The crucial step most home bakers miss when setting sales goals

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Setting Sales Goals: The Crucial Step Most Home Bakers Miss

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The most common question I see in baking forums is, “How much should I charge for this cake?”  

Pricing your products can be a big mystery to those just starting to sell their home-based baked goods.  While pricing strategies involve knowing your cost of goods sold, your ideal profit margin, and your overhead costs, most new business owners miss out on one crucial step that should happen before you set your prices!

That step is a Lifestyle Congruence Evaluation in conjunction with the Profit First Methodology.  

Lifestyle Congruence is a concept introduced by Mike Michalowicz in his book, Fix This Next.  It refers to answering the following question:  Do you know what your business sales need to be to support your personal comfort?

Determining this amount is really the first step that should be performed before filling out a business plan. 

It may seem silly, but many new business owners focus so much on setting an arbitrary sales goal (out of the blue), instead of thinking it through at the level that will personally affect them the most!

Instead, it’s better to start with analyzing what your necessary take-home pay needs to be, and then reverse engineer this back to your top-line sales.

This may sound like a difficult and mysterious process, but it’s really pretty simple!


How to perform your own Lifestyle Congruence Evaluation:

Step One: Add up your monthly living expenses OR the amount of take-home pay you’d like from your cake business. 

Step Two: Apply the formula below to determine the sales revenue needed:

[Total from Step One] ÷ [% of revenue you will pay yourself] = Sales Revenue Needed


 

Example:

Step One: Let’s say that your baking business is a side-hustle where you create custom kid’s birthday cakes AND you are looking to bring in an extra $500 per month take-home

Step Two: Using the Profit First system, you allocate *35% of your income as your owner’s pay. *Note: refer to the book Profit First to help you set this percentage for yourself. Now apply the formula:

Here’s how that would look:

$500 ÷ 35% = $1,428.57 (Sales Needed)

So now you have a clear business sales goal that will support your personal income goal.

That’s easy, right?!

Grab the FREE PDF Worksheet Here

So now that you have this number, you can then calculate how many orders you need each month, and what average price you need to charge for them.

For example, if you plan to make 8 cakes per month, you’d need to charge approximately $178 per cake:

$1,428.57 ÷ 8 = $178.57

OR, if you know you’ll charge $200 per cake, you’ll only need to make about 7 cakes per month.

$1,428.57 ÷ 200 = 7.14

Can you see how powerful it is knowing what YOU need first?

Related Post: Powerful Planning Tips for Your Baking Business

I hope this post sheds some light on setting clear and realistic revenue goals for your home-based baking business!  And if you’d like more support or information regarding Fix This Next or Profit First, I’m here to help as a Certified Fix This Next Advisor and a Certified Profit First Professional!

Happy baking and decorating!

–Nicole Bendig-Lamb

For more information on starting or growing your own baking business:  Join Cake Biz Bootcamp!