Guide
How to start a bakery, step by step
To start a bakery, choose a business model (home bakery, market stall, wholesale, or storefront), check the food rules where you live, cost every recipe, set prices that leave a margin, budget your startup costs, and take your first orders before you spend on anything big. Most successful small bakeries begin at home or in a rented kitchen, with a short menu and a handful of regular customers, and grow from there. This guide walks through each step with worked examples, so you know what to do this week and what can wait.
Step 1: choose your bakery business model
The first decision when you start a bakery business is where and how you will sell, because it sets your legal path, your costs, and how fast you can open. You do not need to pick forever; many bakers start with one model and add another once orders are steady.
A home bakery has the lowest startup cost and is usually the fastest to open, but home kitchens are limited by local rules on what you can sell and to whom. A storefront gives you walk-in sales and visibility, and also rent, staff, and equipment loans from day one.
- Home bakery: custom cakes, cookies, and bread to order from your own kitchen, where your local rules allow it.
- Market stall: farmers markets and pop-ups, good for testing products and meeting customers face to face.
- Wholesale: selling to cafes, shops, and restaurants at a lower price per unit and higher volume.
- Rented commercial kitchen: shared or hourly kitchen space when your home kitchen is not allowed or too small.
- Storefront: a retail bakery with fixed hours, the highest cost and the highest commitment.
Step 2: check the rules before you sell
Food rules depend on your country, state, and sometimes your city or county. In the United States, most states have cottage food laws that let you sell some low-risk baked goods made at home, often with limits on yearly sales, on which foods are allowed, on online or shipped sales, and with labeling requirements. Some states require a permit, a registration, or a food handler course; others do not.
Because these details change and differ so much, look up your own state's cottage food rules and call your local health department before your first sale. If you plan to open a storefront or sell wholesale, you will usually need a licensed kitchen, a food business permit, and inspections. Also register your business name, get a sales tax permit if your state taxes food sales, and ask an insurer about product liability cover. None of this is legal advice; your state agency has the final word.
Read next: Cottage food laws by state, Home bakery insurance: a plain guide for home bakers
Step 3: cost every recipe before you set a price
The most common reason new bakeries struggle is pricing on a guess. Before you post a menu, work out what one unit really costs you: ingredients, packaging, your time, oven and energy, and a share of overhead such as insurance, fees, and your phone plan.
Example: a batch of 24 brown butter cookies uses 4.80 USD of ingredients and 2.40 USD of bags and labels. It takes 1.5 hours at a wage of 20 USD per hour, so 30 USD of labor, plus about 1.20 USD of oven time and 2.00 USD of overhead. The batch costs 40.40 USD, or about 1.68 USD per cookie. Counting only ingredients, you would think each cookie costs 0.20 USD, and a 2 USD price would feel generous. With the full cost, 2 USD leaves almost nothing.
Farinu does this costing for you: it adds ingredients, packaging, sub-recipes such as a frosting used in several cakes, labor, machine time, and overhead, and keeps the cost up to date when you record a new ingredient price. The free plan covers costing for up to 10 recipes.
Read next: How to calculate recipe cost, step by step, Recipe cost calculator for bakers
Step 4: set prices that leave a margin
Once you know the unit cost, set a price with a target margin: price = unit cost / (1 - margin). For the cookie above, a 60 percent margin gives 1.68 / 0.40 = 4.20 USD, which you might round up to 4.25 USD each, or 25.50 USD for a box of six. Check that price against what similar bakers near you charge, then decide whether your product, size, or service justifies being higher.
Keep separate prices for retail and wholesale. A cafe buying 50 cookies a week expects a lower price per unit, but that price still has to cover your full cost. In Farinu you can keep retail and wholesale price lists side by side, see a suggested price from your target markup, and get a margin alert when an ingredient price rise pushes a product below its target. Farinu works from a markup on cost rather than a margin on price, so enter the equivalent markup: a 60 percent margin is a 150 percent markup, and 1.68 x 2.50 gives the same 4.20 USD before rounding up to 4.25.
Read next: Bakery profit margin: how to work it out and how to raise it, Bakery price list software, one list per place you sell
Step 5: budget your bakery startup costs
Startup costs range from a few hundred dollars for a home bakery that uses equipment you already own to far more for a storefront with a lease and commercial ovens. Write your list before you buy, and split it into what you need to take the first order and what can wait until sales prove the demand.
The figures below are an example for a small home bakery, not a benchmark. Your own numbers will differ. For a fuller estimate, use the bakery startup cost calculator, and turn it into a plan with the bakery business plan template.
| Item | Example cost | Needed before the first order? |
|---|---|---|
| Permit or registration, if your state requires one | 100 | Yes |
| Food handler course, if required | 15 | Yes |
| Product liability insurance, first year | 400 | Yes |
| Stand mixer and extra pans | 450 | No, if you own a mixer |
| Packaging and labels, first stock | 150 | Yes |
| Starting ingredients | 200 | Yes |
| Market tent, table, and signage | 300 | Only for market sales |
| Total in this example | 1,615 | About 865 before the first order |
Read next: Bakery startup costs by bakery type, with a worked budget, Bakery business plan template for home and micro bakers
Step 6: take orders and keep records from day one
Start with a short menu, five to eight products you can make well and consistently. Test prices with friends, a local market, or a small batch of preorders. Take a deposit on custom orders so a cancelled cake does not cost you the ingredients and the weekend.
Keep simple records from the first sale: who ordered what, for when, what they paid and still owe, what you sold at each market, and what you spent. That is what tells you at the end of the month whether you made money. Farinu lets you keep customers with their WhatsApp number, track custom orders with deposits and balance payments and plan production on every plan, and on the Team plan log sales, record purchases and stock, and see a monthly profit and loss. Helpers can be added to see orders and production without ever seeing your costs.
Read next: Order management for bakeries, Cake contract template for custom orders
Questions
- Can I start a bakery from home?
- In many places, yes. Most US states have cottage food laws that allow some baked goods to be made at home and sold directly, with limits that vary by state. Check your state's rules and your local health department before your first sale.
- How much does it cost to start a bakery?
- It depends on the model. A home bakery using equipment you already own can start with a few hundred to a couple of thousand dollars for permits, insurance, packaging, and ingredients. A storefront costs much more because of rent, build-out, and commercial equipment. The startup cost calculator helps you estimate your own number.
- How do I know my bakery prices are profitable?
- Cost each recipe fully, including labor, packaging, and overhead, then set your price with a target margin, or with the equivalent markup on cost, which is what Farinu asks for. Recheck the cost whenever an ingredient price changes. Farinu keeps your recipe costs current and warns you when a product's margin drops.
Related pages
Start your bakery knowing what each bake earns
Create a free Farinu account to cost up to 10 recipes and get a suggested price from your target markup. Move to Team to keep unlimited orders, sales, and stock in one place.