Many of us are prefer doing business, but not all know which business is good and how to make them profitable. Actually, one of the most profitable businesses is cake making. Baking and designing cakes is an art and the pricing and gaining profits is extremely unique. This business is a better way to earn money and can be started easily both in the village and the city. Interestingly, women too can start this business at home.
But, before entering into any business, it is better to have a piece of knowledge of the Profit margin on Cakes. Basically, the profit margin on the cake business around 25-30% on every product. Profit margins differ from gross profits based on the fact that margins are the profits you make per unit. Gross profits are your total profits.
When investigating profit margins, they often focus on two key expense categories including overhead and manufacturing costs. This helps to make projections based on revenues, sales volumes, different price points. So, for you, deciding your overhead and manufacturing expenses will help you to create more accurate profit projections and budgets.
Before calculating your profit margins at different prices, you must first determine your production and overhead costs. Your production cost is the direct cost you have to make a product or service. For example, if you make a cupcake, your production costs may include flour, butter, vanilla, frosting, wrapping, boxes, and labor. If you provide a service such as landscaping, your production costs may include labor in your landscaping, gas, seeds, and fertilizers.
Overhead expenses are the expenses of running your business. This can include insurance, rent, advertising, computers, furniture, and office staff. Add your total annual expenses to run your business and divide them by 12 to get your monthly overhead costs. This will help you when you have non-monthly bills including bi-monthly utilities, bi-annual insurance premiums, annual property taxes, and much more. If you are able to project the number of units you will produce each month or year, you can decide how much overhead expenses you will have per unit.
Profit margin changes when volume changes
When you sell more or fewer units, your production cost per unit may remain the same but if the volume difference is more than a few units it will most likely go up or down. For instance, if you sell more cupcakes, your production cost per cupcake might not change because you don’t use more flour or butter to make each additional cupcake than you do per cupcake with the first batch.
However, if you order more flour and butter, you will able to receive a discount from your supplier. If your labor costs don’t increase for making extra cupcakes, your profit margin will increase as the extra cupcakes absorb more of your labor costs.
Ways to increase profit on cakes
In order to run a successful cake business, you must know the ways to increase the profits on cakes. First of all, you have to keep in mind that, you are in this business to make money. It may be true, you may love a lot to baking. Because of it, you may doesn’t feel like work. But, to survive in this business, you need to know how to make money through it successfully. So, let’s see.
1. Understand your customers
One of the biggest mistakes done by cake business owners is, they are trying to sell cakes that people do not want to buy. So, if you want to mean profits, don’t do the same mistake. Maybe you want to do something different to stand out from others. But, your cakes must match your ideal customer. So, before considering that you must have to consider the needs of your potential customers.
Once you have an idea about your ideal customer, you can use your all marketing tactics to target that customer base. For instance, if you hope to sell wedding cakes, your target should be brides and young couples; not mothers.
2. Price your Cakes properly
Actually, it is critical to know how to price your cakes. For it, you need to know the cost of ingredients, your labor time, and how much profit you want to make. Do not let the harassment of customers to accept a low price, you are a skilled professional and will have to pay for it. Since it is your business you have to be in charge of how much your cake will cost.
Here’s the video from Chelsweets, those who are experts in this industry, about how to properly price a cake in order to gain profits.
3. Find a product that sells well
You should have to find a product that sells well in your business. This should be something that does not take much time and is easily earned and brings good money to the business. As well as, it is better if your products are ideal for most occasions.
Actually, the better part of this method is, your products are speedy to make, can sell for a good price and have a market.
4. Feature different portion sizes
As we have found in the restaurant industry, delivering small or substandard portion sizes is a good way to attract new customers and make more money from your existing customers. So, the snacking trend is growing. 24% of cake buyers say that they would be interested in individual portion sizes, 20% say mini or bite-sized versions would encourage them to buy more.
5. Consider buying locally-sourced ingredients
Have you ever thought about buying local products to make your cakes? Actually, local ingredients are very important to consumers. The fact is, local products are quickly becoming more important than organic or “all-natural” products.
6. Provide excellent customer service
Actually, you should think that “Customer is the king.” Once a customer feels a great service from you, they will recommend you with their relatives, family members, friends, or someone who is looking for cakes. Make sure to deliver the cake on time and answer their all questions in a pleasant way. If there is a problem, solve it pleasantly in a timely manner. Because customers remember the little things in their minds.
So, If you’ve always loved baking, you might be interested in starting your own cake business under a franchise brand. By doing this, you can take advantage of a tried and tested model and rely on the assistance of industry experts when you set up and operate your unit. Maybe you dream of opening your own bakery, but you are still working out details on how to make that dream a reality. If the issue was the profit margin, so we hope that this article got you covered.