What #cakegate tells us about small business pricing

Find out what #cakegate reveals about small business pricing, and how you can ensure you don’t undervalue what you do.

If you’ve been keeping up with the news in the UK over the past two weeks, you will probably have seen the story about the baker who called out a request for free cakes for a celebrity.

Here’s the story of what has come to be known as #cakegate in a nutshell, in case you missed it. Rebecca Severs, owner of small business Three Little Birds Bakery received an email from a company asking her to make a 40th birthday cake, 100 cupcakes and a smaller birthday cake for a “local “well-known celebrity”.

The email explained that “payment would be made in the form of promotion on their social with other 700k followers, as well as promoted in OK magazine.”

Rebecca, understandably, was not impressed with this proposal. In her reply, which she later shared on social media, she explained, “Unfortunately as my mortgage provider doesn’t take payment ‘in the form of promotion on their socials’, and my staff can’t feed their kids with exposure on Instagram, I’ll have to decline your very generous offer.”

The story subsequently went viral, with many people backing Rebecca’s stance – as I do. It is incredible to us that a celebrity (or a company acting on their behalf) thinks it is acceptable to ask a small business to provide labour and materials for free.

These cakes could easily have been paid for. And if not, then why request them? If you cannot afford to pay for birthday cakes, then make your own or go without.

“Pricing correctly in a small business is very difficult”

I do understand that in the world of social media influencers today, promotion has become a form of currency. But as Rebecca points out in this excellent blog about the story, it’s a scenario that is sometimes abused.

As important as that issue is. though, it’s not the reason why I am writing this article. In her blog Rebecca makes several excellent points about the financial struggles of small businesses. And one thing really stood out for me. Here’s what she says:

“Pricing correctly in a small business is very difficult. I know personally at least two sole traders who are afraid to work out their costs because they know they are undercharging. Many do not even pay themselves minimum wage, let alone a wage that reflects their skill level.

“…Every quote that’s knocked back, every comment that’s made, every time you press the delete button and write a lower number in there – that all adds up to a lot of emotional baggage.

“So when someone slides into your DMs asking for something for “free” – for a lot of us our immediate gut reaction might be – oh, so we aren’t worth it. We aren’t worth what we’re charging, so how could we possibly ever charge more. People don’t value us. I don’t value me. And so the cycle continues. And actually, this deepens the financial impact even more, ultimately.”

This, to me, is a bigger part of the story and why, perhaps, it has hit such a nerve with people.

In my experience working with freelancers and small business owners, too many highly experienced, qualified and talented people struggle with pricing.

It’s not uncommon to see people underprice their offering to the point they are earning less than minimum wage. And as Rebecca observes, when people and companies challenge pricing or ask for something for free, it compounds the sense that what you are offering might have less value.

How to avoid the small business pricing trap

Over the years I have helped dozens of freelancers and small business owners price correctly and with confidence. And I thought it might be helpful to share some of the advice that has worked for them with you now, in case this is something you too struggle with.

So here is how to avoid the small business pricing trap.

Make sure your pricing is accurate

Too many entrepreneurs don’t know how to price correctly. And, rather than base their pricing on anything concrete, they often guess how much to charge. There are two key issues with this:

  1. You may not actually make a profit as your expenses could be higher than you are charging.
  2. It is hard to stand by your pricing with confidence when you know you’ve pretty much made it up.

So what should you do instead? Make sure you include ALL your expenses when working out your pricing. This includes your business running costs, such as WiFi, etc, your direct costs for making, delivering and providing your offering, and your time.

Then consider where you sit in the marketplace. Are you a low quality, low value offering, or are you an exclusive, high value offering? Put more simply: are you more Poundland or Harrods?

Then look at what the market is charging, and specifically what the businesses who sit around your quality level charge. You need to ensure that your pricing is appropriate for where you sit in the market.

Know your hourly rate

One number you absolutely need to know when working for yourself is your hourly rate. Because, as we’ve already mentioned, you need to include your time when working out your pricing. And to charge fr your time, you need to know what your hourly rate has to be.

Many people find this tricky to work out so to help you, we’ve built this free freelance hourly rate calculator that does it for you. Just follow the easy instructions and it will tell you what you need to charge per hour. It’s suitable for freelancers and small business owners.

Don’t be tempted to reduce your prices to attract customers

Another mistake small businesses make is assuming that people are looking for the cheapest option. So, to attract more customers they reduce their prices.

This is usually an expensive mistake. Why? Because most people want value for money. This means they will have a minimum level of quantity in mind, and are looking for a provider who meets that level. And pricing is an important means of assessing the quality of an offering.

Think about it: we are used to associating high prices with better quality. You know that a cheap £1 t-shirt from Primark won’t be as high quality as a £30 high street top or a £100 designer t-shirt. So if you are looking for good quality t-shirt, you won’t buy from Primark.

The misconception many business owners have is that if they charge less, they’ll attract more of their ideal customers. But they won’t. By lowering your prices you’ll put off people who assume that what you do is lower value. And instead you’ll attract bargain hunters who don’t care about quality. This is why people who are cheap often attract more difficult customers.

So make sure you price for the value you offer. If you have got your marketing right you’ll have no problem attracting people who will be happy to pay your prices.

Use triplicate of choice

The more you charge for your offering, the higher your value will be perceived to be, and the more profit you can potentially make. But how can you increase your prices without putting off customers? The most democratic way to increase your prices is to use the triplicate of choice.

You’ve seen the triplicate of choice in action many times. It’s basically offering customers a choice of different priced options. Here’s an example of what an accountant might offer:

So how does this help you with your pricing? By using the triplicate of choice you can still offer a more pared down, lower value product or service for customers who can’t afford to or don’t want to pay more, while giving customers who do have the budget a more premium option.

This avoids the issue of undervaluing your offering in an effort to attract custom, and prevents you from missing out on clients or customers who want higher value product or experience.

If you don’t already offer a range of pricing options or packages, it might be an idea to consider putting one together.

Don’t be afraid to say no

Sometimes you will get enquires from people who might challenge your pricing. Not necessarily to the extent where they ask you to work for free, like Rebecca, but they might haggle with you and ask you to work for less. Or they might ask you to do more than you quoted for once you start working together (this is known as service creep).

There are some good reasons why you should say no if a client or customer attempts to haggle with you. It could be that they don’t value what you do – if they did they’d pay what you ask for. Cheaper customers also tend to be more difficult because they are focused not on the quality of output but on getting the most they can for the least money.

Don’t feel bad about turning someone down. If they can’t afford you then they need to find someone else. I’m sure there are things you’d like but can’t afford, too. And if you take cheap work from cheap customers or clients, you probably won’t ever be able to afford them!

The exception to reducing your prices might be if a client requests a larger body of work, or a customer enquires about a bulk or regular order. In these circumstances it’s normal to negotiate, but always make sure you are still earning enough.

Don’t work for free – or undervalue yourself

We don’t believe that anyone should work for free, or for less than they are worth. But unless you know how much you should be charging, there is a risk that is exactly what will happen.

If you don’t respect yourself enough to stand up for the rates you have decided are appropriate for your offering then your clients or customers won’t. So please do heed our advice in this article. And follow the example of Three Little Birds Bakery and stand up for what your business is worth. You absolutely deserve it.