The average salary for bakery owners is $46,457 per year. This means if you run a bakery, on average, you can expect to pull in around $50,000 per year. The figure of $46,457 consists of a mean wage of $33,908 and $12,549 in annual income.
Owning a bakery can be a rewarding experience. It’s also a lot of work. You’ll put in long hours, and you’ll have to make sure that your employees are doing their jobs right. But at the end of the day, when you see someone enjoy your delicious creations, it will all be worth it.
But how much does it cost to own a bakery? Here are some expenses you should expect:
- Rent/mortgage payment ($2,000 per month)
- Utilities ($500 per month)
- Food costs ($1,000 per month)
- Employee salaries ($3 per hour per employee)
Salary for bakery owner
How Much Do Bakery Owners Make?
What’s not to love about a bakery – the smell of fresh coffee and sugar with traces of cinnamon, a display so enticing that makes you forget any health-related promises you made to yourself, choices of bread that take you back to the ancient art of baking. Everything I mentioned and more suggests it is a promising business.
This piece will deep-dive into the nuances related to opening your baking empire. We promise it won’t be as glamorous as the food network baking shows, but it will be just as educational. We will break down the economics of a bakery and solve this long-pending mystery of how much bakery owners make!
Dive Deep Into Bakery Economics
For those who naively think running a bakery is a breeze, let’s take a look at why it is one of the more complex formats of restaurant operations. Yes, flour is cheap, but organic butter is not – you cannot have a good croissant without good butter.
Now, mix in the low margins. Combine that with zero possibility of left-overs, remember baked goods tend to spoil or stale by the end of the day, resulting in a considerable loss of money.
So, the solution is just to make fewer croissants? Not only is making fewer croissants even more expensive, but you could also lose customers to another bakery. Nothing is worse than a line out the door and running out of your bestseller. Seeing dollars walk away is the most heart-wrenching feeling in the world.
Now, think about all the products, your favorite cafe sells, and the underlying economics of them. This thought process is not to say bakeries are not profitable; in the US alone, bakery retailing is a more than $3.5 Billion industry. Before entering a new endeavor, one should understand the financial construction of the business, and that is what this piece is attempting to do.
To understand how much a bakery could be making, one easy way to go about it is to dissect its components. Understand which are the venues that contribute to the revenues and costs. This analysis is what we will do in this article.
Bakery Products
Analyzing the product offering can give a good insight into the kind of margins the bakery has the potential to make. In our croissant example, we saw that the game was about the volume and not high margins. But, if this croissant sold with a drink or coffee, this could increase the margin of that bundle and the entire business.
Often bakeries sell salads, drinks, candies, chips, etc. along with their products to get a wider and stronger margin.
What Are Your Current or Expected Bakery Margins?
Some products provide high margins while some are there to increase foot traffic to the bakery. Looking at the product range can give you an estimate of average margins.
An interesting thing to note here is a small ingredient tweak can make a significant change, for example, pink chocolate. It is not just a fun way to ramp up traditional frosting, but also customers are willing to pay extra for the exquisite and cool factor.
Another example is alcoholic desserts. Cocktail cupcakes, rum cakes, pie with shots – all of these are priced much higher than standard desserts even with little or no alcohol content (remember to have all proper licensing to serve alcohol). Looking at the products along with the ingredients and it’s selling power gives you a better estimate.
According to most bakery owners, cookies, cakes, donuts, and bread are some of the top-sellers in their bakeries. Out of these, cookies and cupcakes are some of the more profitable items. They also revealed that “gourmetization of the product” helped them improve their profits. For instance, themed cookies can sell for as high as $2/piece vs. traditional cookies that sell for $4/dozen.
Paul Sapienza of Sapienza Bake Shop in Elmont, New York, puts it best when interviewed by bakemag.com, stating that “If you can figure out the ingredients and the labor, I wouldn’t stray from 50% gross profit.” He suggests the key to bakery success is knowing your market; “Every bakery, area, and market differ. You must figure out your own market.”
Some rough estimates of typical product margins on baked products range between 25% to 35%. The key drivers here are the quality of ingredients, pricing, and wastage. We see most mom and pop bakeries operate with a food cost of goods under 35%.
Are You Accounting for Daily Fluctuations?
Next, you could look at the range of products and their performance on specific days of the week. To explain this better, think about pastries. Many bakeries avoid having a more extensive range of pastries on Monday and Tuesday as people are less likely to indulge after a decadent weekend.
Understanding the product and the days it sold on will give you insights into possible revenue from the product line.
Is Your Bakery Adjusting for Seasonality?
Next, look at the seasonality factors and also include those. For instance, after the fasting of Yom Kippur, customers flock around to feast on treats. During those days, sales can go up a lot and generate substantial revenues for neighborhoods close to that faith.
During the school holidays, families are away, and this tends to result in less consumption in suburban areas. Understand which are the seasonal factors affecting the bakery, and account for some adjustments accordingly.
Types of Bakery Owner
The bakery owner’s professional background plays a role in influencing the operation and the associated cost.
A bakery cannot run without someone who has baking knowledge and expertise. So when the owner is not from the same field, he/she usually hires someone who is from the industry, and that poses a significant expense for the bakery.
An owner with a baking background can himself plan the back-end of the business and also participate in the baking process. He will know the best practices, ways to optimize operations, optimal storing methods, better than an outsider.
This in-house expertise not only helps avoid the cost of hiring an expert, but this bakery specific knowledge also helps bring down costs and optimize operations.
Start up Cost and Ramp up Phase
Start up costs help determine the timeline for the bakery to break-even and make profits.
To understand start-up costs, you first need to consider if the bakery was built out from scratch or took over an existing business. The start up costs vary a lot between these two situations, and usually a custom build out is quite a bit more expensive.
For context, buying an established business means you already have machinery and equipment in place, an initial stream of customers, negotiated vendors, suppliers, and so on. They may even have staff on hand and acclaimed recipes you can expand on. Albeit case to case, buying an established bakery is usually cheaper than having to start from scratch.
Most importantly, buying an established business usually can help you reach the break-even faster (assuming there are no issues with the location or the business).
Basic equipment is usually the next significant investment for a bakery after they have their operational space. These investments include items like mixers, cabinets, dough press, sheeters, rounders, dividers, ovens, to name a few. Understanding what the scope of equipment your bakery business will need will help you better understand these related costs.
Other expenses that you generally include in the startup costs are licenses, lease, furniture, staff, design, repair/construction.
On an average, bakeries take about 1.5 years to break-even but this is highly subjective and variable.
Pricing
Pricing in the bakery business is complicated. It is difficult to account for factors like long preparation time, wastage, overheads, variable inventory. Many bakeries are unable to tackle this and price the products solely on factors such as market price and demand. As a result, they never break-even or run profitably.
When you are analyzing the bakery, ensure that the bakery has the potential to make profits by charging relevant prices or by reducing the costs. While this might not be so easy at the start, eventually costs can be controlled by several optimizations.
Try to analyze if the bakery has the potential to take such optimization steps.
Bakery Revenue
There are over 6,000 retail bakeries in the United States, bringing in over $3,000,000,000 in combined revenue annually. That puts the average revenue per bakery at about $450,000.
The 50 largest companies (brands) generate over 75% of this $3 Billion in revenue (as stated by Bakery and Snacks). For those thinking about the retail bakery space, this means that the average sales per unit are likely less.
Even with the challenges of the larger market participants, achieving a few hundred thousand in annual revenue is not unrealistic. Most bakeries, on average, generate over $1,000 a day in sales, resulting in $365,000 in annual sales, approaching the $450,000 average mentioned above.
How Much Do the Bakery Owners Make?
This article had one goal, to answer your question about how much bakery owners make. Unfortunately, we had to educate you a bit about the industry to understand how we could adequately derive these numbers.
The profit margin is highly variable for the bakery industry due to many of the components mentioned above. However, industry averages can give some insight into the potential of the bakeries. The most profitable bakeries have a gross profit margin of 9%, while the average is much lower at 4%. The growth of profitable bakeries can be as high as 20% year over year. While a large number of bakeries never reach the break-even, a handful of them can even have a net profit margin as high as 12%.
Now that we know the net profit margin and its drivers. We can compare that to annual sales to get accurate dollar figures. A 9% net profit margin on $450,000 in sales equates to $40,500 on an annual basis.
For those underperformers that have a net profit margin of 4%, this looks more like $18,000 annually. Now, for those fantastic bakers, with a 12% net profit margin, they can see over $54,000 annually.
The bakery space is a creative outlet for bakers but also requires a solid business understanding. Reliance on aesthetic shelves and aroma-filled dine-ins is not sustainable. The baking dream has to be supported by a strategy that can yield a profitable business. This article is a framework that not only helps you determine the earning potential of your bakery but also helps you break down the business to drive more profits.
