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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 their bakeries out of their home, 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 persons who love baking, who don’t mind working odd hours (for example, the early AM), 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.
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 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.
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.
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 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.
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 SBA’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, check out our informative guide, Sales Tax for Small Businesses.
For more information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
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. Businesses operating out of a physical location typically require 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.
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 who sell beverages, including coffee, juice, etc. are able to bring in considerably more revenue, as it is easier to markup these products. For example, a glass of juice that only costs $0.40 is commonly sold for up to $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.
Offering seasonal deals, and also discounts on bulk orders can increase profits. Breaking into the commercial bakery business by finding nearby cafes and restaurants who would want to purchase your goods wholesale to sell to their customers can drastically expand your sales.