So you’ve joined the ranks of quarantine bakers learning how to make sourdough this past year…
And now you want to start a bakery.
Or maybe you’ve been making wedding cakes for family and friends and are ready to take your business to the next level.
I'm Ippei, your friendly neighborhood passive income and local lead generation specialist...
And in this seven step quick-start guide to starting your bakery or home baking business, I’m going to break down everything you need to know.
Including the startup numbers and revenue potential that you need to be aware of before you start your bakery.
Plus, I’m going to share with you the key step you need to take FIRST, to start funding your baking business dreams.
Let’s dive right in!
How to Start a Baking Business
Starting a Baking Business is Easier Than You Might Think
You'll need to write out a business plan, plan out your baking space, obtain permits, plan out and practice your recipes, layout pricing, and THEN start baking and selling your delicious baked goods.
Start Up Costs
Obviously pricing can differ greatly depending on if you are needing industrial equipment for a storefront bakery, or if you are needing equipment for a home bakery. Complete your own research when preparing your business plan, but here is a good start.
Annual Revenue of Established Baking Business
According to Chron, the average annual revenue of this kind of business is: $450,000
Profit Margins of Established Baking Business
According to Restaurant Accounting, the average Profit margin of this kind of business is: 6.5%
Quick Start Checklist
1. Write a Business Plan
When it comes to starting a business, many people think that they can skip the step of writing a formal business plan.
And while it doesn’t necessarily need to be “formal” unless you are seeking the help of investors or applying for a small business loan…
You absolutely need to write one.
Here’s the thing:
When you set out to start your baking business, you probably feel like you know what you want to do.
You have a clear vision of what things will look like, and you are excited to dive in, get into the kitchen, and start creating delicious works of edible art.
You can practically smell the heavenly scent of freshly baked bread wafting out of your bakery’s kitchen, am I right?
But inevitably, when you are passionate about your craft, the details of starting and running your business tend to slip through the cracks.
And on top of this, it’s all too easy to get off track when the advice and input of friends and family start to weigh in.
Before you know it, your baking business doesn’t look at all like you thought it would.
Your initial vision has been compromised by bending to the ideas of other people, and your profit margins are slipping because of a lack of planning.
Don’t let this reality be your small business nightmare!
Writing a solid business plan can help you prevent this worst case scenario from becoming your fate.
Keep it simple, strategic, and straightforward.
Your goal is to create a document that you will refer back to time and time again while you navigate the choppy waters of running your bakery business.
Basic Things to Include in a Business Plan:
2. Choose Your Location
There are actually quite a few options for location when starting your bakery.
Can you imagine on a cold winter day, with the snow falling all around...
And then in the distance your customer sees the warm glow of fresh baked goods coming from your bakery on wheels...
Ahh, the joy of warm, fresh baked goods...
But, to get these dreams into a reality, you've got to actually have a place to bake!
Ultimately, it all comes down to your kitchen.
Without a kitchen, you don’t have a baking business at all.
Many people who set out to start a bakery assume that they can just use the kitchen that is most readily available to them:
Their home kitchen.
But this can get very tricky.
While creating baked goods for friends and family in your home kitchen is fully acceptable and legal…
Running a food related business out of your home kitchen is a completely different story.
Most likely, you are going to need a cottage industry license if you plan to run your bakery out of your home.
The laws for obtaining a cottage industry license, and the food products you are allowed to produce under this license, vary from state to state.
So before you jump into the kitchen and whip up 15 loaves of that quarantine sourdough for sale…
Also be aware that the laws regarding wholesale baked goods under a cottage industry license will vary from state to state as well.
Depending on your state’s regulations, you may or may not be able to sell your baked goods to the coffee shop down the street as a wholesale supplier.
If the local laws prevent you from accomplishing your bakery goals, however, there are other options!
One of which is to use a commissary kitchen for all of your baking.
What is a Commissary Kitchen?
Commissary Kitchens are established commercial grade kitchens that a variety of food service businesses can use to legally prepare their products, and even store their food and equipment.
The great thing about using a local commissary kitchen is that you will not be responsible for owning and maintaining the facility yourself…
Or for investing in commercial grade equipment right off the bat.
The downside to commissary kitchens is that you do have to pay an hourly or monthly rate to use the space, and it is usually a shared space with other chefs, bakers, and food service providers.
If your local commissary kitchen is too far away, the fees are too high, or the available time slots are inconvenient, then this might not work well for you.
But it is absolutely worth looking into!
If you are looking to go big or quite literally go home when starting your baking business…
Then you can always invest in a physical brick-and-mortar bakery location.
Whether you choose to buy or lease this space, it will be the most costly option for you when starting out.
The next step down from this would be to start your bakery out of a food truck!
This can be a great way to gain exposure for your brand and business at a variety of events.
But most food truck bakeries do end up using a commissary kitchen in addition to the kitchen space available inside of the food truck itself.
Just explore your options and make the decision that is right for you!
3. Experience
While you might think that being an incredible baker is the primary skill required for opening a bakery…
You’d be wrong.
Of course, having great baking skills is obviously a must…
But there is so much more that goes into running a bakery.
One of the best things you can do for yourself before starting a bakery yourself is to work in one.
I know, I know…
You’re wanting to own your own business, not work for someone else’s!
But the experience you will gain from working in a bakery environment will be invaluable for you when you decide to branch out on your own.
Now while this might not be a feasible option for everyone, if you do have the ability to take this step, I promise you won’t regret it.
Even if you have past experience in food service and the restaurant industry…
I would still encourage you to seek experience working in a specialty bakery environment or even a production bakery.
The restaurant industry is a completely different animal, and the skills you will need for running a bakery don’t necessarily transfer.
Getting your feet wet before jumping in will only help you in the long run.
4. Product Costing
Ah yes…
Product costing.
One of the most mundane, and yet unavoidable tasks that you will need to master when running a bakery.
Slapping a price tag on a dozen muffins isn’t going to cut it in the bakery business.
If you fail to correctly price your products, the already narrow profit margins of the food service and baking industry will begin to narrow even further…
Or even disappear.
The last thing you need as a new business owner is to be losing money because you failed to properly account for product costing.
In short, product costing is the accounting method used to determine every expense that goes into the creation of your finished products.
Every...
EVERYTHING must be accounted for in the baking process!
You cannot afford to give away products because you failed to properly mark up the price from your production costs.
And if your goal is to price yourself to undercut your competition…
It won’t be worth taking a loss.
Pro Tip:
Do not price yourself out of business! Loyal customers want value, not lowest price. Provide the BEST quality baked goods at a profitable price.
Every time you create a new recipe or add a new item, take the time to do your product costing due diligence.
Ideally you will need to have a product costing spreadsheet set up to enter all your itemized details and measurements into for each recipe.
Then you can decide on your retail and wholesale markups.
In addition to product costing, you also need to take waste into account.
Food waste is inevitable in any food service/production based business.
The important thing is that you are aware of it, tracking it, and taking preventative measures against it.
Food ends up being wasted in a variety of ways:
To prevent products from spoiling or expiring before they have been used, you will need to hone your ordering processes.
Ordering in bulk is great!
But it won’t help you save money if you are throwing out unused products because you purchased in excess for the sake of a deal.
This is something you will have to perfect and streamline over time.
Product spillage (when an item is dropped on the floor, or a bottle breaks, etc.) is also inevitable.
People are human, and accidents happen.
But as the boss, you need to know when they happen.
Make sure you have a food waste log book so that when a product is wasted and lost accidentally, you will know when and how it happened and what was lost.
Lastly, product waste can occur due to improper measuring, or a lack of measuring entirely.
I know that your grandmother never used a recipe in her life, and she consistently made the best coconut cream pies you’ve ever tasted....
But when you’re running a business, you HAVE to measure things.
Which means that your employees do too.
Make sure that you have a recipe for everything, and that those recipes are being consistently used.
“Eyeballing it” just isn’t going to cut it.
5. Know Your Strengths
If there is one piece of business advice I could give you, regardless of the industry you’re planning to go into….
It would be this:
It won’t do you any good to stubbornly insist on doing everything yourself simply because you’re the owner.
Most of the time, people start businesses because they are passionate about something.
Which means that there is a good chance they haven’t considered the fact that on top of the idea or skill that they are passionate about…
They’re going to need to learn a dozen other business skills to get their idea off the ground.
Either that, or they can hire people to do those things.
While it may not be realistic to staff out every single position you don’t enjoy doing right away…
There are some key positions that you should consider passing the baton for.
One of which is bookkeeping.
The success of your business will oftentimes rest in the hands of your bookkeeper.
So if you suck at numbers and administrative tasks in general…
Please don’t try to go it alone when balancing the books for your bakery.
It just won’t be worth it!
Hiring a bookkeeper for your bakery business will take so much stress off of your shoulders, and free you up to get back to the parts of your job that you actually do enjoy.
Roles You May Need to Hire For:
6. Staffing
Whether you’re starting a home bakery business, or food truck bakery, or whatever bakery your heart desires…
I hope that it is thriving, and that you’re ready to bring on some staff members to your team!
Ultimately, managing a bakery on your own is a hard job.
Staffing your bakery will help to take some weight off of your shoulders and help your business run more smoothly and efficiently.
When hiring your first employees, be strategic about what positions you staff first.
If you need to staff your weaknesses as I discussed above, take care of that first.
Then bring on one or two team members who are already proficient bakers.
You will be able to train them to operate your business and execute recipes exactly as you would, so that you can eventually have some much needed days off!
The first team members that you hire are very crucial.
They won’t just be standard employees, they will be strategically chosen team members that can help you further your business goals…
And have the same passion to see your bakery thrive as you do.
7. Marketing & Grand Opening
It’s time!
Now that you’ve gotten the fundamentals of your business taken care of, you can finally look towards your grand opening!
This is such an exciting step for new business owners, and one that should not be taken lightly.
Opening even a small bakery business takes an incredibly large amount of work, infinite patience, and adaptability.
Give yourself a hearty pat on the back for making it this far.
But the journey for your bakery is only just beginning!
To get things off to a great start, make sure that you spend adequate time and funds towards marketing your bakery business before the grand opening day.
This can be as simple as setting up a variety of applicable social media accounts to document your business journey and create awareness and excitement for your new business.
Or you can go the full length and set up a website and invest in advertising campaigns.
Either way you go, there is one step that I highly recommend doing for your new business…
And that is to set up a Google My Business page for your bakery.
This will help your business to be found in google by potential customers, as well as helping your website to rank higher in the Google search engine.
Plus, it’s a totally free marketing step that you can (and should) take!
But a strong marketing strategy requires more than just a website, ad campaigns, and a GMB page.
Ultimately, you will have to be prepared with a lead generation strategy that will attract new customers to your business on a consistent basis.
Fortunately we can teach how to do exactly that through our local lead generation coaching program and online course.
Once you’ve taken care of the marketing side of things, go ahead and start planning that grand opening launch party!
You deserve it.
Plus I’m sure it will be delicious.
Pros and Cons
of starting a baking business
Pros
For many aspiring entrepreneurs, one of the greatest draws to launching a business is the freedom to set your own schedule. There’s no boss to dictate your day, or look over your shoulder… You are in control of your time. This can be both freeing, and stressful. But for most small business owners, it is one of the most gratifying aspects of being self employed.
As the owner of your own bakery, you will have full creative freedom over your culinary confections. I’m guessing you’re someone who takes their baking beyond just a skill, and considers it an art form, this is extremely exciting. You will be able to create the customized bakery business you’ve always dreamed about.
Another exciting prospect of starting a bakery is that there is a potential to work from home. Now, if you love the idea of your own brick and mortar bakery shop, you can disregard this… But for many people, the ability to run a business from home is extremely freeing. Especially if you are a stay at home parent. Just be aware that cottage industry laws are strict, and vary from state to state.
Cons
As a baker, you know that timing is everything. Every step in a recipe has to be timed perfectly. From the amount of time that dough needs to rise, to the number of times you have to whisk cake batter for the perfect consistency, and the length of time needed to bake each item to perfection. Nothing can be rushed. And in light of this, everything you do in a bakery will be trading your time for money. You can’t just bake things faster, you have to follow the recipe. So your profit will always be capped by the amount of time it takes to do your job.
Another downfall of the bakery business model is that profit margins are fairly low. There is only so much that someone is going to pay for cupcakes. And as the cost of ingredients shifts and changes, you may lose money. This is just the nature of the baking world.
And lastly, don’t take the idea of starting your bakery from home lightly. It is extremely challenging to get your home kitchen up to the standards of a commercial kitchen. Because of this, getting your home baking business approved by your local state officials and the health department will be no easy task. The cottage industry laws will vary from state to state, but they are relatively strict regardless of where you live.
Successful Bakeries Can Be Profitable, but Lead Generation Should Come First, Here's Why:
Starting a bakery is nothing short of a passion project.
This doesn’t mean that it can’t be profitable, though!
If you decide to start your baking business, more power to you.
But understand that the food production and speciality bakery industry isn’t for the faint of heart.
You will have to put in considerable hours before you start to see success or a return on your investment, and the average profit margins for a bakery are very low.
And chances are, opening a bakery isn’t going to make you rich.
It has to be something you’re passionate about.
Which means that you need to have a steady stream of passive income to support you on your journey while you pour your time into starting your bakery!
If only there was such a thing--
Hold up.
There is!
Seriously.
I personally went from bringing around 2K per month at my job, which is about what you’ll be seeing in profit from your bakery starting out…
To making over 50K per month in less than five years!
And I did it through online lead generation.
If you want to invest your time into learning the skill of generating leads online, it can become the passive income model that will fund your baking business dreams.
In fact, the local lead generation model is actually extremely simple.
It relies on harnessing the localization power of Google, and strategic SEO methods to supply small businesses with a steady stream of leads.
And it can supply you with a steady stream of cash while you’re busy helping those small businesses!
Trust me, before you decide to start your business, you need to look into lead generation first.
