is one of the biggest ways you (at least we) undervalued our time. It took time to get the items, to find the items, to lug those items around. Dang straight, you deserve to recoup the cost of time, and that is where your 35% mark-up collects on your time and efforts.
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How To Look At Profit When Changing Your Pricing Mindset
According to *Controlling Food Costs: 2nd Edition (p.32), you should shoot for an 18-25% controllable profit goal for your net income. (This book is a great resource for your baking business accounting. Grab a copy here).
In our pricing calculator, we build in a minimum of 20%. When we are researching products to bring to the market, we start by looking at competitors and their prices. Then we grab a recipe we think will work and price our product.
This gives us an idea of the product will be profitable for our business even without a storefront. Then we will make the product, tweak the product, and determine the final price. You can learn more about our process here.
The Value You Bring
Ok, here is another big one for our industry (at least for us). When you start your business, most of us think we should take any business to get ourselves established, but this is a bad practice for your business even without a storefront.
The “just take anything” starts to condition you to learn to undervalue your business and your product. Our number one piece of advice is DON’T, but if you have to do it this way, then give yourself a deadline. 6 orders or 3 months, or $400 in sales. Whatever you do, set a cap on it and then ABSOLUTELY stick to it.
Ok, I’m stepping down from my soapbox. Let’s talk about the value that you bring. This mantra is going to be something you tell yourself over and over but stick to it.
Also, please note I am not about to tell you to provide bad customer service.
You are providing your customer something they cannot get anywhere else because YOU are the one who made it. Your product was handcrafted specifically for your customers’ enjoyment.
So, NEVER NEVER lower your prices just because the customer does not think your product should be valued at that rate. All this means is that THEY are not your customer.
There is nothing wrong with that either, but you should never settle for a customer. If your customer doesn’t want the value that you bring to the product, then let that customer go and wait for YOUR customer.
Just because someone somewhere creates the product cheaper, that does not mean you need to meet that price. Let that customer go and wait for your customer.
How To Look At Paying Yourself When Changing Your Pricing Mindset
Now comes the hard part of creating a price for your products; your time. We determine an hourly rate for our time when creating our pricing. It is built into our pricing calculator. Go here to learn more about how we determine our pricing.
There is no right or wrong answer to this number. It is something that you need to determine, but as the owner and producer of the product, you must determine what amount you want to be paid for your time. This is another place that, as individuals, we try to undervalue ourselves.
If you don’t have a number in mind, you can go online and research the job market to determine the rate you feel is adequate for your time in producing the product. Ask yourself the following questions:
- What is the average rate in my industry?
- How much do I want to make?
- How much do you need to make?
Putting It All Together
The biggest shift that we need to make in our mindset for pricing is understanding the value of ourselves and our products. We need to stop asking, “what would you charge for this?” Instead, we need to look at the raw data. You must do the following things.
- Convert all recipes to weights. If you are not doing this, you need to start immediately. Go here to learn why.
- Calculate the cost per ounce for all ingredients in your recipe. We have a FREE Recipe Costing Sanity Saver guide here that works great with our recipe pricing calculator to price out any recipe quickly.
- You need to determine how much your time is worth. You need a dollar value.
- Determine the time it takes to complete the recipe.
- Cost out your recipe and add your mark-up to your ingredients.
- Know the time it takes to produce a recipe and add your hourly rate.
- Add your profit mark-up
This process may seem tedious, but it can be really simple to create a worksheet or grab one like we have here. Learn more about pricing your cakes with confidence here.
Once you have your raw number for ingredients, time, and profit, then you know that this is your bottom line. The price is what it is. It is based on mathematical data.
If your customer feels that this price is too much, then great. Let them go get the product elsewhere. By using the raw data to create your price, you have removed the feelings involved in pricing. When you remove the feelings from your pricing, you can feel confident in your pricing because the data shows that this is the price. There is no need to second guess yourself. PERIOD!!
We need to learn to shift our mindset and stop undervaluing our products. We are creating handcrafted, one-of-a-kind items. We have personally crafted this item specifically for our customers. If our customers cannot appreciate the value we are providing, then they just are not our customers. We will let them go and wait for our right customer to come along.
Your right customer is out there. Your right customer is going to value what you have created. They will appreciate the blood and sweat that you put into crafting the item just for them. Remember that
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