Are you looking to start your own bakery? As a part of your business plan, make sure to consider all the relevant costs to open and run a bakery shop, from operations, rent and expenses.
We’ve identified that it costs on average $109,250 – $310,050 to open a small bakery shop with 4 employees plus $41,950 – $48,150 in operating costs per month to run the business the first few months.
Want to know more? In this article, we’ll go through all the different costs you will need to incur to open your own bakery shop with clear examples. Let’s dive in!
For more information on bakeries, make sure to check our guides below: How To Build a Financial Model For a Bakery How To Open a Bakery In 9 Steps: Complete Guide How to write a Business Plan for a Bakery: Complete Guide
Startup Costs To Open a Bakery
While purchasing a bakery franchise costs around $50,000, starting a bakery franchise would cost in addition up to $420,000.
The startup costs depend on many factors like the bakery shop size, its location, the number of staff, quality of the equipment, etc.
So, we have given you a clear overview of all the essential costs you can expect to open a 1,500 sq. ft. bakery shop below. Note that these costs are for illustrative purposes and depend on several factors which might not fully apply to you.
|Lease security deposit||$11,250|
|Building improvements||$10,000 – $70,000|
|Equipments||$60,000 – $200,000|
|License, permits & certifications||$1,500|
|Marketing & website||$5,200 – $6,000|
|Total||$109,250 – $310,050|
Lease Security Deposit
If you want to lease a property, you must decide to stay there for a couple of years and pay a refundable security deposit. The cost will vary depending on the size and location of the bakery. For instance, you would spend around $30 per square foot for a retail commercial space in a city like Chicago.
Thus, assuming you lease a 1,500-square-feet location, you should expect to pay around $3,750 per month. If you’re asked to submit a refundable security deposit which equals the rent for three months, you will need to keep aside $11,250 for the security deposit.
Instead, if you want to rent an existing bakery rather than starting one from the ground, you can expect to reduce your startup costs by about 40%.
Indeed, renting an existing bakery retail space may save you costs related to the renovations, the design of the shop, machines and equipments. Yet in both situations, you may have to take up a loan.
Bakery renovation costs
Suppose you’re leasing or purchasing an existing bakery shop. In that case, you’ll need to do minor to major renovations, including plumbing, new flooring, paints, window treatments, installation of gas lines, etc.
If you have leased property, the cost of leasehold renovations and repairs may range from $10,000 minimum to $70,000. The actual cost will depend on factors like plumbing upgrade costs, installation of sinks, ovens, and gas lines, and other such factors. Thus, try to keep aside around $50,000 to be on the safe side.
Bakery equipment costs
Once your bakery shop space is ready, you need to grab the right equipment set to get started. The cost of your equipment will depend on the type of bakery you’re planning to open and the services you’re planning to offer. Some of the common equipment which you need to have for your bakery shop will be:
- Ovens & Microwaves
- Grills, Ranges & Ventilation
- Freezers & Refrigerators
Other essential supplies you’ll need include food prep equipment (like knives, food processors, mixing bowls, mixers, blenders, etc.), service ware, and more.
If you’re purchasing or renting an existing bakery, you’ll find many of these essentials already present in the space. You’ll need to add some more equipment, and some existing equipment may also need renovation.
The equipment cost for a new bakery can be between $60,000 – $200,000. As bakery equipment takes up a huge chunk of your total cost, you can buy used equipment and spend on its maintenance.
Bakery supplies startup costs
Besides the above-mentioned equipment, you need an initial set of cooking ware, products, and other essentials such as:
- Baking Utensils
- Bread Slicer
- Cake decorating tools
- Weighing machine
- Hair nets
- Packaging paper
The cost of these supplies varies according to the brand you choose. As a professional bakery, try to use high-quality products. You should consider replacing the old supplies even if you’re buying or renting an existing bakery. These essential supplies will add up to about $20,000 to the startup cost.
Bakery license & permits
Besides the food preparation certification, you also need the following licenses & permits to run your bakery shop:
- Business Operation License
- Food Handler’s Permit
- Food Service License
- Retail Seller Permit
- Employer Identification Number
- Certificate Of Occupancy
A small business license will cost you around $100. However, the price again depends on the state of operation of your bakery.
- The Food Handler’s Permit usually is issued by the Department of Health in every state. Its requirements, courses, and fees vary from state to state. The Food Handler’s Permit costs range between $10 to $600
- The Food Service License is issued by the Department of Health of every state, depending on the size of your bakery and its location. The cost of the license ranges between $100 to $1,000
- The Retail Seller permit varies from one state to another. It is either free in some states or costs less than $50 in other states.
- An EIN (Employer Identification Number) is issued free of cost by the IRS, which you can apply online
- The cost of a certificate of occupancy depends on the size of the bakery, square footage, type of construction, and other factors. It also varies from one state to another, but the estimated cost will be $250.
Therefore, you can expect the licensing fees to be on average $1,500 total.
In addition to permits and licenses, you must have a food preparation certificate to run a bakery. To obtain the certification, you must attend a food protection course of 15 hours and finish a qualifying exam successfully.
The certification costs include a minimal fee which you need to submit for taking the examination, which ranges from $24 – $114.
Marketing & Website
You need to build your online presence to reach your targeted online community and tell them about your business. The average cost of website design and development will range between $200 and $1,000. The cost depends on whether you choose an online store or a simple website.
You should expect to spend around $5,000 on signage and other marketing ads. Thus, the total cost you would pay for marketing & website will vary anywhere between $5,200 – $6,000.
Your bakery needs a software and POS system to maintain food service features, supply tracking, invoicing, and other management tasks. The cost of a POS system ranges from $0 to $1,700 for the hardware and from $0 to $300 per month for the software. The average cost of a POS system for small businesses will cost around $69 for software and $1,300 for hardware.
Bakery Operating Costs To Run a Bakery
Besides the on-time startup costs to open your bakery shop, you should also budget for the operating costs you must incur every month to run your business.
The operating costs depend on the size of your bakery and the products you offer. Here’s a brief overview of the operating costs which you can expect for a typical 1,500 sq. ft. bakery shop with 4 full-time employees (2 bakery cooks + 2 clerks).
Note that the operating costs below exclude other costs such as bank loan interest expenses and amortization and depreciation costs which you should also take into account.
|Operating Cost||Amount (per month)|
|Raw Materials||$16,800 – $21,000|
|Rent & Bills||$4,750 – $5,750|
|Marketing||$1,800 – $3,600|
|Insurance, software & other||$2,000|
|Total||$41,950 – $48,150|
Bakery raw materials costs
The cost of ingredients and staff are the largest monthly expenses for a bakery shop. You can expect to pay around 28-35% of your sales in raw materials.
- Your team attends to 400 orders per day (breads, pastries, drinks, menus for lunch etc.); and
- An average order value of $5
The total monthly revenue of your bakery would then be $48,000 (assuming 6 days a week). Thus, you would spend anywhere around $13,400 to $16,800 on raw materials.
Bakery rental & bills costs
If you have leased your bakery shop, you must pay monthly rent. The amount you pay for monthly rent will depend on various factors like the size of the space, lease or purchase, location, and others.
Using the same Chicago example earlier ($30 per square foot per year), you would be paying around $3,750 per month in rent for a 1,500-square-foot space.
Besides rent, you also need to pay for other utilities & bills like electricity, water, gas and internet service which would be around $1,000 – $2,000. Thus, the total rent and bills which you need to pay would be around $4,750 – $5,750 per month.
Bakery staff costs
Payroll and labor expenses are another major expense for all bakery shops.
Assuming you hire 4 employees with yourself as the manager, you should expect to spend around $20,000 per month on salaries (including taxes and benefits). Indeed:
Tip: when forecasting salaries, make sure to take into account hours per shift and total hours per week. For example, if you operate 2 shifts per day 6 days a week (each shift with 2 employees each), your full time equivalent employees will be 4.8 (and not 4 to account for the 6 days a week).
Bakery marketing costs
You must engage in appropriate marketing and advertising to attract loyal customers and boost your sales in your bakery shop. Your marketing expenses will depend on the media employed and your target audience.
Marketing costs will be expensive during the initial six months of your business. As you launch your bakery shop, you need to put up a sizable expenditure before you start expecting organic traffic & growth.
You should spend around 3-6% of your monthly sales on marketing. Taking the $60,000 gross revenue bakery shop example above, you should typically spend around $1,800 – $3,600 in marketing per month.
A bakery shop belongs to the food and beverage industry. According to Insureon, the average insurance costs for the industry are:
- General liability insurance: Median monthly premium – $40
- Workers’ compensation insurance: Median monthly premium – $115
- Business owners’ policy: Median monthly premium – $135
- Commercial auto insurance: Median monthly premium – $165
If you consider buying all types of insurance, you will be paying $455 monthly.