Wondering how much it costs to start a bakery? Average start-up costs vary dramatically depending upon the type of bakery; counter bakeshop, sweet shop restaurant, commercial wholesale bakery, online bakery website or home-based bakery. I’ve compiled this list of startup costs of all bakery types for my business consulting clients and I wanted to share it with you.
Here are the average startup costs for each type of bakery; bakery shop counter or sweet shop restaurant with seating $70,000, commercial wholesale bakery $87,200, online bakery e-commerce store $28,400, home-based bakery $19,500 and bakery franchises start at $500,000.
Let’s get baking…
- Detailed Startup Costs by Bakery Type
- Working Capital Calculation for Bakeries
- Factors Affecting Bakery Startup Costs
- 6 Ways to Reduce Bakery Startup Costs
- Sources for Low Cost Bakery Equipment
- Cost Cutting Startup Tips from Successful Bakery Owners
- State of the Baking Industry Statistics & Costs
Detailed Startup Costs by Bakery Type
Business registration, permits and licenses
Advertising and Website
|Rent deposit – $5,000 & Monthly Rent $2,500||Warehouse rental $5,000 month, security deposit $7,000||No rent||No rent|
|Construction and Furniture||$5,000 – $25,000< (with restaurant seating)||$3,000 – $12,000 Factory setup and storage facility||No costs||$2,000-$10,000 Convert home kitchen to industrial|
|Equipment and Cookware||$20,000||$35,000||$10,000||$5,000|
|Startup Inventory Ingredients||$5,500||$7,000||$2,000||$1,500|
|$8,000 – $13,000||$6,000-$25,000||$3,000 – $4,500||$2,000|
|TOTAL||$62,500-$77,500||$71,700-$102,700||$26,800 – $30,000||$15,500-$23,500|
NOTE: Bakery franchise startup costs vary widely from the expensive Dunkin Donuts (up to $1.6M) to the moderate Nestle Toll House Cafe by Chip (up to $499K).
Get more information on this list of bakery franchise costs at Entrepreneur.com
Working Capital Calculation for Bakeries
In addition to the startup costs detailed in the above table you will need adequate working capital.
Working capital is liquid funds, money reading available to pay for day to day operations such as supplies, bills, employees and rent. It is the difference between your company assets (cash, unpaid customer bills, inventory) and liabilities such as outstanding bills and loans.
Most business finance experts recommend a minimum of 6 months of working capital. To calculate your total working capital budget; add up all ongoing costs minus your hard set-up costs such as equipment purchase, construction, and initial inventory.
An example is to add up your annual budget for all salaries, rent, utilities, supplies, and advertising then divide in half to determine 6 months working capital. Add this total amount to your startup purchases to determine your total startup costs.
Factors Affecting Bakery Startup Costs
Listed below are important factors, about the type of bakery you want to open, which will significantly affect your startup costs.
Storefront vs Wholesale vs Online
The costliest startups are those with storefronts due to lease deposits, monthly rent payments, construction costs, permit fees, utilities, employees, labor and increased insurance premiums.
Wholesale bakeries are also fairly costly to launch due to the need to invest capital in purchasing industrial equipment, leasing warehouse space and buying large quantities of ingredients.
The least costly are wholly online-based bakeries (and home-based) with no brick and mortar locations who deliver directly to their customers.
Dining Seating vs Counter Service
Offering a dining seating service for your customers increases your startup costs. You need to buy tables, chairs, silverware and decor and you may need to hire wait staff. Also, your insurance premiums will increase.
Independent vs Franchise
Buying a franchise bakery is often the most expensive route to opening your store. An example is Corner Bakery Café Franchise startup costs that range from $952,000 – $1,952,000 without real estate costs. Source
Most independent bakeries can be launched for less than their franchise counterparts.
Commercial Bakery vs Home-Based
Launching a commercial bakery can be cost-intensive due to industrial equipment purchases.
A home-based small bakery can be less expensive to start because you will be able to use your existing home kitchen (with modifications as dedicated by your State), and not need to buy expensive industrial equipment. You will still have delivery, ingredient and marketing costs for your bakery business.
6 Ways to Reduce Bakery Startup Costs
#1 Rent Space from an Existing Bakery
A smart way to reduce your startup costs is to lease a space that was formerly a bakery or restaurant, that already has some baking equipment installed such as professional ovens, storage racks, and workbenches. This can reduce your startup budget by over 40%.
Plus, if the prior food business recently closed you gain their brand awareness in the market. This can yield huge savings in advertising costs. Although you will have to differentiate your new business from their old business and overcome any negatives associated with the prior bakery.
# 2 Buy Used Bakery Equipment
Seriously consider buying used equipment instead of brand new. Many reputable baking equipment suppliers offer top quality used equipment, often certified with warranties, which will greatly reduce your startup budget.
When I started a manufacturing firm, one of the smartest moves I made was to buy entirely used filling equipment. I was able to afford a higher quality brand, with greater output capacity, for less than half the price of new equipment. Check out my list of places to find inexpensive bakery equipment
Remember bakery equipment is heavy duty and durable so it will last for many years. Thus used equipment has plenty of functional life left. In fact, my used factory equipment broke down less than some of the newer items we later purchased as our business grew!
#3 Start Small and Grow
One of the wisest moves for entrepreneurs is to start small and grow. It is far easier, less costly, and safer, to start a smaller business with less equipment, fewer employees, smaller retail space – which all cost less. Then later invest more capital as your business grows.
In addition to saving initial startup costs, you will learn what baked goods your customers prefer and which flavors are their favorites. At that point, you can invest more heavily in equipment to expand these best-selling product lines.
#4 Offer a Narrow Range of Baked Goods
Reduce the number of items you initially offer to cut your startup costs. This way you will need fewer types of equipment and less ingredients on hand saving you money.
This certainly doesn’t mean a boring bakery menu. You can offer one type of baked goods, such as cakes, in many different flavors, sizes, and styles to interest your customer.
#5 Focus on Bakery Counter Service Only
To reduce your startup costs open a counter bakery without any restaurant seating. Without a restaurant dining area, you will be able to rent a smaller store, use the entire store to display your baked goods, hire fewer employees and typically will pay fewer insurance premiums.
#6 Deliver Baked Goods with No Storefront – Wholesale, Online or Home-Based
To cut startup costs, have no storefront. Launch a wholesale delivery-only or home-based bakery that sells baked goods commercially to grocery stores, gourmet markets, farmer market vendors, delis and restaurants – or directly to consumers online. This dramatically reduces your start-up costs because you do not pay for storefront rent, store employees and utilities.
How about rolling in dough – Ha ha 🙂 Think about opening your bakery as a food truck (check out my big list of food truck name ideas). It will be less costly than a storefront plus you can change locations frequently for maximum customers.
Another way to open a no storefront bakery is to be based entirely online. You display and sell your baked goods from an e-commerce website and through social media as an online bakery. Learn how to start an online bakery from the experts at Paperform.com
Check out this example of a successful online bakery – Looma’s.
Sources for Low Cost Bakery Equipment
One of the best ways to keep your startup budget lean is to save money on your bakery equipment. Here are some places to find inexpensive bakery restaurant equipment.
- Restaurants going out of business
- Damaged Appliance Sellers
- Garage Sales
- Resale stores
- Kitchen remodelers
- Apartment property manager
- Schools and hospitals
Restaurant Supply Houses
Here are some of the most affordable restaurant supply sources our restaurant clients recommend:
- Web restaurant store – This major online site offers great prices on bakery equipment, display cases, wholesale baking ingredients, cake decorating supplies plus bakery boxes and packaging.
- Probake – This commercial bakery equipment site offers top quality bakery machines, for commercial bakeries producing bread, pasta, cookies, and pastries. Good prices on commercial bakery ovens, dough mixers and bowl lifts, pasta machines plus an extensive used bakery equipment department to significantly reduce your startup costs. They also offer financing options for both new and used equipment.
- Bakery Equipment Sales – This full-service site ships equipment worldwide both new and previously owned. They have a wide selection of every type of bakery equipment including specialty items such as croissant, chocolate, tortilla, and donut. Plus they also carry a full line of bakeware items, refrigeration and chilling equipment, tables, benches, storage racks, slicers, and baggers.
- Erika Record Baking equipment – Another excellent source for baking equipment of all types including for cookies, confectionery and bread production. They sell both retail and wholesale items such as professional chocolate equipment, mixers and bakery ovens. They also offer a complete line of certified used equipment with warranties.
Cost Cutting Startup Tips from Successful Bakery Owners
Get an Accountant to Carefully Track Costs
Michelle Honeman the owner/founder of Oregon’s own “Sugar Mommas’ Bake Shop & Cafe” recommends,
Before you open your doors, get yourself a Bookkeeper (or a skilled administrative assistant) and Accountant. I was lucky enough to find someone who was both a Bookkeeper and an Accountant.
My first year in business in my small town I did $270,000 in sales. My COGS (cost of goods) was $74,000 and my payroll expenses was $122,000. So what does that tell me? Too much labor, that’s what. And I was able to see everything broken down because my bookkeeper took the time to teach me. Save yourself and get a bookkeeper/accountant!
Save Startup Costs – Negotiate Some Free Rent
Tessa, the baker & dessert enthusiast behind Sweet Bake Shop recommends.
Ask for some free rent. The worst thing that your potential landlord can say is “no”.
However, it’s completely normal to ask for a month or two free rent while you make necessary renovations and most business owners I’ve spoken to about this have said that this is usually met with a “no problem”, especially if the space really needs some work.
Don’t be afraid to ask!
Set Appropriate Prices – Know Your Ingredient Costs
Yolanda, from the baking business experts at BakeCalc.com suggests,
Once you’ve got your business ready to go, setting prices that are attractive to customers but good for your bottom line can be difficult.
It is important that you know the expenses that are needed to make each product that you sell. Our baking calculator can help you work out how much you are spending in the production of your goods – including your ingredients, equipment and time. This can be useful in helping you to set prices that are fair both to you and your customers.
Yes, bakeries can be nicely profitable. Based on the average profit margin in the bakery industry, 10-15%, and the average annual revenue per bakery (for established bakeries), $450,000, you could generate up to $67,500 profits per year.
Profitable bakery owners say that your cost expenses should be as follows:
Ingredients – 25%
Labor – 35%
Overhead (including rent) – 30%
Profit – 10%
On average small bakeries have monthly sales revenue of $1,750-$5,450, depending on their market and prices. Which yields an owner salary of $18,000 – $55,000 annually.
The US Bureau of Labor reported that bakers in 2018 had a median pay of $26,520 per year and that the job outlook is growing as fast as average at 6%.
Your equipment list will vary depending on your bakery menu items. This startup list for bakery equipment will get you started.
Sheet pan racks
State of the Baking Industry Statistics & Costs
Get more of my best food business ideas here