Who doesn’t love donuts? Hardly anybody, which is why it’s a $7.5 billion industry in the United States. If you can make a mean donut, you could start your own donut shop and deliver sweet, fluffy deliciousness to your community while making good money.
But a successful business can’t be fried up like a donut, or a doughnut. There will be challenges, and you’ll need to prepare yourself with the right guidance and information. You’ll find the answers to all your questions in this step-by-step guide, which will get you on the road to achieving your donut dreams.
Step 1: Decide if the Business Is Right for You
Pros and cons
Opening a donut shop, or a doughnut shop, has pros and cons that you should consider before deciding if it’s right for you.
- Get Creative! – People love unique and exotic flavors
- High Margins – Donuts can be sold at a sizable markup
- Spread Joy – Donuts make people happy
- Early Hours – Donut shops often open at the crack of dawn
- Stiff Competitive Market – Even Starbucks sells donuts
Donut shop industry trends
More than 200 million consumers in the US ate donuts in 2020. The number is seen to continue increasing through 2024.((https://www.statista.com/statistics/283198/us-households-consumption-of-donuts-doughnuts-trend/))
Industry size and growth
Trends and challenges
Trends in the donut industry include:
- Instagrammable specialty donuts are gaining ground. Donuts covered with M&Ms or bacon, breakfast sandwich donuts, and mashups like cronuts (croissant + donut), are generating huge consumer excitement.
- Spiked donuts, meaning donuts infused with alcohol, are a popular new adult treat. We’ve come a long way from Krispy Kreme, Dunkin Donuts, and Tim Horton’s.
- Small, creative donut shops are the trend, located in high traffic and trendy areas.
Challenges also exist in the donut shop industry, which include:
- Unique flavors drive success; can be a challenge to find novel recipes
- Donut popularity could decrease due to increasing health consciousness.
An Ipsos survey in 2021((https://www.ipsos.com/en-us/news-polls/cream-filled-donuts-most-popular-flavor-amongst-americans)) lists the 5 most popular donut flavors in the US.
- Cream-filled donuts (22%)
- Plain glazed donuts (18%)
- Chocolate glazed donuts (12%)
- Cake/old-fashioned donuts (9%)
- Jelly-filled donuts (9%)
What kind of people work in donut shops?
Among the employees in donut shops are food counter workers.
How much does it cost to start a donut shop business?
Startup costs for a donut shop range from around $15,000 to $30,000. The largest costs are for donut making equipment and other kitchen tools.
You’ll need a handful of items to successfully launch your donut shop business, including:
- Glazing tables
- Batter dispensers
- Ventilation system
|Start-up Costs||Ballpark Range||Average
|Setting up a business name and corporation||$150 - $200||$175
|Business licenses and permits||$100 - $300||$200
|Business cards and brochures||$200 - $300||$250
|Website setup||$1,000 - $3,000||$2,000
|Shop space deposit||$2,000 - $4,000||$3,000
|Donut making equipment and other kitchen equipment||$10,000 - $20,000||$15,000
|Tables and chairs||$1,500 - $3,000||$2,250
|Total||$15,050 - $31,100||$23,075
How much can you earn from a donut shop business?
The cost to make a donut averages $.12, while the same donut can be sold for $1.25, resulting in a 90% profit margin. After the cost of space rental and overhead, your profit margin will be around 40%.
In your first year or two, you could sell 2,000 donuts a week, bringing in $130,000 in annual revenue. This would mean a nice profit of around $52,000, assuming that 40% margin. As your shop becomes better known and you get repeat customers, sales could climb to 5,000 donuts a week. With expected annual revenue of $325,000, you would make an impressive $130,000 in annual profit.
What barriers to entry are there?
There are a few barriers to entry for a donut shop. Your biggest challenges will be:
- Finding the necessary funding
- Stiff competition from a saturated market
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 2: Hone Your Idea
Now that you know what’s involved in starting a donut shop, it’s a good idea to hone your concept in preparation to enter a competitive market.
Why? Identify an opportunity
Research donut shops in your area to examine their products, price points, and what sells best, as well as customer reviews. You’re looking for a market gap to fill. Maybe your area is missing donut holes, a good mini donut option, or a vegan donut shop.
You might consider targeting a niche market by specializing in a certain aspect of your industry, such as cake donuts.
This could jumpstart your word-of-mouth marketing and attract clients right away.
What? Determine your products or services
You’ll want to develop a menu of classic and unique donuts. You’ll also want to offer beverages, such as juice and coffee drinks. You could add to your product list by offering other baked goods, like croissants and muffins.
How much should you charge for donuts?
The average price for a donut is $1.25, although specialty donuts may have higher prices. Your ongoing costs will be rent, overhead, and labor. You should aim for a profit margin of at least 40%.
Once you know your costs, you can use this Step By Step profit margin calculator to determine your markup and final price point. Remember, the price you use at launch should be subject to change if warranted by the market.
Who? Identify your target market
Your target market will be very broad, so you should market on a variety of social media sites, such as TikTok, Instagram, Facebook, and even LinkedIn.
Where? Choose your business premises
You’ll need to rent out a commercial space for your donut shop. Find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.
When choosing a commercial space, you may want to follow these rules of thumb:
- Central location accessible via public transport
- Ventilated and spacious, with good natural light
- Flexible lease that can be extended as your business grows
- Ready-to-use space with no major renovations or repairs needed
Step 3: Brainstorm a Business 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
- Name should be relevant to your product or service offerings
- Ask around — family, friends, colleagues, social media — for suggestions
- Including keywords, such as “donuts” or “donut shop”, boosts SEO
- Name should allow for expansion, for ex: “Jim’s Bakery” over “Jim’s Cookies”
- Avoid location-based names that might hinder future expansion
- Use online tools like the Step by Step Business Name Generator. Just type in a few keywords and 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 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 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: Brief overview of the entire business plan; should be written after the plan is complete.
- Business Overview: Overview of the company, vision, mission, ownership, and corporate goals.
- Product and Services: Describe your offerings in detail.
- Market Analysis: Assess market trends such as variations in demand and prospects for growth, and do a SWOT analysis.
- Competitive Analysis: Analyze main competitors, assess their strengths and weaknesses, and create a list of the advantages of your services.
- Sales and Marketing: Examine your companies’ unique selling propositions (USPs) and develop sales, marketing, and promotional strategies.
- Management Team: Overview of management team, detailing their roles and professional background, along with a corporate hierarchy.
- Operations Plan: Your company’s operational plan includes procurement, office location, key assets and equipment, and other logistical details.
- Financial Plan: Three years of financial planning, including startup costs, break-even analysis, profit and loss estimates, cash flow, and balance sheet.
- Appendix: Include any additional financial or business-related documents.
If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist at Fiverr to create a top-notch business plan for you.
Step 5: Register Your 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’re planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to donut shops.
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 donut shop 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 ZenBusiness’s 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’re 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 donut shop business. You might also try crowdfunding if you have an innovative concept.
Step 8: Apply for Licenses/Permits
Starting a donut shop business requires obtaining a number of licenses and permits from local, state, and federal governments.
You may need the following, depending on the requirements in your area:
- Food service license
- Food handler’s permit
- Building health permit
Federal regulations, licenses, and permits associated with starting your business include doing business as, health license and permit 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.
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.
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 donut shop 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 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.
- 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.
Some of your business will come from the casual passerby or online visitors, but still, you should invest in digital marketing! Getting the word out is especially important for new businesses, as it’ll boost customer and brand awareness.
Once your website is up and running, link it to your social media accounts and vice versa. Social media is a great tool for promoting your business because you can create engaging posts that advertise your products:
- Facebook: Great platform for paid advertising, allows you to target specific demographics, like men under age 50 in the Cleveland area.
- Instagram: Same benefits as Facebook but with different target audiences.
- Website: SEO will help your website appear closer to the top in relevant search results, a crucial element for increasing sales. Make sure that you optimize calls to action on your website. Experiment with text, color, size, and position of calls to action such as “Buy Now”. This can sharply increase purchases.
- Google and Yelp: For businesses that rely on local clientele, getting listed on Yelp and Google My Business can be crucial to generating awareness and customers.
Take advantage of your website, social media presence, and real-life activities to increase awareness of your offerings and build your brand. Some suggestions include:
- Competitions and giveaways – Generate interest by offering prizes for customers who complete a certain action, such as an extra donut for every purchase of a dozen donuts.
- Signage – Put up eye-catching signage at your store and website.
- Flyering – Distribute flyers in your neighborhood and at industry events.
- In-Person Sales – Offer your donuts at local markets and trade shows.
- Sponsor events – You can pay to be a sponsor at events that are relevant to your target market.
- Post a video – Post a video about your donuts. Use humor and maybe it will go viral!
- Limited edition – Offer a one-time version of your donut.
- Start a blog – Start a blog and post regularly. Change up your content and share on multiple sites.
- Paid ads on social media – Choose sites that will reach your target market and do targeted ads.
- Testimonials – Share customer testimonials about how they love your donuts.
- Create infographics – Post infographics and include them in your content
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. 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.
You can create your own website using services like WordPress, Wix, or Squarespace. 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.
Focus on USPs
Unique selling propositions, or USPs, are the characteristics of a product or service that sets 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 donut shop 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 donut shop could be:
- 24/7 tasty treats with a twist
- Unique donut creations to make your taste buds tingle
- Fresh donuts delivered to your next big bash
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 donut shop, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in donut shops 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 donut shops. You’ll probably generate new customers or find companies with which you could establish a partnership.
Step 12: Build Your Team
You will likely need workers to fill various roles. Potential positions for a donut shop business would include:
- Kitchen Workers – make donuts, clean up
- Shop Workers – take orders, customer service
- General Manager – staff management, scheduling, accounting
- 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: Start Making Money!
Frosted chocolate, vanilla cream, bacon maple, coconut – whatever the flavor, donuts are always a hit. Opening your own donut shop can be a creative endeavor, as well as a way to make a nice living – as long as you don’t eat the profits!
Specialty donuts are all the rage, so fry up some tasty treats and grab a slice of this $7 billion industry. You can build the go-to donut shop in your community with yummy donuts that keep people coming back for more. Now that you know the ins and outs of the donut business, you’re ready to get your plan together and launch your donut dream!
Donut Shop Business FAQs
How much does it cost to start a donut shop?
You can start a donut shop for as little as around $15,000. You need to rent a space and buy some kitchen equipment, so costs will depend on your location and whether you buy new or used equipment.
Can a donut shop be profitable?
Yes, donut shops can be profitable. Donuts only cost around $.12 to make, and you can sell them for 10 times that amount. You just need to make donuts so good that people keep coming back!
Do I need a license to start a donut shop?
Requirements vary by location, but you may need a food service license, a food handler’s permit, and a building health permit. You may also need various business licenses and permits at the state and local levels. Check with your local governments, or visit MyCorporation’s Business License Compliance page.
What’s the secret to making a donut shop successful?
Innovative donut creations and exotic flavor combinations are trending, so to be successful you’ll probably need to experiment with your recipes. You might also drum up more business by offering limited-time-only donut flavors, which you later put back on the menu. Other than that, make sure your donuts are amazing and you’ll be on your way to success.