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Bakeries occupy a unique place in the food business market by offering specialty delights that are in high demand. Bakeries in the US make a combined $3 billion a year, with the average annual revenue for small bakeries laying between $325,000 and $450,000.
With this guide, you can work to ensure your bakery reaches peak profitability.
Costs to start a bakery
Baking requires different equipment than most kitchens. Appliances like large commercial ovens can quickly get pricey. As part of your bakery’s financial plans, consider these bakery startup costs and remember to budget for your unique business plan:
- Startup - $70,000-$250,000
- Equipment - $60,000-$200,000
- Permits/licenses - $500-$1,500
- Marketing - $300-$3,000
- Contingency funds - $30,000
From ancient recipes for bread loaves to complex cupcakes or pastries from around the world, bakeries occupy a solid corner of the restaurant market – start your bakery business plan with this template.
Planning for your first year
The first year of business is critical – and costly. Hiring the right team, renting a spacious kitchen, planning for operating costs, and lining up all the permits and licenses takes time and careful accounting.
Contingency funds will support your bakery in running smoothly for the first few years until it becomes profitable. Liquid assets from a combination of financial avenues (such as loans, savings, and lines of credit) will help pay for unforeseen expenses and labor. Even the best businesses aren’t immune to Murphy’s law!
Average bakery costs
The monthly expenses of operating your bakery will likely total around 75-85 percent of your monthly sales. For your first few years, you might have to invest in the shop to make up for losses in food costs or marketing. Luckily - in a bakery - labor costs are usually lower compared to other food businesses.
While you might make the best sourdough loaf in town, the proper financial plans are what will solidify your bakery’s long-term success.
Let’s break down the operating costs of running a bakery.
- Operating Costs $13,000-$60,000
- Insurance - $500-$8,000/month
- Rent - $1,500-$10,000/month
- Utilities - $1,000-$1,200/month
- Marketing - $500- $5,000 (3-6% of sales)
- Food Costs $5,000-$25,000 (30-35% of sales)
- Labor $2,500-$10,000 (24-40% of sales)
Forecasting your bakery’s sales
Typically, bakeries use sales data, labor costs, food costs, and production capacity to forecasts their sales. Without sales history, it is hard to make calculations about how your bakery will grow each month in your business's first year. Consider factors like seasonal peaks in your area, your marketing strategy, and other Key Performance Indicators (KPIs) when forecasting sales.
To start on the right foot, begin calculating your bakery’s daily capacity. Conduct this process separately for your retail and wholesale orders. Then, based on the food costs and profits, you can calculate how much you have the potential to make each day.
Consider also that bakeries have higher profits from special orders, which are often seasonal. Weddings, holidays, and other special events can influence daily sales during a given period.
Of course, you won’t be working at capacity every week, especially in your first year. If you have sales data from a month (or even a week,) you can view the average sales from each of those days and calculate the average for each shift. A proper Point of Sale (POS) technology will streamline this process by providing you with an organized dashboard of the daily capacity data you need.
Average bakery revenue
The average revenue of bakeries is lower than the average for restaurants. However, bakeries have great profit potential because they can be operated on lower labor and food costs than other food business models.
Nationally, the average revenue for bakeries is between $325,000 and $450,000. Once you run a model of your sales forecasts, you can get an accurate picture of your sales potential.
Bakery profit margin per month
Generally speaking, a food business’ profit margin is between 3 percent and 5 percent Some make as little as 0 percent while others as much as 15 percent To calculate your bakery’s exact profit margin, use the following equation:
monthly sales x profit margin = profit
If your bakery averages $40,000/month in sales, and the profit margin is 4 percent the profit is $1,600.
Bakery owner's salary
Once your bakery becomes profitable, then you as the owner can think about taking a salary! In a small operation, your salary might be a high percentage of the business's profits relative to how much labor you expend. If you are the lead baker, accountant, and administrator, you can afford to pay yourself a higher percentage of the profits.
Usually, a business owner’s salary is less than 50 percent of the profits. As the owner, you’ll have to make tough decisions about how much to pay yourself while also investing profits into the growth of the business. The first year can be especially daunting. But, by improving your sales with marketing and technology, you will put your bakery on the road to success.
Timeline to breaking even
Bakeries, like most restaurants, usually become profitable within their first three years of operation. This depends on food costs, labor, and your business’s KPIs.
Plan your finances carefully to ensure that your bakery becomes profitable before you spend through your contingency funds and financing. You can estimate how long it will take for your business to break even and become profitable when you have a full picture of how to forecast revenue.
Here’s a detailed example of a bakery’s timeline for breaking even
Live Oak Bakery in Lafayette, Louisiana starts with savings and investments totaling $100,000, business loans and financing totaling $150,000, and a repayment period of 6 years:
Permits & Licences
The owners’ passion is in every loaf and cake. They are doing a lot of the baking labor, marketing, and admin.
The annual cost to operate Live Oak Bakery is $427,800.
Live Oak Bakery sells sourdough loaves, baguettes, and pastries – the head baker makes 30 sourdough loaves and 60 baguettes daily and also keeps a rotating stock of specialty pastries. The average profit per guest is $6. The shop also takes custom orders for cakes and desserts, which profit about $125/customer at a capacity of five customers per week.
As the business grows, Live Oak Bakery establishes commercial relationships, supplying other downtown restaurants with bread service. The owners anticipate 10 restaurant clients. If Live Oak Bakery operates at capacity six days a week, the revenue of the store is $505,920 annually or $42,160 monthly.
Profit Margin at 100% capacity:
Live Oak Bakery doesn’t expect to operate at 100 percent capacity, except perhaps during the busy downtown festival season. Lafayette, Louisiana has an active festival season in the Spring and, because of its downtown location, Live Oak can expect steady traffic all year.
The store opens in Q1 to begin marketing and get customers’ attention before the Q2-Q3 festival season. Mardi Gras in Louisiana also brings extra sales in Q1 for King Cake season. This ensures the bakery’s downtown location has steady sales throughout Q2.
With this trajectory, the Live Oak Bakery is profitable at 93 percent capacity, which it achieves by the end of year three.
The right tech
Technology can empower your bakery with all the tools it needs to maximize efficiency and profitability. To set your business up for success, utilize inventory, time-tracking, and financial software from the start. This will keep you organized as you juggle everything that comes with opening a new business. Then, when you’re ready to scale up, the right technology keeps the business organized and your growth on track.
Bake your way to success
With passion, hard work, and the right financial plans, your bakery business can be as sweet as pie. Just make sure you take your time with the numbers. Financial plans are a crucial aspect of your bakery’s long-term success!
It’s never too late to open the bakery of your dreams. On the Line’s latest how to start a bakery guide has all the tips you’ll need to start your journey of baking the best loaves in town.