September 16, 2022
Do you find yourself daydreaming of owning your own successful bakery? If you have a passion for pastries, and some business savvy, making a career out of doing what you love can be a winning combination. Your first step to making your dream a reality is to do your homework and find out exactly how much does it cost to open a bakery.
How Much Does it Cost to Open a Bakery
While it seems like a straightforward question, the answer is much more complex. Simply put, the cost of opening a bakery depends on a multitude of factors. Real estate prices in your area, the size of your bakery, staffing, and inventory needed are only a few of the elements that drive the start-up costs of a new bakery. Before we quote numbers, let’s look at some of those factors that come into play when estimating a bakery’s start-up costs.
Bakery Real Estate Costs
The expenses incurred for the physical location of your bakery is generally determined in cost per square foot. As with all real estate ventures, location is the number one factor to influence this expense. A location in a large urban center will have a higher price tag than a quaint bakery shop in a small town. The neighborhood you choose will also influence the cost and will be affected by the supply and demand for that specific area. Busy locations near other attractions, such as shopping centers, trendy areas, and high-population density all drive real estate prices for businesses. Taking time to research local real estate prices will be the best way to answer the question of how much does it cost to start a bakery in your area.
Your decision to lease, buy, or build your bakery also affects the price per square foot. Leasing an existing location is considered the most affordable option and runs an average of $160 per square foot. Buying the location is slightly higher at $180 per square foot, which can add up based on the overall square footage of your business.
Building from scratch will significantly increase the initial costs of your bakery. The average cost per square foot for a new build is between $300 to $400. While you will have the option to customize your bakery to your exact specifications, building permits, contractors, subcontractors, and the inevitable delays associated with construction can also drive up your initial costs.
Bakery Utilities Costs
While utilities costs are often associated only with open establishments, it’s wise to remember your new bakery will require some utility use while the space is prepped for its big opening day. Electricity is needed for lights, refrigerators, and freezers while you gather your inventory. Any pre-opening renovations will also require on-site electricity and likely water and gas. The bakery will need its Point of Sale system installed so staff can be trained on it, so include Internet access in those startup utility costs, too.
It is estimated that the monthly utility costs for a bakery under 4000 square feet is between $1000 to $2000 per month. It’s unlikely your establishment will incur those exact costs in the pre-opening months but including some finances to cover these during the start-up phase is a good idea.
You’ll want your new bakery to look as inviting as possible to attract crowds of customers and start turning a profit as soon as possible. To achieve this, you’ll need to ensure your interior and exterior design is top notch.
The biggest factor affecting your bakery’s design costs is determined by what you initially have to work with. Extensive renovations will increase costs quickly, while minor improvements are more budget friendly. If you chose to build your bakery, you’ll be starting with a blank slate. While designing your bakery’s decor from the ground up can be exciting, it’s also easy to get carried away and overspend. It’s also likely you’ll need some input from an interior designer, which adds to the design budget but may help reel in unnecessary spending if a firm budget is established beforehand.
So, what will you need to make your bakery cozy and inviting for your customers? Seating is one of the most important elements of your design. You’ll want at least a few comfortable spots for customers to enjoy their baked treats. Including an outdoor patio increases this cost but can pay for itself quickly if your area has a demand for outdoor seating spaces. Lighting, display cases, storefront improvements, and both indoor and outdoor signage all need to be included in your design budget. On average, pre-opening construction and interior design will run between $5000 and $25000, depending on your location’s needs.
You can’t make delicious baked goods without the equipment to create them. You’ll need high-quality items, and plenty of them, to keep your bakery stocked. The average cost for equipping your bakery’s kitchen with the necessary equipment starts at $20,000. This cost can easily double if your bakery business model is commercial and supplies other local businesses.
This includes the standard equipment needed such as:
- Sheet Pans
- Sheet pan racks
- Dough Proofer
- Deep fryer for donuts
There are deals to be had at commercial kitchen wholesalers, but you’ll want to ensure your heavy kitchen equipment, such as your ovens, proofers, fridges, and freezers are of good quality and reliable.
There are many parts in motion when opening a new business beyond having the physical location ready to go. Among them, you’ll need food and serving inventory, packaging, and menus for a start.
The cost of ingredients and other food items on your menu take a big bite out of a bakery’s profits. While running your business, you can expect to spend between 28 to 35 percent of your bakery’s profits on this expense alone. Of course, during the start-up period you’ll only need a portion of that to get up and running. The average cost per month for food is $5,500.
Before you open your bakery’s doors, you’ll want to stock up on your non-perishable staples if you can find a good deal. Keeping your suppliers local can help reduce this cost. Of course, you’ll always need to plan for supply chain issues but sourcing your ingredients and food offerings as close to home as possible helps.
Non-food inventory includes all your plates, utensils, and take-away packaging. Branding your packaging will increase expenses but helps keep your bakery in the forefront of your customers mind once they walk out the door. Customized stickers, takeaway menus, or business cards included in orders are options when trying to get your bakery’s name out there. Depending on the size of your bakery, what items you offer, and what extras you choose to include these costs can total $20,000 or more.
Even the most business-savvy entrepreneur will need to rely on some outside professionals during start-up and beyond. While hiring outside help does increase the cost of opening a bakery it can also save you from costly mistakes down the road.
These professional services include:
- PR firms
- Website designers
- SEO firm
- POS software specialist
What services you’ll need will depend on many factors, such as how much design work is needed to get your location ready and how much of an online presence you’ll initially want. These expenses can total up to $50 000, but there is wiggle room for this expense if you take some of it on yourself or defer some of the services until your bakery is a little more established.
The staffing cost associated with running a bakery is approximately 30 percent of your bakery’s revenue. How much staff your bakery will need is the driving force behind this expense. During the start-up phase, staff expenses will mostly rely on how much training your staff requires before opening. Hiring experienced employees will reduce this cost. No matter how experienced your staff, expect to incur wage costs before your doors open. Training on your POS system for front-of-house staff and kitchen setup for your baking crew means you’ll have payroll expenses before your first cupcake is sold.
So, How Much Does it Cost to Start a Bakery?
Now that we’ve outlined all the factors that determine the cost of opening your own bakery, let’s quote some numbers. The average costs associated with opening a bakery, according to Zen Business, are between $62,000 - $77,500 for a typical neighborhood bakery and upwards of $71, 700 - $102, 000 for commercial bakeries. Opening costs vary greatly depending on your specific situation, but these estimates work as guidelines when determining if you can gather enough initial capital to start your business. Rather than a full scale bakery startup you might also want to consider opening a donut shop which would likely have lower startup costs.
It should be noted, franchises are another story altogether. While a franchise gives a bakery owner immediate name recognition, and possibly an initial, built-in customer base, it comes at a cost. Franchise fees can run between $30 000 to $100 000 for lesser-known companies and upwards of $200 000 to $100 000 000 for the most popular bakery franchises.
How to Lower the Cost of Opening a Bakery
While you may be dreaming of opening a traditional brick and mortar bakery, there’s nothing wrong with starting out small and building a clientele before making the big jump. Here are some budget-friendly options:
Bakery Food Truck: Food trucks have grown in popularity over the last decade. Food trucks are a lower-cost option for those who have a passion for food but, for various reasons, have opted out of the traditional restaurant business model. A food truck will cost much less than buying or leasing a building and utilities will also be a fraction of the cost as everything runs on propane. You’ll have limitations on the size of your menu, but if you choose items with high profit margins this may not be an issue. You also have the benefit of mobility. You can position your bakery on wheels to be where the crowds are for local festivals or peak foot traffic in certain areas. While starting a food truck bakery can be just as expensive if you let it, it can also cost you significantly less if you keep things simple. Food Truck Empire estimates the cost for opening a food truck at between $28 100 to $114 100.
Ghost Kitchens: While this business model excludes the ability to have a traditional in-house experience for your customers, it's an excellent way to test the market before making a large investment. Without a physical storefront, you’ll need to do some savvy marketing to get the word out. Your business will also need to offer a convenient ordering system and speedy delivery to get your tasty treats to hungry mouths. Costs will depend on whether you use your own kitchen or if you’ll need to rent a commercial kitchen to bake in. The estimated costs of opening a ghost kitchen are between $20 000 and $60 000.
Purchase an Existing Bakery: Buying an existing bakery can alleviate many of the issues with starting your own from scratch but there are many factors to consider before purchasing a ready-made business. Does the bakery shop meet your needs? Assess the current lease, rent amount, and layout of the shop to see if they align with your vision. You’ll want to also assess the bakery’s location and competitors. Is the bakery in a location that sees a steady stream of customers? Who are your competitors and what are they offering? You’ll want to ensure your bakery can stand out from the crowd and draw in customers with treats your competitors aren’t offering.
The bakery’s financial health is one of the most important factors in its viability. Make sure you get an honest look at their books to avoid any unpleasant surprises. If the equipment is included, determine if it's in good shape or needs replacing. Lastly, find out if the current staff will be staying on. This can reduce training costs, but you’ll want to know of any staffing issues before making your decision.
The Cost of Opening a Bakery Vs. Profitability
Once you answer the question of how much does it cost to start a bakery, you’ll want to weigh that information against its profit potential. To do this, you’ll need to sit down and create a specific business plan. Projecting the cost and profitability of your new bakery will be clearer once you create a detailed outline of your plan and factor in your money-making potential.
Projecting the Profitability of your Bakery
Using a business projection template such as the bakery template we have here at ProjectionHub, makes it easier to grasp these concepts and plan accordingly. With customizable templates you will enter a number of input assumptions based on your market research to determine your bakery’s profitability. Such assumptions include inventory costs, the investment capital you have, as well as fixed assets and loans.
You’ll also enter in your projected menu items, what you’ll sell the items for and your projected number of customers per day. After inputting your information into the Excel-based spreadsheet, Projection Hub will calculate the average spend amount per customer and help you calculate projected profit margins. While, on average, it takes two to three years for a bakery to become profitable, this information is incredibly useful not only for you but for potential investors or loan officers when looking for start-up capital.
Ways to Increase Bakery Profits
The restaurant industry, bakeries included, are notorious for their low profit margins. Even successful and established bakeries enjoy only a 12 percent profit margin on their total revenue. With the average bakery in the United States pulling in roughly $450 000 per year that leaves a profit margin of $54 000 after all expenses.
That means squeezing as much profit out of your offerings is a must. Along with your baked goods, offering profitable items like coffee, salads, and candies can increase your bottom line. Putting high end novelty items on your menu is also another option. Offering baked goods with premium pink chocolate or infused with alcohol cost a little more in ingredients but allow you to charge much more for these specialty items. Customization of your cakes and cookies for special events is a service you can charge a premium for and often takes only a little more time than your generic offerings.
How you sell your menu items can also affect how much you can charge. Offering individual portions of cake along with artisanal donuts and cupcakes lets you increase the price of individual items that would otherwise be sold in groups or whole. Throw in some next level packaging and you’ll attract a crowd who’ll pay a little more for the aesthetics as well as the taste of your goodies.
Pursuing the dream to open your own bakery can be a life-changing experience. The key to making your endeavor successful is to know the up-front costs, create a solid business plan, and know your profitability potential before spending a penny. How much does it cost to open a bakery? That answer is clearer once you have these pieces of the puzzle in place. From there you can use that knowledge to make smart decisions that will pay off and make your dream a reality.