How to Start an Online Bakery

People are crazy about baked goods, whether it’s cookies, cakes, pastries, breads, muffins, or pies. If you’re a serious baker, you may have thought about opening your own bakery but decided against it after learning about the steep startup costs. 

Did you know there’s another way? You could start an online bakery, packaging and shipping your fresh or frozen goodies straight to customers. It costs far less to get started and you’ll still be getting in on a $400 billion industry. 

But you’ll need a bit of business savvy before you put on your apron. Luckily, this step-by-step guide provides all the insight you need to achieve online bakery success. 

Step 1: Decide if the Business Is Right for You

Pros and cons

Online Bakery Industry Trends

Industry size and growth

• Industry size and past growth – The global baked goods market was worth $397.90 billion in 2021, up 4.5% from the previous year.((https://www.fortunebusinessinsights.com/industry-reports/bakery-products-market-101472))
• Growth forecast – The global baked goods market is projected to expand more than 5% annually through 2028. 

Trends and challenges

Trends

• Online ordering of baked goods became popular during the pandemic and the trend is continuing.
• Sweet and spicy baked goods, such as those made with spiced honey, are seeing growing demand, as are healthier baked goods. 

Challenges

• Supply chain disruptions are making it harder for bakeries to source ingredients. 
• As people reduce discretionary spending, they may be less likely to purchase some baked goods. 

Popular baked goods

The 10 most popular baked goods in the US are:((https://recipes.howstuffworks.com/food-facts/10-favorite-baked-goods.htm))

• Apple pie 
• Chocolate chip cookies 
• Bagels 
• Cream puffs 
• Cornbread 
• Blueberry muffins 
• Whoopie pie 
• Red velvet cake 
• Banana bread  
• Pretzels 

Demand hotspots

• Most popular states – The most popular states for bakers are New Jersey, New Hampshire, and New York.((https://www.zippia.com/baker-jobs/best-states/))
• Least popular states – The least popular states for bakers are Mississippi, Oklahoma, and Arkansas.

What kind of people work in bakeries?

• Gender – 54% of bakers are female, while 46% are male.((https://www.zippia.com/baker-jobs/demographics/))
• Average level of education – The average baker is high school educated.
• Average age – The average baker in the US is 41.7 years old.

How much does it cost to start an online bakery business?

Startup costs for an online bakery range from $5,000 to $12,000. Costs include equipment, ingredients, and packaging supplies. 

You’ll need a handful of items to successfully launch your online bakery business, including: 

• Oven
• Kitchen scale
• Mixer
• Mixing bowls and other miscellaneous supplies

If your kitchen is not large enough for significant production, you could rent a commercial kitchen space part-time. 

Start-up Costs	Ballpark Range	Average
Setting up a business name and corporation	$100 - $500	$300
Business licenses and permits	$200 - $500	$350
Insurance	$100-$500	$300
Website	$200 - $1,000	$600
Initial Marketing Budget	$300 - $500	$400
Equipment	$2,500 - $5,000	$3,750
Initial Ingredients Supply	$1,000 - $3,000	$2,000
Packaging supplies	$500 - $1,000	$750
Total	$4,900 - $12,000	$8,450

How much can you earn from an online bakery business?

Your prices will depend on which products you sell. These calculations assume an average sale per customer of $30 and a profit margin, after ingredient and packaging costs, of 70%.

In your first year or two, you could work from home and sell 1000 items online in a year, bringing in $30,000 in revenue. This would mean $21,000 in profit, assuming that 70% margin. 

As you gain traction, sales could climb to 10,000 items a year. At this stage, you’d have a commercial kitchen and hire staff, reducing your margin to around 40%. With annual revenue of $300,000, you’d make a tidy profit of $120,000.

What barriers to entry are there?

There are a few barriers to entry for an online bakery. Your biggest challenges will be:

• Getting traffic to your website
• Finding safe and fast ways to ship your items

Step 2: Hone Your Idea

Now that you know what’s involved in starting an online bakery, it’s a good idea to hone your concept in preparation to enter a competitive market. 

Market research could give you the upper hand even if you’ve got the perfect product. Conducting robust market research is crucial, as it will help you better understand your customers, your competitors, and the broader business landscape.

Analyze your competitors 

Research online bakeries in your area to examine their products, price points, and customer reviews.

• Make a list of online bakeries that offer similar products. 
• Review your competitors’ products – their features, pricing, and quality – and marketing strategies
• Check out their online reviews and ratings on Google, Yelp, and Facebook to get an idea of what their customers like and dislike.
• Identify your competitors’ strengths and weaknesses. 

This should identify areas where you can strengthen your business and gain a competitive edge to make better business decisions.

Why? Identify an opportunity

You’re looking for a market gap to fill. For instance, maybe the market is missing an online bakery that offers next day shipping, or that specializes in unique cheesecake flavors. 

This could jumpstart your word-of-mouth marketing and attract clients right away. 

What? Determine your products

When determining what to offer, you’ll probably want to choose the baked goods you do best. You might specialize in breads, pies, cakes, cookies, cheesecakes, or muffins. Alternatively, you could choose to offer a variety of items and custom-made goods.

How much should you charge for baked goods?

Prices for baked goods vary based on the type. Check the prices of other online bakeries to make sure you’re competitive. Your prices should also be based on your ingredient and packaging costs. 

Once you know your costs, 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

The market for baked goods is broad, so you can spread out your marketing to include TikTok, Instagram, and Facebook. You could also target business people on LinkedIn who may want to give baked goods as gifts.

Where? Choose your business premises

In the early stages, you may want to run your business from home to keep costs low. But as your business grows, you’ll likely need to hire workers for various roles and may need to rent out a commercial kitchen. You can 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 an Online 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 
• 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
• Name should allow for expansion, for ex: “Flourish Bakehouse” over “Artisan Bread Co.”
• 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 and reserve your business name with your state, start the trademark registration process, and complete your domain registration and social media account creation. 

Your business name is one of the key differentiators that sets your business apart. Once you pick a name, reserve it and start with the branding, it’s hard to switch to a new name. So be sure to carefully consider your choice before moving forward. 

Step 4: Create an Online 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: Summarize the key points and objectives of your online bakery business plan, including your unique selling proposition.
• Business Overview: Describe your online bakery, its location (if applicable), and the range of bakery products and services it will offer via the internet.
• Product and Services: Detail the types of baked goods, pastries, cakes, and other items your online bakery will sell to customers.
• Market Analysis: Analyze the online bakery market, including customer preferences, trends, and the potential demand for your baked goods.
• Competitive Analysis: Identify online bakery competitors and emphasize what makes your bakery stand out in terms of product quality and customer experience.
• Sales and Marketing: Explain your strategies for reaching customers online, including website development, social media, and online advertising.
• Management Team: Introduce key team members involved in your online bakery, highlighting their relevant experience and roles in the business.
• Operations Plan: Outline the online operations of your bakery, including the process of taking orders, baking, packaging, and shipping.
• Financial Plan: Present financial projections, including startup costs, revenue forecasts, and profit margins for your online bakery.
• Appendix: Include supplementary materials, such as sample product photos, pricing lists, or customer testimonials, to support your online 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 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 could offer real advantages when it comes to online 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 online 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. Here’s how to form an LLC.
• 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. Read how to start a corporation here.
• 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 need 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. 

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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 option, other than friends and family, for funding an online bakery business. You might also try crowdfunding if you have an innovative concept.  

Step 8: Apply for Online Bakery Business Licenses and Permits

Starting an online bakery business 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. Many states and localities have specific requirements for a bakery business run from a home. 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.

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 online bakery business 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 Toast, eHopper, or Lavu, to manage your menu, inventory, orders, and customer loyalty program.

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.

Create a 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 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.

Your customers are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. 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” or “Order”. This can sharply increase purchases. 

Marketing

Here are some powerful marketing strategies for your future business:

1. Visual Feast on Social Media: Leverage the visual appeal of your baked goods by regularly posting high-quality images on platforms like Instagram and Pinterest, showcasing your delicious creations and engaging with your audience through stories and polls.
2. Limited-Time Offers: Create a sense of urgency and exclusivity by introducing limited-time promotions or discounts, encouraging customers to try your treats sooner rather than later.
3. Collaborate with Influencers: Partner with local food bloggers, influencers, or even micro-influencers who align with your brand to reach a wider audience and gain credibility through their recommendations.
4. Email Marketing with a Twist: Build an email list and keep customers engaged by sending out newsletters featuring exclusive promotions, behind-the-scenes glimpses, and even occasional recipes, fostering a sense of community.
5. Loyalty Programs: Implement a loyalty program that rewards repeat customers with discounts, freebies, or exclusive access to new products, encouraging them to choose your bakery for their sweet cravings consistently.
6. Interactive Online Events: Host virtual baking classes, live Q&A sessions, or even online contests to actively involve your audience, creating a personal connection and fostering a sense of community around your brand.
7. Strategic Partnerships: Collaborate with other local businesses, such as coffee shops or event planners, to cross-promote each other and tap into shared customer bases.
8. Seasonal Specials and Themes: Keep your menu fresh and exciting by introducing seasonal specials or themed items, aligning your offerings with holidays or popular trends to capture customer interest.
9. Responsive Customer Service: Provide excellent customer service by responding promptly to inquiries, addressing concerns, and going the extra mile to ensure customer satisfaction, as positive reviews and word-of-mouth can be powerful marketing tools.
10. Packaging with Personality: Invest in attractive and eco-friendly packaging that not only protects your products but also serves as a visual extension of your brand, creating a memorable and shareable unboxing experience for customers.

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 online 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 online bakery business could be: 

• Freshly baked pies delivered to your door
• Send the gift of sweets with our cookie baskets
• Cheesecakes for all tastes and occasions

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 an online bakery business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in online 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 online 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 an online bakery business include:

• Bakers – assist with making baked goods
• Packager – package and prepare items for shipping
• General Manager – accounting, scheduling, inventory management

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 an Online Bakery – Start Making Money!

How great would it be to share your baking passion with the entire country?! An online bakery is the perfect opportunity, and hopefully the first step to becoming the next Pepperidge Farms or Harry and David. 

You’ve done your business homework, so it’s time to hit the kitchen and start baking up some big-time success.