The process of setting a price for goods and services is never an easy task. The cost to manufacture or acquire the item must be considered, including any raw material and labor costs. With profitability being the ultimate goal, it's a fine line between pricing something like cakes at a price that will sell or one that is too high for the consumer to swallow. Determining the right market, reviewing the prices that similar cakes are selling for and taking all of your expenses into account are the considerations that must be figured to determine the right selling price for your cakes.

## Step 1.

Determine the market for your cakes. Is your location in an area where there are no other bakeries or grocery stores around for miles or are you in a strip shopping center that has a grocery store three doors down? Figure your competition into the pricing structure for your cakes.

## Step 2.

Review the competition's prices. Go around to other bake shops and grocery stores and see what their cakes are selling for. Ask questions, without seeming like you are spying, to determine how the cakes were made and what ingredients were used.

## Step 3.

Review the costs that went into making your cakes. Include raw materials, such as flour and eggs; labor costs -- even if you made the cakes yourself; packaging and, if necessary, shipping and handling costs (if you sell via mail order or from a website); and overhead costs, such as rent, utilities and advertising. Determine how much it cost you to make each individual cake.

## Step 4.

Decide how much of a profit you need to be successful. Choose to make a set amount on each cake (say, \$3 above what the cake's total costs were) or base it on a percentage that will fluctuate depending on the cost of the cake. For example, if you make a 1/4 sheet cake that costs you \$3 to make, you can either price it at \$8 for a straight \$5 profit, or set a percentage, such as 50 percent, which will have you selling the cake for \$7.50. Then, when you sell a whole sheet cake that costs \$12 to make, you can either sell it for \$17 (for straight profit) or \$18 (for 50 percent profit).

## Step 5.

Select a higher price to sell slices of cake for because once a cake sliced, it cannot be sold except in slices. Consider lowering your prices for day-old cakes in order to sell them without losing money.