Possibly the best answer would be “It Depends.”
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There is no one definitive accurate answer as to whether or not small bakeries are profitable. Some have been operating for generations, others have closed weeks after opening.
The same could be said if you asked “Are bakeries profitable?” If you were talking about the larger businesses, franchises etc.
Some are, and some aren’t. It depends on a broad range of variable factors.
The franchises have a tight selection of products. They sell only what they have found to be popular.
This could be as few as 6-8 lines of products.
Others do nothing else other than make specialty cakes for parties and special occasions, without selling any bread or its associated products.
So, it often comes down to selling specialty cash cows.
But like any other business, there are a host of other factors to take into account as well.
- Location and Visibility.
- Ease of access – Parking availability, lots of foot traffic, targeted marketing
- Cost of outgoings. Rent and electricity. Cost of ingredients, and salaries.
- Fluctuations of sales between normal periods and holidays or festive occasions.
- Popularity, pricing, and service.
The Profit Margins you can expect operating a Bakery.
Although I say there is no definitive answer as to whether small bakeries are profitable, based on some conservative estimates, a typical profit margin for a bakery might be in the region of 4% and 9%.
Others go a little higher and put it between 4% and 12%.
I would say if you can maintain a 9% to 12% margin you are doing ok. I have heard of others in the 15% to 20% range but they are rarities (or liars).
Your biggest recurring costs are going to be Ingredients, electricity, salaries, cleaning materials, and rent. Plus payments for ovens, mixers, benches, trays, shelves, and display cabinets.
Also, there will be bureaucratic processes to comply with. These can be ongoing. Yearly health inspections are common in many countries.
If this is your first business, then naturally there will be a learning curve!
You need to know your plan and budget before you start and picture where you want to go with your business. Just remember, business is part strategy, part intuition, and part luck.
My father used to say just concentrate on what you are doing and make sure you are doing it well.
There are short courses you can do to help your chances of having a successful bakery business.
A small investment in yourself will usually pay good dividends.
Options for Starting a Small Bakery.
Here are the three main options.
- Work from home as a side hustle
- Setting up your own Bakery shop
- Buying into a franchised bakery organization.
Here is an overview of the options, starting with the Work from home idea.
Starting a Bakery from Home.
Before you start understand that bread is food, as are cakes and cookies. So before you can sell anything, you will still need permits from your local authority. There is no getting around this.
Still it is a great way to start. It allows for low overhead and flexibility.
It is a great place to research (experiment), as to what sells and what doesn’t,and develop a good business plan, without all the overheads of a storefront.
If you don’t know how to do a business plan go here.
Remember:- A great number of successful solopreneurs started as one-man-show businesses from home — no rent to pay and no employees to pay.
Start with friends and family and friends. Bake a big batch of your wares invite your friends and family over and tell them about your idea.
This will do a couple of things. It will give you practice and knowledge of what is likely to sell. Plus they will advertise for you.
Word of mouth is everything. Once you have your permits in place get your message out to party planners, wedding planners, and caterers.
Also, don’t forget social media.
Keep it small and innovative. Come up with unique items (make them signature products), that no one else thought of and put photos of them on social media.
Then do more parties to show off your innovations. You will develop a following (customer base).
Alternatively, if you are just baking Artisan bread, as well as supplying family and friends, take a batch down to the local markets.
I knew a guy who did this. He was a bricklayer during the week, a baker on Saturday afternoons and evenings, loaded it all up and sold it at a stand he had at the markets on Sunday mornings.
He was only selling one type of Artisan bread (I forget which), but by 11:00 o’clock he had usually sold out and had a $350.00 clear profit.
If you intend to scale up your bakery business, use your first profits to buy better equipment.
Opening a Bakery from a Storefront.
The biggest challenge will be finding an ideal location at a reasonable cost.
Ideally, you will want something not too far from home. I don’t know about you, but after an early morning start, I wouldn’t be looking forward to a trip home that takes an hour or more.
That being said, most new bakery start-ups combine food (pastries/pies), with drinks (coffee, fruit juices, and soft drinks), as well as selling the usual bakery staples.
Position, is everything for a successful bakery business, even more important than having a signature product. (Believe it or not!)
You will be trying to get walk-in customers from 3 sources.
- Early morning customers on their way to work, or just picking up fresh bread for the kid’s school lunches.
- People on their morning and lunch breaks.
- Random people dropping by after shopping or a meeting.
From those 3 sources of business, you should be able to gain additional business supplying cakes for birthdays and other special occasions.
If you started with a work-from-home business first, you will know what will sell well, and you may already be supplying a catering business. These two things alone more or less guarantee you have an income to support the initial costs of having a store and reducing your borrowing costs.
Finding a good location at a reasonable cost to support your overheads, and allow enough for a reasonable profit is a task that will require a dedicated analysis.
Buying a Bakery Franchise.
Going into this usually requires a huge initial outlay.
This requires a lot of research, and apart from the company’s prospectus, you don’t really have a lot of independent information.
Buying into a franchise does remove some initial problems though. This includes location which is a huge stumbling block for independent bakeries.
It would pay to go and check out existing stores which are usually located in shopping centers and talk to the owners.
The good thing about franchises (among the pros and cons), is they can be purchased without you having any baking experience.
Other pros include:
- Training on how to manage the business
- Providing the ingredients. This is beneficial to the franchisee because by buying in large quantities, the head company receives the raw materials at a diluted price.
- Some franchises get all their items premade — all the shop owner has to do is throw stuff in the oven.
- Fitting out the store.
- How to deal with difficult customers.
Normally franchises have a limited selection of products. They have worked out what sells well and focus on those. Any extras would include cold drinks.
The operations are heavily focused on quick turnover of products and quick service.
As the saying goes, “A good business depends on how quickly it can turn over $100.00“
What is the biggest problem with Bakeries?
Staffing. No matter how well-managed the rest of the business may be, how big or small the operation is, and how great or poor the shop’s reputation may be, staffing will be a constant source of issues.
It will likely be your biggest expense too, above utilities and ingredients.
There will be times when things flow smoothly, but it only takes one to upset the apple cart.
Should a Bakery Have a Website?
Definitely. With lots of photos of their creations. Stories and photos of happy customers.
Is a small bakery a good business?
It can be if you think it through. The advice given above should help. If you are afraid of hard work and long odd hours then you might be better off sticking to the 9-5.
If you like the idea of working from home but are unsure where to start, there are more work-from-home reviews here.
Thanks for reading.