How Profitable is a Bakery? Profits & Breakeven Analysis

If you are planning to open a bakery, you may want to know how much profits you can make with this business. In other words, you must know how much revenue you must generate to reach break-even and make profits.

With a market size of about $3 billion and over 6,700 retail bakeries in the US, the average bakery has an annual turnover of $450,000.

What does this mean for your bakery? How much revenues can you expect to generate? More importantly: how much profits can you realistically make with this business?

In this article we’ll look into the average revenues, profit margins of a bakery in the US. We’ll also look into how you can accurately forecast your bakery’s turnover and break-even point. Let’s dive in!

What is the average turnover for a bakery?

With a market size of about $3 billion and over 6,700 retail bakeries in the US, the average bakery has an annual turnover of $450,000.

However, turnover may vary significantly depending on your scale of operations, the location of your bakery, your marketing strategy and other factors.

As far as the average bakery’s owner salary, it’s about $71,170 as per Zip Recruiter.

What is the average profit margin for a bakery?

According to Zen Business, the average profit margin of a bakery is anywhere between 4% and 9%.

Another source, Restaurant Accounting, reports the average is probably around 4% with the most profitable bakeries reaching 12%.

Profits for a bakery depend on 2 main factors: your revenues and expenses. We saw how much turnover earns the average bakery in the US (~$450,000), let’s now see how much it costs to run a bakery on average.

How much does it cost to run a bakery?

Operating a bakery attracts some recurring costs that include:

• Raw materials: You need to spend money on acquiring the raw materials required for baking your products
• Salary: You need to pay salaries to your staff members every month
• Rent & utility bills: Unless you own the commercial property, you must pay rent. Even if you own the property, you may have to pay mortgage installments. Plus, there will be utility bills that you must keep paying (add +10% on top of rent as a rule of thumb)
• Marketing: You must spend on marketing your bakery to bring in new customers
• Insurance: Since the bakery is a business, you will need a business insurance plan and other relevant insurance plans such as a workers’ compensation plan
• Software: You need to spend money on software such as accounting software, POS software, etc. These are mostly monthly expenses
• Miscellaneous: There will be various miscellaneous expenses such as janitorial services for which you must keep paying every week or month depending on your arrangement and contractual obligations

In general, it costs between $41,950 and $48,150 per month to run a small (1,500 sq. ft.) independent bakery with 4 full-time employees. For more information on how much it costs to run a bakery, read our article here.

For transparency, we have included below the turnover to net profit waterfall for a bakery in the US ($900,000 revenue per year and ~7% net profit margin). By far the largest expenses are salaries.

How to forecast profits for a bakery?

In order to calculate profits for a bakery, you must first forecast revenues and expenses.

Forecasting revenue for a bakery

Revenue can easily be obtained by multiplying the number of orders by the average order value:

For example, if you have 300 orders in a day with an average order value of $10, monthly revenue is about $75,000 (assuming 6 days a week).

Forecasting expenses for a bakery

There are 2 types of expenses for a bakery:

• Variable expenses: these are the COGS as explained earlier. They grow in line with your revenue: if your turnover increases by 10%, variable expenses grow by 10% as well
• Fixed expenses: salaries, debt interest (or leasing) costs to acquire the truck, marketing and all the other operating costs listed above

Calculating profits for a bakery

When we refer to profits, we usually refer to EBITDA (Earnings before interests, taxes, depreciation and amortization) as it represents the core profitability of the business, excluding things such as debt interests, non cash expenses and other non-core expenses.

In order to get to EBITDA, we use the following formula:

We’ve included below the illustrative profit-and-loss of a bakery franchise with 3 different shops (from our financial model template for bakeries).

Whilst gross margin stands at about 80%, EBITDA margin can go up to 5-10% depending on the business (in line with the industry average presented earlier) and net profit margin up to 3-8% for the most profitable bakeries.

How to calculate break-even for a bakery?

Break-even is the point at which total costs and total revenue are equal. In other words, the breakeven point is the amount of revenue you must generate to turn a profit.

Because you must at least cover all fixed costs (that aren’t a function of revenue) to turn a profit, the break-even point is at least superior to the sum of your fixed costs.

Yet, you also need to spend a certain amount for every $1 of sales to pay for the variable costs.

As we just saw, bakeries typically have ~80% gross margins (after raw materials and payment fees). Indeed, most expenses actually are fixed costs (salaries, rent, marketing, etc.).

The break-even point can easily be obtained by using the following formula:

Using the same example earlier, let’s assume your bakery makes $75,000 in turnover per month and has the following cost structure:

Operating cost	Fixed vs. variable	Amount
Raw materials	Variable cost	$15,000
Staff costs	Fixed cost	$35,000
Rent, bills	Fixed cost	$5,000
Marketing	Fixed cost	$4,000
Other	Fixed cost	$5,000
Total		$64,000

The break-even point would then be:

In other words, you need to make at least $61,000 in sales per month to turn a profit.

Assuming the average order value is $10, your break-even is 6,100 orders per month. In other words, you make profits once your bakery makes 244 orders a day (assuming you’re open 6 days a week).

How to increase profits for a bakery?

There are multiple ways to increase the profits for a bakery and they include:

• Nutrition Information: Health-conscious consumers tend to buy those products that have nutrition labels because they use the nutrition label to manage their weight
• Healthier Choices: Offer healthier choices such as low-calorie baked products
• Offer Different Portion Sizes: Offering different portion sizes can help to attract new customers
• High Protein Products: Offer baked products with high protein content because that is what Americans are looking for
• Use Locally Sourced Ingredients: There is a sharp rise in the demand for local products compared to all-natural or organic products
• Include Desserts: People are attracted to delicious desserts, but they also prefer the high-quality raw materials
• Use Nostalgia: Offer classic baked products and bring back childhood memories. This can help you to bring in new customers and even increase your fan-following
• Allergen-Free Products: Offer allergen-free products because the demand for such products is on the rise
• Improve Packaging: Packaging influences purchase decisions, and hence, focus on your packaging and try to stand out
• Reduce Overhead Costs: Write down all your expenses and see which costs you can reduce or completely eliminate. Reducing overhead costs can help to increase profits
• Reduce Waste: Food wastage (pre or postproduction) makes a dent in your profits and hence, ensure that there is a proper system in place to reduce wastage
• Loyalty Programs: Introduce loyalty programs to increase the customer lifetime value and increase brand loyalty
• Sell Gift Cards & Offer Coupons: Selling gift cards open a new revenue stream while offering coupon discounts attracts more customers
• Upsell: Train your staff to sell more expensive and profitable products