Are you thinking of opening a bakery? Many neighborhoods have a go-to place to get a treat and in most cases, it’s a local bakery. These bakeries can also serve as suppliers for other local shops in the area.
Bakeries have evolved from selling traditional pastries and bread to offering food from various food trends. Such trends include cupcakes, couture cakes like bubble cakes, and all kinds of cultural sweets. These items bring joy to customers and convenience to the community when they need fresh baked items.
As a popular food service establishment, bakeries allow you to express your creativity in a culinary fashion. This business model is one that some people with no culinary background can get into, as long as they have the right plan in place.
We’ve written on the cost to open a restaurant, how to open a cafe, and the cost of opening a food truck. Now, we can touch on what goes into the cost of opening a bakery.
Opening a Bakery
The bakery industry is part of the restaurant industry, and it refers to grain-based foods. These foods include cakes, bread, pastries, pies, and similar foods. The industry also includes delivery drivers, equipment, and supplies that are used to support the industry along with the bakeries themselves.
Bakeries produce the actual baked goods, and they can be sold for a wholesale price, retail, or both. Some bakeries can sell their products locally and ship them regionally or nationally (see How to Ship Cookies or How to Ship Food). Be sure to also consider white label vs. private label products.
Many retail bakeries follow a direct to consumer sales model when selling their goods. They often have brick and mortar shop locations, but some also incorporate online outlets.
How Does a Bakery Make Money?
Bakeries make money by making a profit, just like other businesses do. To determine if a bakery is losing money, reaching its break even point, or gaining money, calculations involving costs, expenses, and income need to be made. This includes using a food cost calculator, inventory turnover ratio formula, overhead expenses, labor cost, and recipe costing formula.
Common bakery costs can include the ordering and purchasing of supplies like dairy, eggs, sugar, cream, flour, and equipment. Expenses can include payroll, advertising, and maintenance.
Bakery prices are typically set at a premium compared to what it costs to produce them. With a higher sales volume, the bakery will be able to have a higher restaurant profit margin. Bakeries profit when the cost of goods sold exceeds their manufacturing costs.
Once you commit to starting your bakery business, you’ll have to start calculating your return on investment. The ROI meaning refers to when you will make back the money you invested. This can be calculated using an ROI formula or ROI analysis.
How Much Does It Cost To Open a Bakery?
At this point, you might be inclined to start a bakery business of your own. However, the question of “How much does it cost to open a bakery?” might still be present. The average starting cost of opening a bakery can range from $10,000 to $50,000. This range can depend on many factors like location, size, and bakery food selection.
When planning your bakery startup costs, it’s best to think about what you have to pay upfront and what can be financed.
Here are common costs of starting a bakery:
Location
The location of your bakery can be crucial for everyday business. However, it can also be one of the biggest factors that drive up the cost of opening and running your bakery. It’s best to choose a location with high foot traffic, but this might be out of your budget.
You’ll also have to consider whether you want to buy or lease the space. Purchasing or leasing an existing bakery or cafe space can be ideal. It can help you reduce startup costs and potentially decrease the number of renovations that are required.
Utilities
Restaurant buildings with a square footage of less than 4,000 will have utility costs ranging from $1,000 to $2,000 per month. These costs will include electricity, water, and gas. It’s likely that you’ll need to start paying these fees before you officially open the business so that everything gets up and running.
Interior and Exterior Design
The design of your bakery is important as it resembles your brand. Factoring in your budget to your design doesn’t have to be difficult. When it comes to interior design, consider whether you want to have seating and what the lighting will look like.
You might want to think about incorporating custom display cases for the baked goods and special storage areas for the items. Be sure to consider the theme of the bakery, signage, sound systems, and visual decorations.
When it comes to the exterior design, having an appealing outside space will likely draw in customers. You can consider outdoor patio seating depending on the location or simply incorporating an aesthetically pleasing design with landscaping.
These design costs can range from $1,000 to $40,000 depending on what you’re looking for in terms of signage, lighting, seating, decorations, and landscaping.
Bakery Equipment
A bakery isn’t complete without the essential baking equipment. Initial costs for such equipment can be about $20,000 for a regular bakery. This kind of equipment will include ovens, mixers, refrigerators, freezers, bakeware, fryers, and sheet pan racks.
Inventory Expenses
Before you officially open your bakery, you’re going to need to stock up on all the essential inventory items. It’s always ideal to have safety stock on hand, in case of any unexpected back order or supplier delays.
Demand planning and inventory forecasting are often used when purchasing inventory and working on inventory control processes. Common bakery inventory purchases include food, plates, supplies, utensils, string, boxes, branding items such as stickers or labels, and uniforms.
Startup bakery inventory expenses can range from $20,000 to $120,000 depending on what you offer and the size of the business. Proper inventory management techniques can keep you up to date on when items need to be replenished.
Marketing and Advertising
Marketing costs for a restaurant or bakery business can start at $0 if you’re tech-savvy. However, if you choose to invest in full branding, marketing campaigns, and advertising through an agency, the costs can exceed $100,000.
Common marketing efforts for a bakery include:
- Social media marketing
- Public relations or PR services
- Website building
- Branded merchandise
- Email marketing
Bakery marketing costs will typically range between 3-6% of your monthly sales. There are ways to promote your bakery on a budget like through your website and social media platforms. Creating an about us page on your website using an about us template or about us examples can help tell your story. It's also essential to create a privacy policy. Keep in mind that using O2O marketing efforts will help bring in customers.
Restaurant Technology
To have an up-to-date bakery, you’re going to want to invest in restaurant technology. A few of the latest restaurant technology trends include offering contactless payment options such as a bar POS system and a restaurant QR code.
Restaurant tech will improve everyday processes for both customers and staff. For instance, the restaurant manager will be able to keep up with staffing and other responsibilities through automated systems.
Employees and Management
30% of a bakery’s revenue goes to the restaurant’s labor costs. Finding the right employees and wait staff can be challenging, but once you get the right people, it’s your key to success. For a bakery, you’ll likely need bakers, pastry chefs, dough makers, assistant bakers, and managers.
Cost of Opening a Bakery Tips
After going over the potential cost of opening a bakery, you might be ready to dive in. Consider the following tips for running a successful bakery business.
Find Your Niche
Deciding on a niche market before you start the business planning process is essential. This way, you can tailor the menu types to their liking and even follow specific food and beverage trends.
While offering various menu items can seem tempting, it might not be a good strategy to start off with. Give yourself an advantage by researching your area and the customer demographics to explore opportunities for specialty foods and ingredients.
Express Yourself
Baked goods are considered an outlet, and they are often a way that people can express their personalities. This is possible through the food and baked items that you make as well as the decorations in your bakery.
The interior design that you choose will affect the way customers perceive your business. Create a website and other marketing materials like signage that reflect your personality, brand, company values, and your story.
Offer Online Ordering Options
We’re living in a world where convenience matters most. Customers have shifted to paying through apps and mobile payment methods. They’re also looking into ways that they can quickly place orders.
By offering online ordering options, you can stand out from the competition. This can be done through your website or a custom app. With this, you can also offer coupon codes or a loyalty program which is a great way to increase repeat customers.
Frequently Asked Questions About Opening a Bakery
How Much Can You Make If You Open a Bakery?
The potential earnings if you open a bakery can average about $450,000. However, these potential earnings vary based on numerous factors like the size of your business, its offerings, and the location.
The largest players in the bakery industry typically earn about 20% of the average industry earnings. With that being said, smaller bakeries often make less than the industry average, especially when they’re just starting out.
Why Do Most Bakeries Fail?
Most bakeries fail due to a lack of planning and marketing for their business. Even with the best-baked goods and items, it can be hard to succeed if people don’t know that you exist.
Planning and marketing can increase brand awareness and build buzz about your business. This will attract new customers and increase the chances of word-of-mouth marketing which can be another win for your business.
What Are the Most Profitable Bakery Items?
The most profitable bakery items are:
- Cookies
- Cakes
- Cupcakes
- Muffins
- Cinnamon rolls
- Bread
The food supply chain should be considered when choosing the items to sell at your bakery. Look up, "what is the food supply chain?", for a better understanding.
