Can Money Be Made in the Donut Business?

Donut shops have excellent margins, because the pastry sells as a standalone product. So making money in the donut business is entirely possible. Creative recipes, marketing and a low overhead business model can drive revenue in this business. Many donut shops are successful and profitable in the U.S. Look to prolific donut-focused chains like Dunkin' Donuts and Krispy Creme for further confirmation that profit potential exists in the donut business.

Donuts shops act like any bakery, where product turnover and minimizing waste are key elements to the sustainable profits. Donuts have a limited shelf life, and customers expect a fresh batch every morning. Day-olds are often sold at a steep discount, and anything aged beyond a day is not sold.

The margins on donuts are excellent. In a securities filing by a single Krispy Creme franchise, margins were in excess of 70 percent. Operating as a franchise model, it is safe to assume similar margins for other stores operating under the same brand. A large franchise also has the ability to source ingredients at lower rates than a small business. Expect a slight reduction to margins for operating on a smaller scale.

Upselling will bolster profits in the donut business. Coffee is a natural companion product that also has excellent margins. According to Coffee Makers USA, the margins on a Starbucks grande cappuccino are above 90 percent (coffee only). Dunkin' Donuts has expanded coffee sales to grocery-store shelves, creating a larger scale brand through coffee sales alone.

Competition has a major influence on your ability to succeed at selling donuts. Location-dependent shops must focus on high traffic areas with great exposure. Select areas that are not near major chain stores to grab the maximum amount of market share in a locale. Selling creative donuts that combine unique flavors like bacon and maple can distinguish a business through higher quality products. Mobile businesses and delivery models can expand into a larger area and increase the profit potential. Office delivery and event catering are both effective sales strategies.