If you are considering starting your own bakery business, or micro-bakery then one of your biggest considerations will be “Will it make any money?” The short answer is yes, but maybe not! If you want to learn how much money you could make from starting a bakery and the answer to “Is a bakery business profitable?”, let me try and answer this (relatively vague) question the best I can!
The earnings of a bakery owner vastly vary. Depending on the success of the bakery a bakery owner is likely to earn around £30-60K, but for many, it actually leads to a lot less.
When researching this post I reviewed several trading accounts in my local area via a company check website. The approximate findings for revenue and what the owner can expect to receive in the format of salary and dividends are:
|Business earnings (£)||Owner earnings (£)|
Note: The above data offers insight based on research, experience and assumptions. Actual results will vary depending on finance costs, products sold and the climate serviced. It’s a guide, nothing more.
Selling quality products that aren’t found elsewhere is the best way to guarantee success. A simple strategy to use is the 4 p’s of marketing which revolves around Price, Product, Promotion & Place. If you can produce bakery products that excite a big enough audience you can easily build a loyal customer base.
With the profitability based on ingredients so high, it can seem easy to succeed in a home bakery. But, to make a reasonable living from running your own bakery business will be a challenge!
Let’s just say you have factored in your ingredient and utility costs. You’re baking bread in full ovens to maximise efficiency too so you’ll be earning around £2 out of a £3 loaf. To make the average wage in the UK of £31,772 that’s a lot of dough!
31,772 / 2 = 15,886 loaves a year
15,886 / 52 = 306 loaves a week
306 / 5 = 61 loaves a day (based on working 5 days a week)
And that’s not taking into consideration delivery costs, insurance, marketing, or even equipment finance for that matter! Running a micro-bakery can be profitable but it’s unlikely to make you mega-rich! I quite like the once a week baking option. This is a great way to supplement existing income by making bread or cakes just once or twice a week.
Running a profitable bakery business is a challenge, and sadly many competent bakers fail. The issue is always balancing expansion with cash flow. As sales increase, you’ll want to hire more staff and time-saving equipment to cope with the workload. These costs eat away at your profit, making it hard for bakery businesses to scale.
A solution is to go down the wholesale route. This leads to big regular orders, less marketing and delivery costs and the ability to forecast your cash flow. Another is to also sell products that don’t take as many resources to produce. Adding additional products such as coffee, alcohol, sit-down meals or partnering with other suppliers to offer related products alongside yours are popular ways to increase profitable sales without draining baking resources. See how to increase bakery profit.
Can a traditional bakery be successful without these extra sales routes? Sure, but you need to get your location spot on without it costing a ridiculous amount in rent. Aim for rental costs to be below 10% of your expected turnover, cost your products effectively and maintain a strict budget.
The fundamental key to running a profitable bakery is to sell your products at the correct price. If you use my bakery costing plan you’ll learn how to include all of your expenses in your cost price and base your selling price on how many products you are planning to sell.
Once you have your prices set, you must focus on treating your bakery as a lean business. It’s important that the equipment that you purchase give you a financial return. It’s tempting to get a new toy that makes life easier, but you should consider if your business will really see a sales boost from it.
The same can be said regarding new lines. Expect product requests from your customers, but before you bake them you should consider if making them is a good use of your time and whether it matches your existing range/brand.
Whilst baking your own products is one of the most rewarding jobs you can do, turning it into a business is extremely difficult. Aside from making the baked goods, it requires a hard skill set including the ability to sell, negotiate, control costs, and (perhaps) manage a team. If you believe you have those skills then starting a bakery business is possible.
The cost of equipment and location lead to considerable variance in the cost of setting up a bakery. A micro-bakery can be set up for around £5000, whereas a larger operations start-up costs will start from £100k.
£5000 is the minimum budget to buy an oven, work surfaces, utensils, a small dough mixer and necessary costs to make an area suitable to produce food hygienically. Don’t forget to include a portion of your budget for storage devices and enough ingredients to get started.
Lastly, it can take a while until you build your sales up high enough for you to generate a profit. As mentioned earlier you might also invest in equipment or staff to meet production demands. This can offset your profit until your team and equipment become established.
You will probably need to have sufficient funds to support yourself during the first year of a bakery business. Whilst this is not essential in a solo-run micro-bakery, it is going to be a challenge if you plan to have staff in your first year. When you are running low on money it often leads to stress and making bad decisions. Ideally have a year’s of running costs in the bank before you start.
Because of the overhead expenses involved in running a bakery, it is important that you plan well before you launch. Know your products, suppliers, your pricing, how you will deliver your products and plans for expansion. Have a bakery marketing plan already written before you launch so you know who you are going to sell to and how you will reach them.
As long as you can keep your costs in line with your budget and offer a great collection of bakery products, you have the best chance of success!
I’ve shared many of the considerations you should take into account when starting a bakery business. In summary to the question, “Is a bakery business profitable?” is: Yes, a bakery can be profitable, but it takes forward planning and constant business management to achieve. Will it be worth working towards doing what you love for a living? Absolutely!
Let me know if you liked this article and ask any questions in the comments below, thanks for reading!