How to Start a Bakery Business From Home
February 6, 2020 • 19 minutes
Have you ever had store-bought cookies with that flair of grandma's baking? Custom made or homemade baked goods are on a different level than what you find in a shop. If you're a home baker, then you may have a big-ticket item for your area.
In grocery stores, bakery items only make up 8% of all food and beverage sales. But, outside of major stores, that takes a turn. The market size for bakeries is increasing in the U.S., in 2019, the market value was $66,900 million, and that should reach $81,500 million by 2025.
As the industry changes to promote home bakeries, Singapore bakeries worry that any home-based bakery will run them out of business, and Italians are outright shunning nearly all industrial-produced or mass-produced bread products.
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How do people become home bakery owners?
It's a natural flow of events. Typically a home baker will have spent years baking as a hobby or maybe selling a few brownies around the office. A few may have started taking on odd jobs for cakes or large orders, but nothing consistent before deciding to make it a full-time job. Then others have worked in a bakery or a restaurant and started thinking on how to open a bakery all their own.
Learning how to open a bakery business from home requires a fair amount of planning and having a path for your growth. Make sure that you know how to approach your differences from a retail shop and embrace them!
What is a home bakery and how does it differ from a retail bakery?
Retail bakeries churn out hundreds of baked goods each day whether there is the demand or order for it, or not. Now, a few retail bakeries are small mom-and-pop shops that use small batches, focus on delivering top-quality, and generally work out of one storefront. That's not going to be your typical competition from retail stores.
Running a baking business from home doesn't differ only because you don't have a retail storefront. Many home-based bakeries will eventually grow to have a storefront and still not consider themselves a massive retail operation. The real differences are that you’ll be cooking in small batches, with tight-knit quality control, and you’re cooking at home or in a private kitchen.
Can you have a home bakery in your area?
Wondering how to start a bakery business from home? If you're in the United States, the first thing you might consider is investigating your state's cottage food laws. These laws dictate what foods people can sell out of a home. They may limit how much you can make in a year, what you can prepare at home, or even if you'll need to renovate or build an entirely separate kitchen.
Some countries don't have a legal framework in place, and that encourages many people to sell home-cooked goods from their front door. Some countries will count home-based food services as sales to the public and require licenses. Others view it as simple trading in a neighborhood.
Make sure that you have a home bakery license for your city, county, or state. If you're outside of the United States, you should check with both your local and national governments to find any licenses, permits, or insurance requirements to provide food distribution from your home.
What home bakers usually sell?
Specialization, especially in food service, can be crucial to your success. As you get ready to open a bakery from home, you'll need to decide if you'll sell online or at farmer's markets and if you'll specialize in custom orders or a specific baked good.
**Cookie bouquets
**Cookie bouquets are excellent thank-you gifts, and specializing in them can help you get a foot in the door with businesses, local government offices, and community centers.
**Farmers markets
**Using farmer's markets to reach your consumers requires getting a tent, table, sign, and packaging for your products. It can also be time-consuming in that you'll need to pack up, set up, then stand there and sell, and at closing time, you may have leftover product. Farmer's markets are an excellent way for your home baking business ideas to gain some traction within the community.
**Decorated cookies
**Cookies have a low-price point but can quickly become labor-intensive when you look at decorating. The trick with decorated cookies is to market towards consumers that will accept a higher price-point and stick to a minimum order. For example, you could set up shop at a local farmer's market or through a local community center to sell a dozen at a time with seasonal or themed decorations.
**Wedding and birthday cakes
**Most consumers aren't willing to take on the task of making tasty treats for more than a small handful of people. Wedding cakes can be very profitable, but typically aren’t ordered consistently throughout the year, but when you add in birthday cakes or other party treats you can expand enough to stay busy year-round.
**Pre-packaged mixes
**As people stock up their pantries, many are looking for high-quality cake mix, make and bake brownie mix, and even simple pancake mix. Jarring or packaging your mix can be the specialty that grabs attention in your target market. Encourage home cooking habits but remove the struggle of carefully weighing and measuring dry ingredients!
**Healthier options
**Most bread you'll find on the shelves in America will include unnecessary sugar, while in Italy, there's trouble with over-processed grains leading to low-quality products. The result is a growing trend for the use of basic ingredients, ancient grains, and a high focus on nutrition. Countries, including Japan, Brazil, and China, are all looking to get away from processed bakery items.
How to create a home bakery price list?
Running a home-based baking business might start with passion, but you need to consider your profit possibilities. From Tracy, CA, Connie Welshonse is the proud owner of I Live for Dessert. Connie works as one half of a mother/daughter team in the bakery, and they grew what is now a local favorite from her home. Part of her success comes from learning about pricing.
«Your mindset has to change; you have to believe you are selling a product that has value and is worth the price necessary to make a profit. You don’t want to be that person who prices what someone else is pricing.» — Connie Welshonse
Connie acknowledges that you just can’t price what others are charging because they may not know about wage, overhead, pricing per cost, and other key figures. Learning to price your products is critical as you are setting up a bakery business from home. To build a price list, go through these steps:
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Determine your cost on each item — what it costs you to make one cookie, or one roll.
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Assess what other costs are involved — delivery expenses, your POS service, etc.
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Research your market and competition — what are people willing to pay?
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Can you make enough profit to stay in business?
How to start a home bakery business?
You don’t need experience to open a bakery from home, or a degree from a culinary school, or even experience running a business. While all of those things are helpful, you just need passion, the right equipment, a small investment, and a plan.
Derek Kaplan is the owner and operator for Miami, Florida's Fireman Derek’s Bake Shop. Now with years of experience, and recognition for his pie’s and success from Food & Wine Magazine, The Miami Herald, and Eater Derek hopes to help other home-bakers. He started at home making treats and selling a few pies on the side until he decided to take the plunge.
«As a baker, your focus needs to be on the product you're putting out, and that doesn't leave much time for the business side of getting your shop up and running. Having someone weigh out the costs of everything you need to open up as smoothly as possible, and budget with strategy is priceless in the long run.» — Derek Kaplan
The significant concerns to think over when starting a bakery business from home are:
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Legal requirements — licenses, insurance, appropriate space.
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Scheduling inspections with health authorities — research the demands of your government.
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Obtaining the right equipment.
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Finding a POS system to process transactions.
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Reaching your customers.
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Finding a catchy name from thousands of bakery name ideas.
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Arranging for necessary changes or renovations to your kitchen.
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Getting insurance for your business.
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Ordering your beginning inventory.
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Marketing online and within your community.
There are many moving parts to starting a home-based bakery. You might consider bringing in a professional to help make the entire process easier to manage.
«Looking back, I wish I had contacted a consultant when I first opened up shop instead of waiting until I was up and running. A solid restaurant business plan is an opportunity to bring your concept to life in a tangible way that you can build on for the future…» — Derek Kaplan
Do you need a business plan for a home bakery?
Creating a home bakery business plan might not be high on your to-do list now, but it should be as it allows you to plan for the challenges ahead of you. Derek Kaplan explained how important a good business plan is for any bakery.
«The business plan is essentially your brand's blueprint and budgeting tool. Ultimately this plan should serve as guidelines for opening and operating your restaurant.» — Derek Kaplan
Your bakery’s business plan should include:
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Brand’s concept
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Insight into your target market and community
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How you will reach your customers from your home
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Information on insurance, licenses, and other legal aspects
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Growth plans and financial goals.
A bakery business plan should give you a clear line of sight in handling inevitable challenges and planning for business requirements. For example, in your business plan, you should map out how and when you will obtain the baking license for an at-home business and overcome cottage law obstacles.
What are the costs of running a home bakery business?
Your initial investment should be much smaller because you're not buying a storefront. You will still have to make some investment before you start, and then you’ll have ongoing expenses that your sales should cover.
One-time costs:
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Home bakery license
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Initial equipment investment
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Deposit on commissary kitchen or possible renovations to your kitchen
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Website setup
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Payment for scheduling food safety or health inspections.
Ongoing costs
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Inventory
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Marketing
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Website maintenance
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POS subscription
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Monthly expenses for renting space for food prep or storage (optional)
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Replacing or maintaining equipment as necessary
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Cleaning supplies
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Booth rental at farmer’s markets
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Home bakery insurance.
Bakeries seem like inexpensive businesses because you're typically working with large volumes of low-cost ingredients. However, insurance, licenses, equipment, and marketing can quickly drive up expenses. Always consider the benefits of an investment. Renting a space in the farmer's market might seem expensive, but it might be your biggest source of income.
What you should have in your home bakery kitchen?
Starting a baking business from home means that you’ll need to sort out if you can use your current kitchen, and how you will use the kitchen for your business. You’ll need:
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Enough counter space to work comfortably
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Proofing area
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Small wares and hand tools
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Hand towels, kitchen towels, and a sanitizing area
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Appropriate sanitizing or cleaning chemicals
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Dishwasher
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Place to store food safely that meets your local and federal government requirements
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Dry inventory — flour, sugar, leavening, dry starches, etc.
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Wet inventory — eggs, butter, cream, etc.
The list will become much more intense as you start looking at the equipment necessary to open a bakery in your home. It’s vital that you ensure you’ve checked all the boxes for safety, sanitation, and storage as well as equipment.
What equipment do you need for a home bakery?
Home baking equipment fits within both residential and commercial grade. If you can get commercial grade, excellent, but don't worry about using residential equipment. You often just need equipment that you keep completely separate from what you use for personal cooking. Even if your state or area does not require you to keep everything entirely separate, you should. This habit will help you ensure better sanitation practices. Keep all of your supplies, equipment, and inventory away from what you use personally. You'll be needing equipment, including:
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Spoons
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Spatulas
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Mixing bowls
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Mixer
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Dough mixer or dough hook
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Oven
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Proofer or area for proofing
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Appropriate pans (muffin tins, spring-form pans, cake pans)
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Turners
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Cutters
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Sifters
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Rolling pins and other accessories.
Before you start a home bakery, you want to be confident that you have everything you need. You should have enough hand tools, small wares, and such so that you can handle a large volume of orders comfortably.
How to run a home bakery business?
Running any business from home can be stressful, and disrupt your household. However, as you learn how to start a home-based bakery business, you'll need to set rules, procedures, and structures in place to run your bakery efficiently. Take a moment and go through the basic day of a bakery owner. You’ll need to plan for:
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Operations management — who works at what times, etc.
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What hours you’ll use the kitchen for bakery purposes.
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How you’ll collect payments — using a bakery POS system.
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Paying or submitting orders through suppliers.
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Planning for administrative work such as financial tracking, customer service, and marketing.
To start a bakery from home, you should have a clear schedule mapped out. Accomplishing this is especially hard for home bakers because they're using one of the busiest rooms in their home as their source of business.
How to expand and grow a home bakery business?
The internet and delivery services have created new ways for anyone running a home-based baking business to grow substantially. You can go online, deliver products, open a storefront, or even use a ghost kitchen with dark kitchen POS software.
The United States, China, the United Kingdom, and Brazil are among the hottest markets for bakeries, but bakeries often aren’t dine-in establishments. Home bakery owners should consider providing delivery and allowing for online ordering to reach customers.
Going online and scheduling deliveries either yourself or through services such as DoorDash can help expand your reach to new customers. Running a baking business from home means that there isn't a storefront for people just to show up and buy goods.
Pros:
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Reach new customers.
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Track and process orders.
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Schedule deliveries.
Cons:
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May need a website.
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Websites and maintaining them is quite an investment.
Opening a storefront is often a long-term goal for many who are opening a bakery from home. It's what Derek Kaplan did with Fireman Derek’s Bake Shop after he spent years baking at home.
Pros:
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One place for business.
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Dedicated kitchen for prep and baking.
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Visually present in the community.
Cons:
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Expenses of opening a brick-and-mortar store.
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Moving or relocating for any reason is difficult.
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May have to sign into a long-term lease agreement.
Ghost kitchens are quickly becoming the norm as restaurants and bakeries are getting more delivery and to-go orders. This trend is fast becoming a global phenomenon. Usually, it allows people to start a home bakery without limiting their work to their kitchen. Ghost kitchens can include buying commercial kitchen space without a storefront or renting/leasing time in a commissary kitchen that you would share with other chefs and bakers.
What is the average home bakery revenue?
Perhaps the biggest part of learning how to start a bakery from home is learning how to manage revenue. Earlier, we discussed pricing, which plays a role in revenue, but it's not the only thing to consider.
When deciding your markups, a single cookie may cost you less than $0.25 in ingredients, but the total profit could still be rather low. Most people won't pay more than $1.50 for a single cookie. Managing revenue requires careful control of costs and a solid pricing strategy.
As part of your revenue, you'll want to factor in all of your initial and ongoing costs. Your startup costs will include any renovations, license fees, initial inventory purchases, kitchen equipment, and any additional insurance policies you’ll need. Then there are ongoing expenses such as small wares or packaging, ingredients orders, even the gas you spend to deliver orders to get down to the farmer’s market. There is not a lot of data available about what people who start a home bakery earn. But, a baker’s annual income ranges between $18,000 and $57,000 in the U.S.
Running a bakery business from home is possible, but it is a challenge. Even with the best of advice and good planning, home bakers will often learn tough lessons regarding product handling, pricing, and marketing. Take the lessons from the bakers who have shared their stories here and look at the practical side of running a business from home.
Every home baker starts with virtually nothing. You must build a client base, a reputation for your kitchen and your products, and then learn how to handle profit carefully. It's possible that you may not make money for the first two or three years, and that’s typical for many businesses. When you choose to keep going, you can grow your home baking business into something substantial and successful.
