Business Overview

Baked treats are a specialty of cultural cuisine throughout the world. Who doesn’t love the smell of fresh-baked bread? A bakery business typically operates out of a storefront in the commercial section of a city or town. However, many entrepreneurs have successfully run bakeries out of their homes, attracting customers via word of mouth and small-scale advertising. Still others rent space in a commercial kitchen and distribute their baked goods wholesale to local cafes, restaurants, and convenience stores.

Retail bakeries prepare their items in-house and sell their baked goods directly to customers, with some locations offering seating for their clientele.

Commercial bakeries operate without a physical storefront, acting as suppliers for businesses that wish to sell baked goods, but don’t have the capacity to produce them in-house.

Who is this business right for?

A good baker has mastered the art of baking. It takes dedication over a long period of time to become successful in this business, as there is a lot of competition. As such, the baking business is ideal for people who love baking, who don’t mind working odd hours (for example, early mornings), and who have an artistic side. The best-selling bakeries not only have items that taste great, but also look so appealing that customers simply cannot resist buying them.

What happens during a typical day at a bakery?

As owner of the bakery, your time will likely be spent primarily in the kitchen. Regardless of your unique business model, the most time-consuming activity will be baking. This includes prepping your baking space, putting together the ingredients, watching the ovens to make sure everything cooks just right, and then cleaning up at the end of the day.

Depending on how big your store is and how much staff you have on board, you may also be interacting with customers, operating the cash register, keeping track of business expenses, and developing a marketing strategy to bring more people into your shop.

What is the target market?

A bakery can attract a wide variety of customers. Doughnut chains like Dunkin’ Donuts and Krispy Kreme succeed by offering tasty treats that are affordable for the general public. Doughnut Plant in New York City, on the other hand, offers eggless doughnuts made from fresh, organic ingredients, thus attracting the health-conscious and vegetarian crowd who can afford to pay a slightly higher price for a better quality product.

Depending on your personal interests, values, and skills, you may wish to similarly cater your bakery to a niche market. For example, a bakery specializing in custom cakes will do well advertising to weddings, birthdays, graduations, and retirement parties. Other items, like bagels or fresh bread, could appeal to those who simply want to include high quality baked goods as part of their regular diet.

How does a bakery make money?

Bakeries make a certain amount of profit per item sold. In many bakeries, the revenue from beverages, including coffee, tea, juice, and other specialty drinks, is even greater than the profit from baked goods themselves.

What is the growth potential for a bakery?

Total annual revenue for the retail bakery industry is approximately $3 billion, and in the small commercial bakery industry it is about $7.5 billion. As such, the bakery business is a competitive industry that offers a good chance of financial success to those who can consistently provide their customers with quality products, and who are able to develop their business in a smart way.

You could choose to start a small bakery operation out of your home, taking orders online from members of your local community, and choose to never expand beyond that. Or, if you are a bit more ambitious, you might invest in a storefront, hire a team of employees, and develop your own unique brand, eventually establishing your own franchise.

Getting Started

What are some skills and experiences that will help you build a successful bakery?

First and foremost, you should possess a talent and passion for baking. Your ability to develop recipes for baked treats that people love to eat will be the decisive indicator for the success of your business.

It also helps to be friendly and a people person. A successful bakery is one where locals like to go, and as such it helps if your bakery has a warm and welcoming ambience.

What are the costs involved in opening a bakery?

Costs vary wildly depending on your location, the quality of your ingredients (organic vs. nonorganic, etc.), and the size of your operation. Are you selling baked goods from your home? From a counter inside a shopping mall? Or do you plan to lease your own sit-down venue where people can come and eat a snack, or even a whole meal?

Here is a breakdown of startup costs and monthly expenses from BabyCakes NYC, Erin McKenna’s vegan bakery:

  • Security deposit: $4,000
  • Facility rent and security deposits - $5,000 to start, and $2,000 per month thereafter.
  • Construction / remodeling: $28,250
  • Start-up Inventory: $3,000
  • Cookware: $2,500
  • Permits: $255

Total Start-up costs: $38,005

Read our bakery purchasing guide to learn about the materials and equipment you'll need to start a bakery, how much to budget, and where to make purchases.

What are the steps to start a bakery?

Once you're ready to start your bakery, follow these steps to ensure that your business is legally compliant and avoid wasting time and money as your business grows:

STEP 1: Plan your Business

A clear plan is essential for success as an entrepreneur. A few important topics to consider are:

  • What are the initial costs?
  • Who is your target market?
  • How long it will take you to break even?
  • What will you name your business?

Choosing the right name is very important. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.

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STEP 2. Form a legal entity

Establishing a legal business entity such as an LLC prevents you from being personally liable if your security guard company is sued. Consider using a registered agent service to help protect your privacy and stay compliant.

STEP 3. Register for taxes

You will need to register for a variety of state and federal taxes before you can open for business.

STEP 4. Open a business bank account

Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.

STEP 5. Set up business accounting

Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.

STEP 6. Obtain necessary permits and licenses

Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.

STEP 7. Get Business Insurance

Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.

STEP 8. Define your brand.

Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.

STEP 9. Establish your Web Presence

A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.

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Select your state below for an in-depth guide on completing each of these steps in your home state.

Where can I find a business mentor?

One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.

Having a support network in place to turn to during tough times is a major factor of success for new business owners.

What are some insider tips for jump starting a bakery?

Starting a bakery from scratch is a lot of work. Granted, it can be a fun and rewarding experience for those who have an adventurous spirit and know a thing or two about the business. However, it may be a better to purchase an existing bakery so you can jump in with everything already in place.

Growing Your Business

How to promote & market a bakery

In the food industry, the best way to promote your business is to provide a winning customer experience. This means that the menu should have a variety of tasty options, the pricing should accurately reflect the quality of ingredients, and the overall aesthetic of the bakery should appeal to your target audience. Succeeding in these areas keeps customers coming back for more, often with friends who may become new regulars. This kind of word-of-mouth promotion is the best marketing strategy a food business could ever ask for.

Another great way to get your brand out there is to invite local news and food-related publications to do a review of your shop.

Finally, coming out with new flavors and baked treats on a regular basis encourages repeat customers to stop by and taste your latest creations. Selling holiday-themed treats, like pink Valentine’s Day frosted cookies, or sticky rice cakes to celebrate the Chinese New Year, is another great way to attract new customers.

Recommended: Get started with local advertising for your business with a $300 credit from Yelp.

How to keep customers coming back

Never let your menu grow stale. Keep track of your best-selling items, and also take note of those that repeatedly fall short of your sales goals. By changing the menu to make sure every product is a winner, you’ll be sure to develop a steady stream of customers.

How and when to build a team

The timing of expanding your team all depends on your unique business model. A good friend of mine started his own bakery business, Maha Muffin Co., by renting out a small space in a commercial kitchen. For the past seven years he has done all the work on his own, from purchasing ingredients, to baking, to finding clientele among local cafes and restaurants, and making deliveries.

While working as a small-scale commercial baker, you can do a lot on your own, or with one or two assistants. However, as soon as you open a physical shop, you will need a team to help in the kitchen and at the counter.

In 2015, BabyCakes NYC paid its full-time staff members $500-600 per week, and the owner was working 12-hour days. Now, BabyCakes NYC has three locations across the United States, and is on its way to becoming a recognized franchise.

Read our bakery hiring guide to learn about the different roles a bakery typically fills, how much to budget for employee salaries, and how to build your team exactly how you want it.

Legal Considerations

Federal Business Licensing Requirements

There are federal regulations regarding what can and cannot be added to, sold as, and processed with food. Attached is a resource from the Food and Drug Administration detailing the process of starting a food business: How to Start a Food Business

State & Local Business Licensing Requirements

State permits and licenses are typically needed to operate a bakery business. Learn more about licensing requirements in your state by visiting the Small Business Administration’s reference to state licenses and permits.

In addition, when selling food, you will need licensing from a local health department; all establishments serving food are required to pass a health inspection. Tips for faring well on a health inspection can be found here.

Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.

For more information about local licenses and permits:

Maintain Personal Asset Protection

Don’t think that just forming an LLC, or any other type of business, will save your personal assets in case of a lawsuit or other matter by itself.

When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your LLC is sued. In business law, this is referred to as piercing your corporate veil.

Two of the simplest steps that will protect your business, and yourself, are to:

Open a business bank account

  • This separates your personal assets from your company's assets, which is necessary for personal asset protection.

  • It also makes accounting and tax filing easier.

Get a business credit card

  • This helps you separate personal and business expenses by putting your business' expenses all in one place.
  • It also builds your company's credit history, which can be useful to raise money and investment later on.
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To learn more about maintaining your LLC's corporate veil, read our guide and protect your personal assets.

Certificate of Occupancy

If you plan to run this business out of a commercial kitchen, as many owners do, you will need a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.

  • If you plan to lease a location:
    • It is generally the landlord’s responsibility to obtain a CO.
    • Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a business involved in food preparation.
    • After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
  • If you plan to purchase or build a commercial kitchen:
    • You will be responsible for obtaining a valid CO from a local government authority.
    • Review all building codes and zoning requirements for your business’ location to ensure your bakery business will be in compliance and able to obtain a CO.

Earning Potential

How much can you charge customers?

Individual baked goods generally range from $2.00 to $5.00, depending on the cost of ingredients and also the demographic where your shop is located. In general the cost of labor and ingredients should be around 30-50% of the final sale cost. This means a treat that costs $1.50 to make could sell for anywhere from $3.00 to $4.50.

What are the ongoing expenses for a bakery?

As with your start-up costs, your monthly expenses will largely depend on your location, the quality of ingredients you use, and also the size of your team.

Here’s a breakdown of BabyCakes NYC’s average monthly running costs from 2015:

  • Rent & utilities: $2,800
  • Employees’ pay: $5,143
  • Raw ingredients: $3,000
  • Insurance: $700

Average monthly expenses: $11,643

How much profit can a bakery make?

According to the American Institute of Baking, typical bakeries bring in anywhere from $30,000 to $60,000 in annual profit from the sale of baked goods. Those that sell beverages, including coffee or juice, are able to bring in considerably more revenue, as it is easier to mark up these products. For example, a glass of juice that only costs $0.40 is commonly sold for around $2.00.

How can you make your business more profitable?

Serving coffee, lattes, and other specialty drinks is by far the quickest and most effective way to increase your revenue. People often order coffee or tea along with their baked treats, and it is easier to make a profit from drinks than from baked goods, simply for the reason that they require far less labor to produce.

Consider offering seasonal deals, and also discounts on bulk orders, to increase profits. Breaking into the commercial bakery business, by finding nearby cafes and restaurants that want to purchase your goods wholesale to sell to their customers, can drastically expand your sales.

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