If you have a passion for baking, you’ve probably played with the idea of starting your own baking business. You’ve likely done some research, have been baking for friends and family, have some return customers. Yet, despite all this, you’re questioning getting started because you don’t know if it’s possible to make a decent income from selling cakes. Let me tell you, it is! But it’s important to approach this from a business perspective, not just a baking one. In this blog we’ll explore the viability of making money in the baking industry, categorizing business owners into stages, and provide tips for maximizing profits. Ready? Let’s get into it…
Beginner Stage: You’re focused on building your skills and your portfolio but aren’t making any money!
When you first start out, your focus is likely going to be on building your skills. However, one of the BIGGEST issues I see for bakers first starting out is they ignore the COST it takes to run a business. PLEASE, don't ignore your numbers! You need to understand expenses, revenue, and profit. So, start by setting up a basic spreadsheet to track your earnings, expenses, and profit so you know where you’re money is going and where it’s coming from. By understanding your financials early on, you’ll be better prepared for future growth. I like to use tools like Honey-book and Quickbooks but if you don’t have the money when you’re first starting out a simple excel spreadsheet will do!
Cost Coverage Stage: Business owners who are covering their costs but AREN’T paying themselves.
YAY! You started charging what it costs you to run a business. That’s a GREAT step but we’re still not making money. Once you start covering your costs, you may feel like you're making progress. However, it’s important to remember that you're not making money if you’re not paying yourself. It's easy to get stuck in the mindset of wanting to reinvest every dollar back into the business so it can grow, but it's crucial to factor in a fair salary for yourself. Even in the beginning, you SHOULD be paying yourself at least a minimum wage for the state you’re in. PERIOD. If this was any normal job where you would be first starting out, you would be making a minimum wage and it would be ILLEGAL for you to work without getting paid, so make sure you’re GETTING PAID. Lastly, you should be factoring in EVERY THING when it comes to covering your costs. That includes: the time it takes for administrative tasks like responding to emails, bookkeeping, marketing, and editing your website. All of that in addition to costs for packaging, ribbon, fondant, ingredients, pans, electricity, water, trash, etc. If you aren’t, you’re leaving money on the table.
Employee Stage: Business Owners who are FINALLY paying themselves, but have NO IDEA what they should be paying themselves.
Once you're comfortable paying yourself, you’ll have to navigate the controversy of determining WHAT you pay yourself and what your going rate is. Here’s the thing: there’s no industry standard in the baking industry, BUT you need to consider your skill level, location, and what other bakers/bakery owners are charging who are at a similar level as you. (BUT DO NOT COPY THERE PRICES… more on that in a sec!) If you're struggling to figure out your hourly wage, start by calculating your monthly expenses and how many cakes you can realistically produce in a month. Then, divide the total by the number of hours you work per month. This should give you a basic idea of what you need to charge per hour to pay yourself fairly. Back to the, “seeing what other bakers/bakery owners charge point… this is specifically to learn what the going rate is in your area. You should NEVER copy other bakers prices. WHY? Because everyone has their own unique costs and standard. The costs of your ingredients may be 5X more than the bakery down the street from you so you should NEVER determine your pricing based on someone’s else’s. Instead, you have to figure out what number makes sense for you.
Profitability Stage: You’re paying yourself but aren’t seeing any business growth.
Don’t get confused! PROFIT isn’t what you pay yourself. Profit is what you REINVEST back into the business so you can buy new fridges, new ovens, a new mixer, pay for ads, take a business course, etc. Achieving profitability should be the ultimate goal for any small business, regardless of the industry. While it WILL take time to get there, it's super important to make it a priority. I recommend aiming for a profit margin of 30 to 60 percent for handcrafted, custom-made items. To reach this goal, you may need to raise your prices, streamline your production process, and be strategic about your product lineup. If you sell 10 cakes per month at $150 minimum that will give you $1,500 versus if you make 100 cake pops a month at $5 each you’re only gonna make $500. So you need to figure out what products make sense for your business, and your capacity. So you can start seeing a profit FASTER.
Here are some tips to MAXIMIZE profit:
Product Lineup - Strategically choose products based on demand and profitability rather than making everything customers request. Most of the time it’s easier to have a set menu so you can control how your business makes money. You’ll also avoid feeling overwhelmed and taking on too many projects, that you don’t even know are profitable.
Expense Management - It’s SUPER important to understand your business expenses and what your numbers look like SO you can make informed decisions and gradually invest more back into the business.
Have a goal- Make goal setting a priority! By having goals in place you’ll hold yourself accountable, you’ll say NO to things that don’t make sense for you financially, and personally, and you’ll keep yourself on track when it comes to your business goals.
As you can see, making money selling cakes is absolutely possible! But it’s going to come down to YOU as the business owner. Understanding your financials, paying yourself a fair wage, and prioritizing profitability are key components of building a successful long-term baking business. By following these tips, you'll set yourself up for success and the ability to achieve your goals.
If making money is a HUGE GOAL for you in your business this year, then I wanna encourage you to get on the waitlist for my 10-week masterclass, Passion To Profit. We only open enrollment two times per year, so get on the waitlist while you can for our spring session!