Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.
David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.
Published on December 8, 2021 Updated on July 5, 2024
Fast Facts
Investment range
$3,650 - $33,100
Revenue potential
$78,000 - $390,000 p.a.
Time to build
0 – 3 Months
Profit potential
$55,000 - $78,000 p.a.
Industry trend
Growing
Commitment
Flexible
Here are the most important factors to consider when opening a bakery:
Location — Find a location with high foot traffic such as busy streets, near a market, or close to popular stores and cafes to attract impulse purchases and local customers.
Licenses — You will need to pass a health inspection and get the food service license. Also, depending on the location the local fire department might need to inspect and approve your facilities.
Equipment — Invest in high-quality equipment for preparation, baking, and storage such as ovens, mixers, proofers, display cases, baking pans, sheets, etc.
Target audience — Get to know your local community and their food preferences as they will be your target market.
Theme and specialties — Stand out with a thematic or specialty bakery by offering products such as artisan breads, health-focused products, ethnic or cultural products, or seasonal offers.
Ingredient sourcing —Find reputable suppliers for fresh ingredients.
Staff — Hire educated and experienced staff. Look for professionals who are aware of your products, target audience, and possible information on allergens.
Probably, but you should check with your state and local government to see if there are restrictions and what permits you need. Your state may require inspections of your home bakery, and you may need a food safety certificate.
Is owning a bakery profitable?
A home bakery can have profit margins as high as 70%. If you have a commercial space, you’re likely to have a profit margin of around 20%. With a great location, your revenue could easily be in the six figures, so yes, a bakery can make good money!
How can I attract customers if I have a home bakery?
Rely on your network! Bring in friends and family customers, and have them promote your goods with word-of-mouth referrals. Create a website and advertise often on social media with pictures of your creations and customer testimonials. Once you get some traction, you may get more business than you can handle!
Is baking a hard career?
Baking can be a challenging career that requires skill, precision, creativity, and dedication to continuous learning. It involves mastering various techniques, understanding ingredient interactions, and keeping up with industry trends.
How can I differentiate my bakery from competitors in the market?
To differentiate your bakery from competitors, focus on unique offerings, exceptional quality, personalized customer experiences, creative branding and marketing, and community involvement. Develop signature recipes or unique flavor combinations, emphasize high-quality ingredients, provide personalized service, create a distinct brand identity, and engage with the local community.
What are some effective ways to attract and retain customers for my bakery?
Effective ways to attract and retain customers for your bakery include establishing an online presence through a professional website and active social media accounts, creating visually appealing displays and packaging, offering samples and promotions, implementing customer loyalty programs, maintaining consistent quality and taste, and providing excellent customer service.
What bakery items sell the most?
Some popular bakery items include bread (such as artisan loaves or specialty bread), pastries (such as croissants, danishes, and muffins), cakes (including birthday cakes and wedding cakes), cookies, cupcakes, and specialty desserts like macarons or eclairs.
Step 1: Decide if the Business Is Right for You
Pros and Cons
Every business has pros and cons, and a bakery is no exception. You need to weigh these carefully to decide if starting a bakery is right for you.
Pros
Self-expression — Do what you love; choose what to bake
Build Community — A good bakery becomes a gathering place
Low startup costs — Start baking at home with little investment
Cons
Early bird — Retail bakeries start baking as early as 5 am
Limited profit — Inflation and spoilage will cut into your margins
Bakery Industry Trends
US bakeries are expected to perform well as the economy improves and consumer spending increases.
Average level of education —31% of bakers have a high school diploma, 26% hold a bachelor’s degree, and another 26% have an associate degree.((https://www.zippia.com/baker-jobs/education/))
Startup costs for a bakery range from about $3,500 to over $30,000, with an average of around $18,000. The low end reflects a bakery started at home, while the high end includes renting a commercial space.
You’ll need a handful of items to successfully launch your bakery. Here’s a list to help you get started:
Mixers
Oven
Bakeware
Bread slicer
Refrigerator
Startup Costs
Ballpark Range
Average
Setting up a business name and corporation
$150–$200
$175
Licenses and permits
$200–$300
$250
Insurance
$100–$300
$200
Business cards and brochures
$200–$300
$250
Website setup
$1,000–$3,000
$2,000
Location security deposit
$0–$5,000
$2,500
Site preparation and equipment
$0–$20,000
$10,000
Bakeware
$1,500–$2,500
$2,000
Initial inventory
$500–$1,500
$1,000
Total
$3,650–$33,100
$18,375
How Much Can You Earn From a Bakery?
The average profit margin for a retail bakery is about 10–20%, while a home-based bakery could have a margin of around 70%.
In your first year or two, you could work from home and sell an average of $1,500 in baked goods each week, bringing in $78,000 in annual revenue. This would mean nearly $55,000 in profit, assuming that 70% margin.
As your brand gains recognition, sales could grow and you would rent a commercial space and hire staff, reducing your margin to 20%. If you do $7,500 in weekly sales, you’ll have an annual revenue of $390,000 and a tidy profit of $78,000.
What Barriers to Entry Are There?
There are a few barriers to entry for a bakery business. Your biggest challenges will be:
Competition — Local bakeries and cafes, national chains like Dunkin Donuts and Starbucks, supermarkets, and convenience stores
Building a name — Strong marketing will be needed to draw customers
Related Business Ideas
If you’re still not sure whether this business idea is the right choice for you, here are some related business opportunities to help you on your path to entrepreneurial success.
Step by Step Business values real-life experience above all. Through our Entrepreneur Spotlight Series, we interview business leaders from diverse industries, providing readers with firsthand insights.
We have interviewed Ayham Haddad of Mahalab Bakery in Somerville, Massachusetts and how he got into the world of baking. Dive into our interview with him for valuable tips and insights on starting a bakery.
Also, take a look at our interview with Rebecca Miller to discover the secrets of building a successful pie business from scratch and the lessons she’s baked into her journey!
Now that you know what’s involved in starting a bakery, it’s a good idea to hone your concept in preparation to enter a competitive market.
Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.
Why? Identify an Opportunity
Research bakeries, cafes, and supermarkets in your area to see their baked goods offerings and prices, and which are most popular. Look at what’s trending in the bakery market and determine what’s missing in your area because you’re looking for a market gap to fill. Maybe your town lacks a gluten-free or vegan bakery, or maybe it craves a good cronut and doesn’t even know it. An online bakery is also becoming a very popular format.
What? Determine Your Bakery Products and Menu
You should probably start with extensive product testing among family and friends. Whip up batches of your favorite muffins, cupcakes, brownies, and sourdough for everybody to try. The items people like best will be on your menu.
If you’re opening a bakery shop, you’ll also want to offer a variety of beverages, starting with coffee.
Either a shop or a home-based bakery should be open to custom orders, such as birthday cakes and cookies, or catering for an office meeting with an assortment of baked goods.
How Much Should You Charge for Baked Goods?
Here are some average prices of baked goods:
Custom cakes — $100
Wedding cakes — $500
Dozen muffins or donuts — $10
Bread loaf — $2.5
Pies — $20
You should check your competitors’ prices and aim for something competitive or even better. Once you know your costs, you can use our profit margin calculator to determine your markup and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.
Who? Identify Your Target Market
Your target market will depend on what kind of bakery you’ve chosen. If you choose a gluten-free or vegan concept, your target market may be a younger demographic. You can find those people on sites like Instagram that also target younger people.
Where? Choose Your Bakery Location
Choosing the right location for your bakery is vital to its success. Look for a spot with high visibility and foot traffic, such as a busy commercial area or a neighborhood with a strong customer base. You can find commercial space to rent in your area on Craigslist, Crexi, and Commercial Cafe.
Consider nearby complementary businesses like cafes or grocery stores that can help drive additional traffic to your bakery. Additionally, assess the demographics of the area to ensure there is a demand for bakery products.
By selecting a strategic location, you can attract a steady flow of customers and establish your bakery as a go-to destination for delicious treats and baked goods.
Step 3: Brainstorm a Bakery Name
Here are some ideas for brainstorming your business name:
Short, unique, and catchy names tend to stand out
Names that are easy to say and spell tend to do better
The name should be relevant to your product or service offerings
Ask around — family, friends, colleagues, social media — for suggestions
Including keywords, such as “bakery” or “baked goods,” boosts SEO
Choose a name that allows for expansion: “Jim’s Bakery” over “Jim’s Cookies”
A location-based name can help establish a strong connection with your local community and help with the SEO but might hinder future expansion
Discover over 390 unique bakery name ideas here. If you want your business name to include specific keywords, you can also use our bakery business name generator. Just type in a few keywords, hit Generate, and you’ll have dozens of suggestions at your fingertips.
Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.
Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that set your business apart. Once you start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.
Executive summary — A brief overview of your bakery business, highlighting key aspects and objectives
Business overview — Detailed information on your bakery, including its mission, vision, location, and legal structure
Product and services — Outline of the bakery items and services you offer, emphasizing uniqueness and quality
Market analysis — Examination of the target market, customer needs, and trends influencing the bakery industry
Competitive analysis — Evaluation of competitors in the local bakery market, emphasizing strengths and differentiators
Sales and marketing — Strategies for promoting and selling bakery products, encompassing pricing, distribution, and promotional tactics
Management team — Introduction to key members of your bakery business, their roles, and relevant experience
Operations plan — Details on day-to-day activities, including production, suppliers, and facility management for the bakery
Financial plan — Projections of income, expenses, and profits, including startup costs and funding sources for the bakery
Appendix — Supplementary information, such as resumes, permits, and additional documentation supporting the bakery business plan
If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.
Step 5: Register Your Bakery Business
Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.
Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!
Choose where to register your company
Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as some states might offer real advantages when it comes to bakeries.
If you’re willing to move, you could really maximize your business! Keep in mind that it’s relatively easy to transfer your business to another state.
Choose Your Business Structure
Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your bakery will shape your taxes, personal liability, and business registration requirements, so choose wisely.
Here are the main options:
Sole proprietorship — The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
General partnership — Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
Limited Liability Company (LLC)— Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.
C Corporation — Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation.
S Corporation — This refers to the tax classification of the business but is not a business entity. An S Corp can be either a corporation or an LLC, which just needs to elect this structure for tax status. In an S Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.
We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.
The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online, or by mail/fax. Visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.
Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.
The IRS website also offers a tax-payers checklist, and taxes can be filed online.
It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.
Step 7: Fund Your Business
Securing financing is your next step and there are plenty of ways to raise capital:
Bank loans — This is the most common method, but getting approved requires a rock-solid business plan and a strong credit history.
SBA-guaranteed loans — The Small Business Administration can act as a guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
Government grants — A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
Friends and family — Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
Crowdfunding — Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
Personal — Self-fund your business via your savings or the sale of property or other assets.
Bank and SBA loans are probably the best options, other than friends and family, for funding a bakery. You might also try crowdfunding if you have an innovative concept.
Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits.
You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more.
Depending on your location, you might need a permit to sell food to the public. If you plan to make and sell items that contain alcohol (like certain types of cakes or pastries), you might need a liquor license.
Since you’re dealing with food, your bakery will need to be inspected and approved by the local health department. This ensures that you maintain sanitary conditions and follow food safety regulations.
You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.
This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties.
If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.
Before you start making money you’ll need a place to keep it, and that requires opening a bank account.
Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your bakery as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.
Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.
Step 10: Get Business Insurance
Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.
Here are some types of insurance to consider:
General liability — The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
Business property — Provides coverage for your equipment and supplies.
Equipment breakdown insurance — Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
Worker’s compensation — Provides compensation to employees injured on the job.
Property — Covers your physical space, whether it is a cart, storefront, or office.
Commercial auto — Protection for your company-owned vehicle.
Professional liability — Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
Business owner’s policy (BOP) — This is an insurance plan that acts as an all-in-one insurance policy, a combination of any of the above insurance types.
As opening day nears, prepare for launch by reviewing and improving some key elements of your business.
Essential Software and Tools
Being an entrepreneur often means wearing many hats — from marketing to sales to accounting — which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.
You may want to use industry-specific software, such as aptean, Cybake, or Flexibake, to track customer orders, inventory, and nutritional content.
Popular web-based accounting programs for smaller businesses include Quickbooks, FreshBooks, and Xero.
If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences of filing incorrect tax documents can be harsh, so accuracy is crucial.
Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism.
You can create your own website using website builders. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech savvy, you can hire a web designer or developer to create a custom website for your business.
However, people are unlikely to find your website unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google.
Marketing
Here are some powerful marketing strategies for your future business:
Local SEO — Ensure your Google My Business and Yelp profiles are up-to-date to attract local customers and enhance your search rankings.
Social media strategy — Develop tailored content for platforms like Facebook for community building, Instagram for visual engagement, and Twitter for customer interaction.
Website and SEO — Optimize your bakery’s website with a user-friendly interface and visually appealing design to boost online visibility.
Email newsletters — Send regular emails with exclusive offers and personalized content to keep your audience engaged.
Bakery blog — Launch a blog to share baking tips, recipes, and stories behind your creations, establishing your expertise.
Interactive competitions — Organize online and in-store contests to increase customer participation and sharing.
Baking workshops — Host baking events to teach customers new skills and deepen their engagement with your brand.
Product sampling — Offer free samples of new items to entice purchases and collect feedback.
Themed celebrations — Arrange seasonal or holiday-themed events to attract large crowds and enhance the customer experience.
Partnerships with local businesses — Collaborate with nearby businesses for joint promotions, extending your reach and community impact.
Rewards program — Implement a loyalty program to reward repeat business and show appreciation to loyal customers.
Targeted advertising — Use targeted advertising on social media and search engines to effectively reach potential customers.
Unique selling propositions, or USPs, are the characteristics of a product or service that set it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your bakery meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire.
Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your bakery could be:
The best gluten-free breads and pastries around
Specialty cakes for all occasions
Hybrid baking mastery, from scuffins to brookies to cronuts
Networking
You may not like to network or use personal connections for business gain but your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a bakery, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in bakeries for years and can offer invaluable insight and industry connections.
The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in bakeries. You’ll probably generate new customers or find companies with which you could establish a partnership. Online businesses might also consider affiliate marketing as a way to build relationships with potential partners and boost business.
Step 12: Build Your Team
If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a bakery would include:
Bakers — assisting with making products
Store clerks — taking orders and making sales
Marketing lead — SEO strategies, social media, other marketing
At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need.
Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.
Bakeries often become a beloved element of the community, which is why this industry is still growing and evolving to favor the desires of today’s consumers. You can capitalize on the industry, the latest trends, and your own talents to build a fantastic bakery business.
One way to stand out from the competition is to come up with a winning signature product and create a solid brand. Having a strong online presence can also make a difference. Now that you have the knowledge to start your entrepreneurial journey, you’re ready to bake your cake and eat it too!
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