The products you create tell a story. They tell a story about your client and their tastes and interests, but they also tell a story about you as a creator – are they big and colourful? quiet and understated? Covered in flowers? Expensive or affordable? Whatever we are creating, be that bakery goods or quilts, artworks or emails, they tell people something about who we are.
Similarly, the way you price your products tells a story. To the customer and their guests, a $15 sheet cake from the supermarket tells a very different story to the $150 custom made cake. Pricing is not an exact science. I’ve got loads of spreadsheets which give me a whole lot of information about what my cakes cost me to produce, but none of them tell the whole story. They just don’t account for the human factor (other than a rate per hour for labour.) You *must* do the math on these basics,but once that’s done there is a very large grey area in which you can shrink or expand the profit you make on a cake.
All good stories should have a “Who, What, Where, When, Why and How” answered in them. Today’s post is to answer those six questions as they relate to pricing your creations and the story they tell.
WHO: Who you are as a baker/decorator is a vitally important component to how you can price your cakes. I’m talking about your reputation, your portfolio, your name. In the beginning of your baking adventure, if you have no reputation and no ‘street cred’, you just can’t charge as much as the well established businesses and people in your area even if your skill level is the same. The very same cake made by someone with an established reputation can be sold for more than one made by someone just starting out. A non cake example for you: Tiffany and Co. can charge what they charge for things because they are Tiffany and Co.! The exact same silver bracelet with a locket sold from someone other than Tiffany’s will likely be less expensive.
WHO v.2: Who your clients are will play a big part in your pricing. Look at your target market, look at their spending habits, look at the neighbourhood your business is in. Certain demographics are just plain willing to spend more to get what they want, and quality, perceived value, and ‘look at me’ all factor into it. To borrow my friends at Tiffany and Co. again – in part they charge what they charge because they know their clients are willing to pay those prices because they can afford to.
WHAT: This is where your skill, style and the product itself will come into into the story, as will your competition and what else is available in your market place. In my case, I much prefer making high end kids’ cakes – and in knowing my target market, I also know about how much my target market of parents is willing to spend and so I price accordingly. I’ve got to take into account that there are plenty of my competitors who will charge less (or more) – so my pricing is a reflection of the quality and skill of what I make and where my company sits in the marketplace. “WHAT” also refers to the product itself: some products are meant to be sold as lower end, lower price but higher volume – and there is nothing wrong with that. I’m not about to go putting Callebaut chocolate in a $1.50 cupcake though.
WHERE: It’s an unfortunate fact of life that humans perceive things firstly based on appearances. Whether we like it or not, most consumers will expect to pay less if they are buying a product from a home-based business. I’m not saying this is fair, I’m saying this is how it is. The average consumer who walks into your kitchen to order a cake is NOT thinking they’re going to pay premium prices, EVEN if it’s a premium product. Sell them the same cake from a fancy looking cake shop (or just premises not located in a home) and they’ll automatically be expecting to pay more. Like it or not, working out of home may affect your ability to price beyond a certain level. Plus, you’re competing with lots of other home based businesses who aren’t charging enough for their products in the first place. This is true in other instances as well – what you can charge for a cupcake sold at a local farmer’s market is not the same as what you can charge for a cupcake sold at a local upmarket cafe. Location matters.
To put this on an even bigger scale: you can’t charge the same for a cupcake in New York City as you can in Sydney.
WHEN and WHY: The event itself (why) – and when the product will be consumed – have a direct correlation to what you can charge. Many cake makers will charge more for a wedding cake than they will for a birthday cake (even if they require the same skill level), simply because it’s for a wedding. Wedding clients are likely to have a bigger budget and are therefore usually “willing” to pay more. Plus the importance of the event itself dictates how important the cake is to them – this isn’t just a cake meant for the family to have at dinner. So the reason why the client is buying from you may affect what you can (or will) choose to charge them. Similarly, if the client is buying it last minute and you’ve got to run around like a crazy person to get it done – then “when” they ordered it is going to affect the price.
The time of day/week/frequency with which they are buying the product makes a difference as well – if your muffin is something they are buying every day as they grab a morning coffee, they’re not expecting to pay very much. If they’re driving across town once a week to especially buy your muffins because you make the best muffins in town, they’re going to be willing to pay more.
HOW: One of the reasons online shopping has become so big is that it’s convenient to purchase and receive the products, and you can look for a good deal faster and easier than walking into ten shops and taking notes. How a customer purchases from you will affect the price. If there is no way to order other than making an appointment, you’re telling them the “my product is awesome enough to make you take the time to come in,” story and frankly you’re also telling them that time=price. If they can order over the phone, there is probably a limit on what they’re going to spend on something without meeting you or seeing the product in person. If they can order online, they’re probably not hugely fussy about customised options, but they do want it quick and convenient and probably not too expensive. In my case, the less expensive, less customised products are all available for online purchase but the customised fancy stuff is going to require more effort (and more money) on the part of the consumer. How they get the product from you affects how much they’re willing to pay for it.
So there’s the basic story on pricing – it’s as much about knowing the financial ins and outs of your business as it is about knowing your story – the story you tell with every product you make, and the story your client is telling you with their spending habits.
If you’re charging close to nothing, OR you’re willing to negotiate the price with everyone who calls you, OR you’re charging so much nobody is buying anything…your pricing is perhaps telling a story you would rather it didn’t tell.
What story is your current pricing telling?