If you love to bake and share your goodies with others, chances are good you've considered opening a bakery at one time or another. Whether a brick-and-mortar store, a home bakery, a delivery service or a drive-through, opening your own bakery could give you the opportunity to make a living doing something you enjoy.
The baking industry is a $153 billion industry as of early 2020, and it pays out more than $44 billion in wages each year. There is a lot of money to be made in this industry with the right business strategy and focus. As a small-business owner, you can experience a sense of satisfaction to be one of the nearly 800,000 people currently employed in the baking industry, and you can create jobs for others in your community.
While it's true that the baking industry is huge in the U.S., corporations make up a large portion of the market. Making a good living as a small bakery involves intentional strategy and careful decisions about things like:
- Ingredient sourcing
- Speed of growth
Your local Small Business Administration can help you think through a sensible bakery business plan and bakery cost analysis, as well as guide you through marketing, hiring and expansion.
Purchasing ingredients for scratch baking is expensive, as are storefronts, kitchen spaces, employees and the cost of opening a bakery when you first start out. It is wise to keep your gross profit margin at about 50% and to grow at a rate that can sustain that by keeping ingredient costs below 35%.
When you start in the bakery industry, your cost for ingredients is likely to be relatively high because you don't yet need to purchase supplies in large enough quantities to bring down the prices. If you factor in the cost for a storefront and employees at the same time, your prices might end up needing to be twice as much as those for a well-established bakery. One way to get around this conundrum is by delaying your storefront until you can purchase ingredients in larger amounts at a lower price point.
After your ingredient prices are lower and your customer base is large enough, you are better positioned to start expanding through:
- Hiring an employee
- Renting commercial kitchen space
- Sharing a kitchen in an established business
- Opening a small storefront
One way to keep your gross profit margin high is through sourcing affordable ingredients and keeping overhead low. Another component of a healthy gross profit margin is pricing. For example, if you're making gourmet cupcakes for a wedding, you might incur the following expenses:
- $125 in ingredients
- $250 in labor costs
- $145 in overhead
Your cost for those cupcakes is $520 if you make no profit at all. To keep a healthy 50% profit margin, you need to charge $1,040 to make cupcakes for that fancy wedding. If you struggle with guilt when it comes to your pricing, now is the time to recognize that your prices have a lot to do with whether your customers can count on you to be there to serve them a year or 10 years from now. It is for their benefit, not only yours, that you price your baked goods in a way that is sustainable and fosters healthy growth.
The average gross profit margin for bakery businesses varies greatly, but you can make a decent living by keeping overhead low and prices appropriate.