February 21, 2022
Did you know that donuts are the favorite baked goods in America? With an average of 110,000 "donuts near me" monthly searches on Google, this staple has become the most popular breakfast choice in the US.
From grabbing donuts as a convenient breakfast item to enjoying it with a mug of freshly brewed tea in the evening, donut shops have to serve customers all day long.
Thus, setting up a donut business could be highly beneficial for you.
But how do you start a flourishing donut business? Read below to learn about a business plan, startup costs, profits, and all the essentials that you require to start a donut shop.
The Startup Cost of a Donut Business
The initial startup cost for your donut business varies due to factors such as the size of your store, expenses, equipment, and fees..
Generally, an initial investment of about $10,000 can help you cover costs such as equipment, initial rent, and inventory supplies.
For a startup food business, you need a license and certifications. Moreover, if you wish to set up a website, you should keep some backup money for such services.
The startup cost also depends on the location you choose. For example, if you lease a retail space of less than 1000 square feet in a smaller town, you will have to pay about $6 per square foot.
So initially, you'll be spending about $6,000 on rent, which means that you should aim to earn about $50,000 to pay 10-12% on your lease.
Your business strategy should aim to generate $50,000 per month. Therefore, you will have to price your donuts accordingly to manage the cost of your business.
How to Start a Donut Shop
Starting a donut shop is a bakery business that you can set up in a variety of ways. So take a look at our step-by-step guide below.
Whether you want to start a drive-thru, opt for a retail store, or perhaps open a franchise, setting up a donut shop requires a thorough business plan, funding, branding, and advertising.
Create Your Business Plan
The first step in starting a donut business should be devising a plan that covers startup costs, finances, target market, name, and branding.
Developing a business plan is of utmost importance because it helps you reach your goals.
It also helps you to keep track of your tasks. In addition, a business plan works as a summary that attracts financiers and investment.
Therefore, if you want to attract potential investors, you must devise a marketing strategy and financial projections to help expand your business over time.
If you want an investor and lender-ready donut shop financial plan, you should use a donut shop financial projections template which is a pre-built plan.
It will provide you with a donut shop financial plan spreadsheet to help manage your business well. It not only keeps you well organized but also provides an insight into your sales predictions and financial assumptions.
Once you map out the business strategy, it is time for you to choose the name of a donut shop.
Tip: Always run a search through the United States Patent and Trademark Office before finalizing the name of your donut business.
Determine the Cost of Setting up a Donut Shop
Determining the cost of setting up your donut shop depends on the type of shop you want to rent out, the space you require, and the location.
Therefore, before you set up a donut shop, you must know about your shop needs. For example, a drive-thru may be more suitable for your startup, and you'll therefore pay less rent for it.
If you have yet to market your business, renting a drive-thru is more appropriate for your small-scale business.
However, if you want to start with a full-fledged donut shop that has a seating area with spacious kitchen space, you may want to look into the costs beforehand.
Considering the space of your donut shop will help you calculate the money you need for renting out retail space. However, you must keep your expenses in mind as you have yet to purchase equipment and pay monthly rent.
Check out our startup donut shop financial projection video guide here:
Get Food Sales and Business Licenses and Permits
You should start with state-specific requirements when you need the food sales permits and licenses because every state has different rules and regulations regarding a new business.
We suggest that you look into getting all the necessary licenses and permits before starting your business, so you do not get in trouble with the state and tax authorities.
It's vital to look into restaurant permits and licenses as early as possible. Some specific permits may be required before you can obtain other licenses.
Remember to outline the paperwork before filing for the permit applications to avoid missing critical deadlines. Here are some of the licenses and permits you may require for setting up a donut business.
- Catering license
- Health & safety inspection
- Sales license
- Food handler's license
- Zoning permit
Investigate a Donut Shop Format
Researching a donut shop format is crucial in setting up a donut business. But, first, you must know what type of donut shop you want to open.
Are you planning to run a business from the comfort of your home? Do you want to offer food delivery to customers? You must ask yourself these questions as they'll help you decide what type of donut shop format would suit you best.
You can also choose to run a franchise. Franchises are brands that have national or regional recognition.
If so, a well-known brand must permit you to run your business based on their business model and name. Then, all you have to do is pay them a monthly fee, and they'll benefit from brand recognition.
Donut Shop Formats
There are various types of donut shop formats available for you to choose from. Here are some of the best shop formats for your donut business.
- Drive-Through Only
The best thing about drive-thrus is that you do not have to offer indoor dining. This saves the cost of seating, maintenance, and more. So if you're a business startup looking to expand over the years, choosing a drive-thru format initially will help cut down extra costs.
You also don't have to offer a parking space to your customers or worry about inside ordering options. This format also works best for coffee shops, so it is sure to work well for a donut business.
A dine-in format will offer your customers more comfort as they can enjoy their staples at your restaurant. In addition, more customers will want to dine in at your restaurant if you offer seating options.
You could either set up an indoor or outdoor seating area.
- Counter Only
You can also set up a donut shop that does not offer seats to customers, but allows takeaway food that customers buy at the counter.
If you have a small storage space in a busy location, opting for a counter-only option would work best for your donut business.
- Food Truck
Are you setting up your donut shop in a bustling city? Food trucks are a very reliable shop format that is suitable for larger areas because it helps you set up a mobile restaurant.
Find the Right Location for Your Donut Shop
When you think about how to open a donut shop, your foremost concern should be choosing the right location.
Just remember that your business strategy has to attract maximum customers. For this purpose, you must select an area that is appealing to your potential customers.
Before finalizing a location, you should consider the following factors.
- Market conditions
- Appealing place
- Competitors in the surrounding area
- Ease of accessibility
Also, keep looking for available properties that you can rent out. You must keep an eye out for commercial properties that previously were a cafe or a bakery.
This way, the property will be a go-to place for many customers, so when you start your business, the place will immediately begin attracting customers.
Create a Donut Shop Menu
Creating your donut shop menu may seem challenging, but an attractive menu will help your business gain potential customers. You should have a well-designed menu so your customers can easily find what they're looking for.
Your donut business should also offer combos to customers. Here are some things that you can feature on your menu.
- Breakfast sandwiches
- Shakes or smoothies
Find Investors for Your Donut Shop
After you set up a smart business strategy and choose a shop format, it is time for you to acquire investors. Funding your business is vital.
If you have enough investment to start your business by yourself, consider yourself lucky. But if you do not have enough cash, you will need investors to fund your business. Here are some tips on pitching investors.
Fortunately, there are plenty of options for financing your business.
You can opt for traditional bank loans that let you borrow a fixed amount of money that you have to pay back within a set time frame.
You also have the option for a business line of credit that lets you have access to a considerable sum of money that covers your equipment expenses and other significant expenses. This works like a hybrid between a credit card and a loan.
Besides this, you can take small microloans from the US Small Business Administration that aims to help startup businesses.
In addition, crowdfunding is an excellent way to generate money for your business. Websites such as GoFundMe can help business owners efficiently.
Purchase Donut Making Equipment
Donut-making equipment is the essential feature of your donut business. So, purchasing the necessary inventory supplies and equipment is very crucial.
The number of inventory supplies and your equipment size should depend on your available space. For example, if you aim to choose a drive-thru shop format, you won't have the kitchen space for heavy equipment.
So once you choose a shop format, you need to buy the equipment accordingly. The average cost of donut-making equipment will be around $15,000.
Equipment for Donut Shop
Besides the inventory and kitchen supplies, you'll need equipment for your donut shop. Essential equipment such as ovens, fryers, and mixers are incredibly vital for your business. Here are some other pieces of equipment that you must purchase before setting up your donut business.
- Donut cutters
- Dough scorers
- Fondant cutters
- Coffee makers
- Cooling racks
- Menu boards
- Restaurant signs
- Cash register
Devise a Marketing Strategy and Work on Branding
Before starting your donut business, you should devise a marketing strategy for your business. This way, you'll have customers when you launch your business.
You need to work on advertising, promotion, and branding after you've selected a menu for your donut shop.
You need to come up with some special products and combos. Print pamphlets and also offer vouchers to your first customers.
This will help attract more customers, and you'll start selling donuts in no time!
Moreover, you need to think about unique marketing strategies that will keep your customers in the loop.
For example, making a website for donut delivery would be attractive if you offer discount codes. You can use your business funding for marketing as well.
Social media platforms are a fantastic and engaging way to attract new customers.
However, you must ask yourself questions such as "will influencer marketing help me get more customers?", to have a better insight into promoting your business and attracting maximum customers.
Hire Staff for Your Donut Business
Once you set up a donut shop, receive funding, and work on branding, you need to hire and train staff.
Food businesses often flourish as a result of efficient staff. In addition, staff efficiency can help make your business thrive as they'll serve customers on time.
Creating a positive environment for your customers that satisfies them must be your number one priority as satisfied customers are more likely to come to your shop again.
It would be best to form a training plan for your employees, as every employee has a different working experience.
If you make a well-thought-out plan for training your employees, it will prepare your staff for your specific business.
Train your staff to always focus on customer service and money handling, as this will help make your business stable.
But do not leave your business to your employees. You must take full responsibility for your business as an employer and act accordingly with your staff.
You need to keep track of your records and sales. Staying organized is extremely important when you run a business. You must keep track of your employee records as well.
In addition to this, you must maintain tax records and keep track of day-to-day sales to meet your monthly business expenses.
Start Advertising Your Donut Shop
Customer influx is the primary agent that makes your business successful. A smart business strategy isn't going to save your business if you do not have enough customers coming in every day.
This is why you must work on advertising your shop.
Once you've set up your donut shop, you need to work on attracting potential customers to make your business successful.
Innovative business tactics such as advertising a grand opening or offering discounts work best in promoting a startup business. You can also set up small food stalls for free food tasting.
Your marketing cost will vary according to the advertising method you choose. But your primary goal should remain the same - attracting maximum customers to generate revenue.
How Much Can a Donut Shop Make?
An average donut shop or bakery makes about $577 every day. However, this daily income depends on the location of your shop
For example, a small but well-known donut shop may make up to $150,000 profit per year, but the sales will fluctuate throughout the year.
Average Price of a Donut
The average price of a donut in the US is between $0.89 and $1.50 according to ThePricer. Once you decide on a price point for your donuts you can enter in your pricing assumptions in our template as seen below:
How Much Does it Cost to Make a Donut?
The average cost to produce a standard donut is $0.12 cents according to Toast.
Donut Shop Gross Profit Margins
Donut shop gross profit margins range between 87 and 92%. If we assume that you sell a donut for a price between $0.89 and $1.50 and the cost to make the donut is 12 cents, then your gross margin for donut sales would fall between that 87 and 92% range. Once you estimate your material cost of goods sold for your donuts and any merchandise or other products you sell, you can enter in those percentages as seen below:
How Much Does a Donut Shop Owner Earn?
Since donuts have a good profit margin, shop owners will find it to be a profitable business. The average pay for a donut shop owner is about $42,318 in the United States. But, the salary ranges from $35,000 to $45,000.
According to a report published by New York-based Goldstein Research, donuts generated about $40 billion in revenue in 2016.
This figure is expected to rise to $55 billion by 2024, which means this breakfast item will never be out of demand.
Thus, setting up a donut business can be highly profitable if you manage it well. All you need is to focus on the few factors we discussed, and you're good to go!
Photo by Cats Coming from Pexels
You can get the Donut Shop financial projection template used in this article!
The template is simple to use and will save you loads of time while still producing professional looking donut business projections. ProjectionHub has helped more than 50,000 businesses create financial projections so you can be confident that you can do it too.
The donut shop business projection template includes:
5 Year Donut Shop Pro Forma Financial Statements
CPA Developed & Completely Customizable
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Compatible with Google Sheets
Free expert review of your completed projections
The template is easy to use and you do not need to be an excel wizard to fill it out. Editable cells are highlighted in blue, a video guide is included, and our team is available to answer any questions you have.
You can see the complete walkthrough and demonstration of the donut business forecast template here:
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