Profit Isn't for Holidays. It's for Keeping Your Cake Business Alive.

One of the comments on a recent Facebook post about how people managed their cake sheds in the recent heatwave really caught my attention.

"I put in a new insulated shed with an under-counter fridge in the spring - without that I'd not have opened."

It's a brilliant example of why I keep banging on about pricing for profit.

Not because profit buys handbags.

Not because profit pays for luxury holidays.

Because profit is what allows you to build a business that's still standing in five years' time. Lots of other bakers (myself included) chose not to open for various reasons.

More on that in "What the Heatwave Taught Me About Running a Cake Shed"

The overriding fear? The unplanned loss of income.

Whilst stock volumes are high, actual profit from a cake shed is low. And by profit, I don't mean turnover. I mean the bit that is left after you've covered ingredients, packaging, overheads (gas, electric, water, admin tools, waste disposal fees, licensing fees...). And I don't mean the bit you keep back for your time - i.e. wages. I mean the little bit we tack on top of all that to keep our businesses running.

Let's revisit the humble school cake...

In a previous blog, I broke down the numbers behind a simple 9" squre school cake. If you haven't read it yet, it's worth a look because the maths surprises most people.

On paper, it looked like this:

Profit before paying yourself: £15.75

This is where most customers stop doing the maths.

Unfortunately, it's also where many bakers stop.

Because £15.75 isn't "extra money".

Your time isn't free

Once you pay yourself just one hour at the current National Living Wage (£12.71 - April 2006), that £15.75 becomes:

£2.29

That's your actual business profit.

Not your wages.

Your profit.

If you paid yourself £15 an hour, there would be just 75p left.

At £20 an hour, you'd be making a loss.

Suddenly the numbers look rather different.

So what is that £2.29 actually for?

This is where people often misunderstand what profit does.

Profit isn't there to fund a shopping trip.

It's there to fund your business.

Let's imagine your cake shed opens once a week.

Perhaps you make eight different bakes, each leaving somewhere between £5 and £10 profit after paying yourself.

Let's be generous and say you've made £50 profit that week.

That sounds pretty healthy.

Until you realise that to open during the next heatwave you need to pay for:

• a £300 fridge (one that is compatible with outside use)

• electricity to run it

• a gazebo to stop it baking in direct sunshine

• signage telling customers you've expanded your chilled range

• cheesecake tins because now you can actually sell cheesecakes

• maintenance when the fridge eventually breaks

• and, one day, a replacement when it reaches the end of its life

That £50 suddenly has quite a long shopping list to cover.

Profit buys resilience

The baker who commented about their insulated shed didn't stay open because they got lucky.

They stayed open because, at some point, they'd generated enough profit to reinvest in the business.

That's what profit does.

It gives you options.

It allows you to adapt.

It helps you cope with heatwaves, replace equipment, improve your customer experience and grow your product range.

Without reinvestment, businesses stagnate.

"But you've already covered your costs..."

Have you?

Or have you just covered your ingredients?

Because ingredients are only one part of running a baking business.

Profit also pays for things like:

• a bigger mixer to allow you to make more cakes at once

• replacing your oven when it breaks

• buying a third 9" square cake tin so you can have two in the oven and one in the fridge with Millionaire's slice in it

• security cameras to reduce the risk of theft from your shed which - in turn impacts your profit

• investing in equipment to run a market stall (a worthwhile but costly pivot)

• the list goes on.

  
  

Because even though baking all day sounds like fun, if you want to do it every day forever, you need to be able to make it sustainable.

And what about your holiday?

Here's the bit people often get backwards.

If I'm paying myself £12.71 an hour, my holiday doesn't come from that £2.29 profit.

It comes from my wages.

The profit stays in the business because the business will need it long before I need a week in Spain. (Well that's up for debate, clearly!)

That's a very different way of thinking about pricing.

The takeaway

When people tell you your prices are "just ingredients plus a bit extra", they're missing almost everything that keeps your business running.

Profit isn't what you take out.

It's what allows your business to survive, improve and still be here next year.

If your pricing doesn't leave enough room to reinvest, you're not building a sustainable business.

You're simply hoping nothing expensive happens.

Ready to dig deeper?

If this has made you look at your pricing differently, these resources are a good next step:

• Download my free Pricing Guide to help you work out your pricing confidently.

• Read my blog breaking down the real cost of a school cake.

• Read why I charged my husband for our daughter's birthday cake (yes, really).

• If you're ready to think differently about pricing altogether, join the waitlist for the Victoria Sponge Theory workshop.

• And if you're wondering why customers still aren't buying even though you've priced correctly, take a look at Why Isn't Anyone Buying?