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Cupcake shops can be structured in a number of different ways, depending upon the goals and business plan of the entrepreneur. They may involve a brick-and-mortar storefront, a delivery service, selling directly to other businesses like restaurants and shops, or a combination of all three. Retail and delivery businesses are currently leading the cupcake trend. What they all have in common, is the ability to bring a smile to their customer’s faces by way of the delectable baked treats they provide.
Who is this business right for?
Are you consistently assigned the task of bringing cupcakes to every family and friends event? Does everyone praise your baking skills? Have you ever thought about how wonderful it would be to be your own boss? If you answered “yes” to these questions, and genuinely enjoy the art of baking, starting a cupcake business might be your path to personal and professional freedom.
What happens during a typical day at a cupcake business?
Your day will be centered around baking. Once you know your baking goals for the day, you’ll enter the kitchen and bake. After the cupcakes are ready, you’ll either display them in your shop or package them for delivery or pickup. The kitchen should be thoroughly cleaned and put back together in preparation for filling the next order. When not filling orders or stocking the shelves, most shop owners work on perfecting new recipes, flavors, and designs.
Downtime from baking is spent on light office duties. Books are balanced and inventory is restocked. Phone calls are returned and marketing strategies are tweaked and implemented. A cake shop owner’s day is long and active. But how fulfilling to see the pleasure on a customer’s face as they take a bite out of your creations!
What is the target market?
Perhaps the most important thing to consider when starting a cupcake business is the niche market that will make your cupcakes stand out from standard bakeries and other cupcake businesses. Niches include organic cupcakes, vegan products, and gluten free options. Once you’ve identified your target niche, you’ll have a better understanding of your preferred customer type, as well as how to market to them. The one thing they all share - their love of cupcakes.
How does a cupcake business make money?
Regardless of how you decide to structure the business, your profit will be made through the sale of each cupcake. Similar to donut shops, most offer special pricing for orders of a dozen or more cupcakes.
What is the growth potential for a cupcake business?
Most cupcake business owners start out small-scale. In fact, a vast majority of them work out of their home until they outgrow the space. But your business doesn’t have to be limited to a small, local business. Like Gigi Butler, founder of Gigi’s Cupcakes, there are multiple opportunities aspiring cupcake shop owners can pursue to grow their business on a national scale.
What are some skills and experiences that will help you build a successful cupcake business?
While not a seasonal business, the market has become saturated with cupcake shops in the last few years. There’s still room for success, but this reality makes it a much more competitive market. A knack for baking and cupcake decorating is, obviously, a critical skill. But it takes much more than a great cupcake to succeed in this business.
Creativity and a natural ability to blend flavors, textures, and colors is important for long-term growth and success. Consumers want something special to represent their loved one’s celebrated event, or simply for a tasty treat to wash away a bad day. Whatever the occasion, they’re looking to you to deliver a product that is both delicious and memorable.
Running a successful cupcake shop isn’t just about being in the kitchen. It requires commitment and strong business management skills. Networking and an understanding of people and their confectionery needs is critical for long-term growth. It also means understanding you cannot do it all. At some point, you’ll need to hire outside help, which means letting go and delegating with confidence.
What are the costs involved in opening a cupcake business?
You’ll first need to decide if you’d like to invest in a cupcake franchise or start your own cupcake business from the ground up. Yummy Cupcakes and Gigi’s Cupcakes both offer wonderful franchising opportunities. Take the time to consider your options and ensure you’re making a sound business decision; one that aligns with your overall vision for the company.
Start-up costs vary, depending upon your business model. Will you be offering cupcake delivery or a full-blown storefront? Will you work out of your home kitchen or are you envisioning an industrial kitchen? Below is a list of materials you’ll need, with actual cost ranging anywhere from $50,000 to $300,000.
- Rental space, outfitted with all the necessities of a commercial kitchen
- Baking equipment and kitchen gadgets
- Marketing and other standard business expenses
- Accounting and CRM software applications for proper management of accounts
What are the steps to start a cupcake business?
Once you're ready to start your cupcake business, follow these steps to ensure that your business is legally compliant and avoid wasting time and money as your business grows:
- Plan your business. A clear plan is essential for success as an entrepreneur. A few important topics to consider are your initial costs, your target market, and how long it will take you to break even.
- Form a legal entity. Establishing a legal business entity prevents you from being personally liable if your cupcake business is sued.
- Register for taxes. You will need to register for a variety of state and federal taxes before you can open for business.
- Open a business bank account. A dedicated checking account for your cupcake business keeps your finances organized and makes your business appear more professional to your customers.
- 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.
- 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.
- 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.
- 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.
- Establish a 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. Save 15% when you create a business website with Weebly.
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 cupcake business?
- Due to a saturated market, storefront location is critical to your overall success. If your focus is on cupcake delivery, make sure your website is intuitive and user-friendly.
- Invest in items on an as-needed basis.
- Your success is defined by how consistently you produce quality products. When you find the perfect ingredient brand, stick with it.
- Proper pricing is important. Find the right balance - you don’t want to undercut everyone else in the community, but you also need to avoid inflated prices.
- To hit the sweet spot with pricing and ensure maximized profit, consider buying ingredients in bulk or from a wholesale distributor.
- When starting out, select a few tried-and-true recipes.
- Packaging is an important component, as it reflects your brand.
How to promote & market a cupcake business
Let the product speak for itself. Start baking and let everyone have a taste. Attach a business card to each cupcake. This gets the word out and, shares your contact information with those who show interest.
Put flyers up at local shopping malls and distribute them as mailers throughout your community. Attend local charity events and get listed as a sponsor - everyone loves a business that gives back to the community.
Network with event managers and wedding planners, as they’re in constant need of the product you carry. Advertise in food and business mailers, on local radio and TV stations, and list your business in all local directories. Join the [Cupcake Bakers Association] to receive industry tips and a featured listing on their website. Maintain an online presence on social media platforms such as Facebook and Instagram, where you can share specials and announce new products.
Go where your niche customers are. If you specialize in fresh ingredients, head out to the farmer’s market. This will help build your brand, gain a loyal following, and enable you to build relationships with other entrepreneurs in the community.
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How to keep customers coming back
Building a customer base requires the perfect “recipe” - great taste, a variety of flavors, creative designs, and excellent customer service. To consistently appeal to your target demographic, ask for feedback. When you have a new product, ask them to be your taste-testers. Consider their input and tweak recipes accordingly. The interest you take in your customers will go a long way in ensuring positive word-of-mouth.
How and when to build a team
Many cupcake business owners start out with just friends and family assisting. As your business starts to grow, however, you’ll quickly realize you need a team. Many bakers have found success offering internships to culinary students. They receive the training and credits needed and you receive help at a bargain price.
No matter who you decide to add to your team, your success if contingent on everyone being on the same page. Hold regular meetings to ensure everyone is clear regarding your business goals, and that concerns, challenges, and feedback are discussed. Encourage employees to pursue specialized certifications and consider sponsoring them as they work towards their goals. If you invest in their future, they’ll invest in yours.
Federal Business Licensing Requirements
There are federal regulations regarding what can and cannot be added to, sold as, and processed with food. Here is a resource from the Food and Drug Administration detailing the process of starting a food business.
State & Local Business Licensing Requirements
State permits and licenses are typically needed to operate a cupcake 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, read our article, Sales Tax for Small Businesses.
Other local licensing or regulatory requirements may also apply. 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
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.
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 cupcake business will be in compliance and able to obtain a CO.
How much can you charge customers?
Pricing varies, depending upon location and demographic. Customers are paying almost $5/cupcake in New York, while $3.50 is the average in other parts of the country. Many bakers offer reduced prices for a dozen or more cupcakes. Keep your prices competitive and include all your expenses when crafting your price list.
What are the ongoing expenses for a cupcake business?
Ongoing expenses include cupcake ingredients, packaging, and promotional items. If you have a storefront, you’ll also face the standard overhead costs of rent and utilities. If delivery is part of your business plan, budget for higher fuel and insurance costs, as well as vehicle payments and repair costs.
How much profit can a cupcake business make?
There’s an opportunity to turn a real profit in the cupcake business; it all depends upon your vision and how much you’re willing to put into it. Some choose to maintain a small, mom-and-pop atmosphere, while others envision a franchise in their future. Those who have pursued the franchising path are currently multi-millionaires, while others are content with an annual profit of $35,000-$50,000.
How can you make your business more profitable?
The following are a few strategies you can implement to ensure a more profitable business:
- Teach classes, where students learn how to bake and decorate cupcakes. Just don’t give away your secret recipes!
- Offer additional baked goods such as cookies, cakes, and pies.
- Coffee is a great addition to any cupcake shop.
- Network with local party venues, wedding and party planners, and coffee shops.
- Set up a “cupcake ATM,” which is a kiosk dedicated to the sale of cupcakes.