How to Start a Bakery

It’s hard to beat the smell of freshly baked bread, muffins, and pastries in the morning. For many, walking into a good bakery is like walking into paradise. If you love baking, and people love your baked goods, this could be a great time to chase your dream and open a bakery!

The US bakery market has been growing for years and is now worth $12 billion, so why not get your piece of the pie?

Starting any business, however, is challenging and will take hard work and passion. But the right information will point you in the right direction, and this step-by-step guide provides all the insight you need to start baking your way to success.

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.

Bakery industry trends

US bakeries are expected to perform well as the economy improves and consumer spending increases.

Industry size and growth

• Industry size and past growth – Research firm IBISWorld values the US bakery industry at $12 billion, after growing an average of 1.3% per year since 2017.((https://www.ibisworld.com/industry-statistics/market-size/bakery-cafes-united-states/))  
• Growth forecast – The US bakery industry is expected to grow further, as indicated by a projected 10% annual increase through 2030 in job openings for bakers.((https://www.bls.gov/ooh/production/bakers.htm)) 
• Number of businesses – More than 9,000 bakery cafes are doing business in the US.((https://www.ibisworld.com/industry-statistics/number-of-businesses/bakery-cafes-united-states/))
• Number of people employed – US bakery cafes employ more than 200,000 people.((https://www.ibisworld.com/industry-statistics/employment/bakery-cafes-united-states/))

Trends and challenges

Bakery trends include:

• Hybrid pastries that represent a mash-up of two traditional baked goods such as cretzel (croissant and pretzel), cruffin (croissant and muffin), and cronut (croissant and donut)((https://www.cntraveler.com/stories/2016-05-09/the-complete-history-of-the-cronut))
• Growing preference for gluten-free products, vegan and plant-based alternatives, and other health-conscious options

Challenges in the bakery industry include:

• Food safety and other regulatory requirements
• Shortage and high turnover of qualified workers
• High prices of ingredients and other supplies

Popular products

The most popular bakery products((https://www.bakeryandsnacks.com/Article/2018/10/31/Industry-insight-into-US-bakery-market)) are:

1. Bread (32%)
2. Rolls (19%)
3. Frozen cakes (15%)
4. Retail bakery products (10%)
5. Soft cakes (8%)
6. Pies (2%)

Consumer spending

• Average consumer spend – A US household spent an average of $428 a year on bakery products from 2018 to 2020.((https://www.statista.com/statistics/237252/cereal-and-bakery-products-expenditures-of-united-states-households/)) 
• Potential customer base – Bread is a staple of the American diet and 67% of Americans eat more bread when dining out or ordering takeout.((https://www.bakemag.com/articles/15427-survey-reflects-americans-love-for-bread-when-dining-out))
• Average prices – The average price of a loaf of bread in the US is $2.50.((https://www.zippia.com/advice/loaf-of-bread-costs-each-state/))

Price differences across the country

• More expensive – A loaf of bread is most expensive in Hawaii, Alaska, Colorado, Louisiana, and Maine.
• Less expensive – Bread is least expensive in New Jersey, California, Kansas, Minnesota, and Nevada.

What kind of people work in bakeries?

• Gender – 54% of bakers in the US are female, while 46% are male.((https://www.zippia.com/baker-jobs/demographics/#gender-statistics))
• 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/)) 
• Average age – The average age of an employed baker is 40 years old.((https://www.zippia.com/baker-jobs/demographics/#age-statistics))

How much does it cost to start a bakery?

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%. But if you do $7,500 in weekly sales, you’ll have 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

Step 2: Hone Your Idea

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 has 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 your menu.

With either a shop or a home-based bakery, it’s a good idea to be open to custom orders, for birthday cakes and cookies, for instance, or catering an office meeting with an assortment of baked goods.

How much should you charge for baked goods?

Here are some typical prices of baked goods:

• Custom cakes – $30 – $100
• Wedding cakes – $120 – $1,000
• Dozen muffins or donuts $15 – $30
• Bread loaf $8 – $15
• Pies $15 – $30

You should check your competitors’ prices and aim for something competitive, or even better. Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up 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

Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.

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”
• Avoid location-based names that might hinder future expansion

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 pick your company name, and 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.

Step 4: Create a Bakery Business Plan

Every business needs a plan. This will function as a guidebook to take your startup through the launch process and maintain focus on your key goals. A business plan also enables potential partners and investors to better understand your company and its vision:

• 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

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, 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 Corp – 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 Corp – An S-Corporation 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 to be an S-Corp 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.

Step 6: Register for Taxes

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 or 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.

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 strong credit history.
• SBA-guaranteed loans: The Small Business Administration can act as 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.

Step 8: Apply for Bakery Business Licenses and Permits

Starting a bakery requires obtaining a number of licenses and permits from local, state, and federal governments.

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’re maintaining sanitary conditions and following 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.

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.

Step 9: Open a Business Bank Account

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.

Step 11: Prepare to Launch

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.

Accounting

• 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 for filing incorrect tax documents can be harsh, so accuracy is crucial.

Develop your website

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.

They are unlikely to find your website, however, 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

Develop a marketing strategy to build a strong local presence, establish brand recognition, and create a community around your bakery. Here are some powerful marketing strategies for your future business:

Digital Presence and Online Marketing

• Social Media Strategy: Tailor content for different platforms to engage diverse customer segments.
  • Facebook: Use for community building and targeted ads.
  • Instagram: Showcase your bakery’s aesthetic with high-quality images.
  • Twitter: Share quick updates, engage in trends, and provide customer service.
• Website and SEO: Make sure your website is user-friendly, visually appealing, and optimized for search engines to improve visibility.
• Local Listings: Keep your Google My Business and Yelp profiles updated to attract local customers and improve search rankings.

Content Marketing and Engagement

• Email Newsletters: Send out regular emails with exclusive offers, news, and personalized content.
• Bakery Blog: Start a blog to share baking tips, recipes, and the stories behind your creations.
• Interactive Competitions: Engage customers with online and in-store contests that encourage participation and sharing.

Experiential and In-Store Experiences

• Baking Workshops: Host events that allow customers to learn baking skills.
• Product Sampling: Offer free samples of new products to entice purchases and gather feedback.
• Themed Celebrations: Organize seasonal or holiday-themed events to draw in crowds and create a festive atmosphere.

Collaborations and Community

• Partnerships with Local Businesses: Work with nearby businesses for joint promotions or events.
• Sustainability Practices: Emphasize any eco-friendly initiatives in your marketing to appeal to environmentally conscious consumers.
• Community Projects: Participate in or sponsor local events to show your commitment to the community.

Customer Relationship and Loyalty Programs

• Rewards Program: Implement a system to incentivize repeat business and thank loyal customers.
• Customer Feedback: Actively seek customer opinions to refine your product offerings and service.

Promotions and Advertising

• Special Offers: Use time-sensitive deals to create excitement and encourage quick purchases.
• Targeted Advertising: Employ paid ads on social media and search engines to reach potential customers.
• Signage and Merchandising: Ensure your physical and digital signage is attention-grabbing and reflects your brand’s identity.

Focus on USPs

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 – assist with making products
• Store Clerks – take orders and make 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.

Step 13: Run a Bakery – Start Making Money!

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!