Are Home Bakeries Profitable? How Much Can You Expect to Earn?

Home bakeries can be a successful side hustle or even a full-time job. Whether you want to keep it small or build it up (maybe even start your own bakery!), it’s essential to know what you’re getting into. The amount you’ll make is based on the work (both time and effort) you put in and the name you make for yourself. It all depends on what you’re trying to get out of it!

If you focus on custom work in your bakery, such as cakes for big events, you can make about $1,000 per month. If you simply do a few individual custom orders a week, you can expect to make approximately $300 a month, on average.

If this is your first business, naturally, there will be a learning curve! You need to know your plan and budget before you start and picture where you want to go with your business. Just remember, business is part strategy, part intuition, and part luck. Read on to see the best methods to practice to get where you want to go!

How Much Time It Takes to Be Successful

A baking business, at home or not, is just a regular business. Not to say it won’t be challenging (because it will!), but it’s not quite as nuanced as some companies. That’s great for you.

That said, you will still need to learn the lay of the land – including things like:

Regulations
Laws
Pricing
Marketing
Negotiating

The simplicity also allows for noticeable, measurable growth and expansion!

Remember, with this, or any business, that your first few years can be challenging. But, you will most likely get through it, especially if you have a passion for baking.

The U.S. Bureau of Labor says, “75% of new businesses survive the first year… and 50% make it to five years.” You can make it, as long as you focus on staying open-minded to new ideas, track your expenses and revenue, and keep in touch with what people want.

Let’s focus on a general timeline to help you get started with your planning:

First Month

Profit: not much, if any.
Focus: getting started.

Honestly, the first month won’t be your most profitable month unless you already have a client base built up.

You could be in the red in terms of expenses, so it’s good to expect not to make a profit,

If you mentally prepare yourself for this, you’ll be ready for it and recognize that it will get better!

If this is your primary income, having some savings before starting your store will allow for some leeway in terms of expenses and advertising.

Between the first month and the first year, you have to be patient with yourself and celebrate even the smallest victories. Profitable businesses take time!

Learn from Others

If you see other successful businesses, make it a priority to learn from them, ask for tips and advice, and pay attention to what they’re doing.

However, never compare yourself to, or copy and steal from them. Others’ business model may work better for them, but worse for you. You want to stand out, not blend in.

For example, when you think of your marketing strategy, a custom shoe business may post their designs on a page that has an international reach for any custom shoes. However, if you’re selling your baked goods locally, you have to base your business in part on location.

It would be best for you to post ads on a local-based social platform or newspaper. Essentially, make sure you’re basing your business on what works for you, rather than for someone else.

With this being said, network and listen to advice from other business owners; just take their advice with a grain of salt (or a pinch of sugar, in your case).

First Year

Profit: a few hundred a month, sometimes.
Focus: testing to reach a stable point

For the first year, it may be easy to compare month to month profits. Pay attention to your trends; try to adjust accordingly and do more of what you did in a profitable month.

However, with a baking company, especially one that does custom work, you also have to consider the season. You’ll likely get more business around the holidays and the times of the year when weddings and birthdays are most prevalent (hint: June).

Remember, the first year is by far the hardest. There’s no benchmark, no tried-and-true method based on your specific skill, niche, pricing, location, and demand.

So, view year one as an experimental year. Measure and record EVERYTHING.

Second Through Fourth Years

Maintain your controlled variables and factor-in lurking variables.

Lurking variables are external factors you wouldn’t always consider, such as:

Seasons
Local events (like festivals)
Shifts in the community (like snowbirds, for example)

Tinker from the first to the fourth year and slow down, making changes to develop your individualized strategy.

Creating stability is paramount in this stage.

Year 5 (& Beyond)

Profit: anywhere from $1,000 to $8,000, depending on the work you do
Focus: growth

There’s a point from when you start to around the fifth year when you realize you’re making about the same amount per month or slowly increasing.

Are You Ready to Expand?

When you see you have an upward trend and figure out what works, you can start trying to go a little bigger (if that’s your goal). The great thing about a home bakery is how much work you want to take on. Maybe you intend to keep your day job, and this is strictly a side hustle.

There’s no set number of years to wait before you start growing; just don’t try too early or too late.

Analyze your business two or three years in, or once you feel at a consistent place.

Analyze your financial statements and ask yourself some critical questions:

Am I “in the red” (losing money)?
Am I breaking even?
Am I “in the green” (making a profit)?
Am I stagnating?
Am I growing?
Am I losing ground?

Your business could still be making a profit, but it could be losing market share faster than you realize.

Then, make decisions from there.

If you’re in the red or breaking even, determine what actions you can take to increase revenue.

After a few years, there may be something you need to fix, or perhaps the market is too saturated.

Talk to clients and ask what they like and dislike, and if they would come back (and why).

Make a note of all of this, then analyze. You could even put your data in a spreadsheet and see what most people think is going well and what they feel is missing.

Marketing Ideas

If you need more clients, work on marketing:

Continue to build your word of mouth. Ask customers for testimonials and online reviews.
Leverage social media. Post great photos of your work, customer testimonials, and actively participate in the community by liking and comments on other accounts.
Build an email list and regularly communicate with those folks. Read my post about starting an email list to learn more.
Get displayed on local social media pages. For example, is there a local moms Facebook group? Is there a group for your hometown?
Partner and collaborate with other bakers and local businesses.
If cottage laws permit, sell at farmers’ markets or do a popup to introduce your business to new people.
Launch a website and publicize your launch.

Product Development

If your customers aren’t buying from you as much as before, work on new products:

Think about launching a new collection of whatever you are known for. For example, maybe you have a fall collection featuring unique designs and color palette.
Be careful about jumping on the latest trend. But you will have to listen to your customers who often want trendy things. I think it’s a combination of remembering who you are and giving customers what they want.
Step outside your comfort zone! Collab with other people, don’t say “no” too quickly and try new things (especially if they’re trending!)
Come out with your own “line” or themed products. Put some new recipes in there, have some sampler bundles, and base it on what’s popular (for example, a “Halloween” line (cupcakes with rings or baked things in a Halloween themed goody bag) or classic wedding treats line (cakes, cupcakes, brownies).

Creative Staffing

If you need more help:

Do a “collab week,” where you decorate with local artists. You can meet people in the same boat and maybe get some advice, as well. Make friends in this business, not enemies.
Go to local networking events and conferences and meet as many people as you can. This can be hard, especially if you are an introvert, but putting yourself ou there is part of being a business owner.
Consider hiring someone! You could hire someone to bookkeep or help you in the kitchen!

The Art of Pricing

So, you just took a fresh tray of brownies out of the oven and contemplated giving one to your neighbor. After all, you’re not sure how comfortable you are charging her for baked goods.

She is a good acquaintance, but she’s also still a potential customer.

Swallowing guilt is just one thing that comes with owning a small business, as there’s an intimacy from not having anonymous buyers.

The intimacy factor is both good and bad, as it creates a specific profile as to who your customers are, but it also allows you to get a little attached to them, especially if they’re frequent customers.

Just remember: business is business.

How to Price

You should base your rates on how much it costs you to make and package the item plus your time. This is a very basic equation. Often bakers charge too little for their items. Don’t do it! You want to cover all your expenses, get paid for your effort, and set a competitive price for your area.

Have you reviewed my Essential 5 P’s for Perfect Product Pricing pdf yet? I created this freebie to take the guesswork out of determining how much to charge for baked goods. S ign up for my email list and your very first email has the pdf.

Keep the rate you calculate in mind, then check the local competition. Become secure in your prices, and your confidence will shine through, meaning you won’t allow people to haggle.

The last thing you want is to put your heart and soul into a creation and get taken advantage of because a client tries to pile guilt on you! There will always be potential customers who want to pay less. They will say, but I can get that for less at the grocery store. Be polite and send them on their way. They are NOT your customer.

ALWAYS increase your price with increased demand. Otherwise, you’ll be overworking and underpaying yourself, despite your success.

Not only that but if you have higher prices (assuming you are confident they are reasonable for the value), you will also have clients who have decided they will pay more for better quality.

Actual Versus Perceived Value

It’s a common misconception that anything made inside the home, from baked goods to Etsy products, doesn’t count as a “real business.”

However, there is no such thing as a “real” business.

As long as you are making something people buy, that’s a business.

It’s motivating to get one sale, but you can still feel a little unsure of yourself. It’s important to remember your worth, especially in a community of people you likely know. You may feel bad because you know your clientele. The truth is, you shouldn’t!

If you put your time and money into something, that’s already valuable right there. Then, you’re going for quality over quantity.

You carry out your customer’s specific vision in a way mainstream shops do not as you focus your attention on:

The customers you have coming in
Their inspiration for their request
What and who the product is for

You provide specific qualities such as:

Time
Attention
Quality
Convenience
Product
Service
Experience

And people get much more than their standard grocery store cakes.

Getting Started

Planning

First, make a business plan.

It’s one of those things that may seem unnecessary but is way more important than you may think.

A business plan gives you the chance to develop a specific vision where you can layout each part of the process clearly, and not confuse yourself later. It also allows you to set goals and measure your accomplishments better.

When developing your business plan, consider a few essential questions:

Who are you selling to?

What is their age, gender, and where do they usually reside?
What places do they frequent?
Who do they associate themselves with?

What are you selling, specifically?

What’s your niche?
When considering your audience, your niche goes hand in hand. You can’t just sell cupcakes, because so are many people in your town.
What makes you unique?

For example, say you sell either:

Soccer cupcakes

Assume you’ve just sold a product to a PTA mom. She’s:

Middle-aged
Lives in a trendy neighborhood.
Has parties for her son and his classmates all the time.
Calls on you frequently and generously tell other moms about your excellent work.

To keep the momentum going, you would:

Enroll that mom in your referral incentive program that you developed
Affiliate with the school (perhaps for catering)
Have a booth or pop up at a home game
Share photos and testimonials of your work on local social media

Wedding Cakes

Network and make some friends with people in the industry. For example:

A wedding planner can refer you to other brides,
You spread the wedding planner’s name to potential clients too.
Study bridal magazines and submit proposals to get featured in some.
Go to a bridal store and introduce yourself to the staff.
Have a booth at a bridal fair
Meet local wedding photographers, caterers, dress shop owners, wedding planners; you name it!

Initial Investments

The first thing you’ll need is supplies. It’s important to focus on investing strategically, so just incorporate new materials slowly! Simply follow the steps below to maximize efficiency and profit. I am willing to bet if you have this business you already have a lot of the basic tools you will need. Maybe even a few too many cookie cutters (or maybe that is just me).

Make a list of the essential materials you need (such as a mixer, baking pans, and essential ingredients like flour, eggs, and salt). You can see my 20 baking tools in this post.

Organize them in order of importance. You need food materials first. And an oven. That’s a given.

After that, a very basic baking pan. Then, a mixer.

Remember to get what you can afford, though. If you can’t afford a stand mixer, get a hand mixer. Just like baking your glorious creations, it’s all about building up slowly and having patience!

Start buying from the top of the list and work your way down. Don’t go crazy; only buy what you can afford. There’s no need to take out a loan for a mixer when you can wait a few months until your business is making a profit.

Start investing in the marketing side once your basics are out of the way. Check the “growth” section to see how to do so.

Bookkeeping

This tedious part (extraordinarily tedious for creative types) is one of the most critical tasks.

When you’re no longer cooking for just family and friends, you pick up more responsibility.

Keeping records and staying current with laws is paramount to running a safe, successful business for an extended period.

Getting shut down (no matter the reason) is terrible for your reputation, so having to start again would be incredibly difficult!

You have two focuses: financial and legal.

Financial Focus

For financials, consider hiring a part-time accountant to take care of your business finances for you.

Only hire them once your business starts making actual money; you have to guarantee you can pay them. If you can’t afford an accountant yet, that’s ok.

However, if you know nothing about managing finances whatsoever, meet with an advisor. Learn about the initial management of records and teach yourself by studying.

Another option is to trade for services. Perhaps you know an accountant. See if they’re open to exchanging a specified amount of goodies and cakes for their professional help.

Legal and Regulatory Focus

You need to make sure you are up-to-date with all of the current regulations.

Your best bet is to get legal advice from someone who knows what they’re doing. Get a legal advisor who specializes in small business affairs. They know best.

You need to know about things such as revenue limits per year and tax information.

They will also be able to tell you about permits and licenses. You need to know the “cottage food laws” for your state, which are less strict than commercial rules, but you are still slightly limited on what you can sell.

Other Good Practices

Experiment

When you start, follow your original business model, as that’s the blueprint.

Each week, month, or season, you may feel like something better could work. Maybe you’re wondering if you should try marketing in different places. Or perhaps you should consider changing your product a little.

Introduce change slowly and only change one variable at a time. Otherwise, you won’t know what caused the change. Try to avoid “shiny object syndrome” where you keep looking for the next best thing but never give your current efforts a chance to get a foothold.

You can follow the scientific method to carry out your research and cover all bases.

This trial and error process is a less intuitive part than the rest of the business.

This needs to be based on numbers and actual data to back up your studies.

Track things like:

The number of requests for custom designs
How much you spend on ingredients and packaging (here is a handy resource list)
Where website traffic is from
When revenue increases
People who have made referrals for you

Try to document and take notes on everything along the way. Whenever you measure something (ideally every month), write what you did and what changed. Proceed accordingly.

Build your Network

In business and life in general, connections make the world go around. They introduce you to new opportunities and spread the word of your work like wildfire.

But also, as with life in general, quality over quantity of connections will be your best bet. You can get a business card from 20 wedding planners, but if you aren’t sharing each other’s names or new opportunities, you may as well know zero.

Don’t be afraid to reach out to someone or “make a deal” with them.

Make sure you both get something out of it, and it’s worthwhile. Don’t be shy either, as people in business are continually looking to expand their networks and companies, as well.

Place an excellent opportunity for you both on the table, and someone will grab it. Just keep asking around!

Remember, networking is all about give and take. Regularly take the initiative, and people will take you up on it.

Send thank-you notes for getting referrals
Invite people on lunch dates you pay for
Inform good connections about opportunities, such as upcoming events.

Reinvest

It’s rewarding to see money coming in from your home bakery finally, but don’t get side-tracked.

Putting the money you earn back into the business can double or triple the profit if you spend wisely. For example:

Invest in a website or printed brochures you can’t usually afford or buy that mixer that improves your food quality.
Hire a designer to create your business logo or offer gift packaging.

If you have the basics, anything that enhances the experience of your company is a worthwhile investment.

Just be smart about it.

People like consistency, so if they only get the “pretty packaging” sometimes, they may get frustrated.

Only upgrade what you can continuously afford. People are sensitive to change, so if you finally can afford the superior packaging, make sure it’ll last you a few months so that you can save up for more in the meantime.

Be (Actually) Productive

When business is slow, it’s compelling to do less important things to give the illusion of productivity.

Don’t merely reorganize a drawer you just cleaned out because you feel like it. Prioritize what needs to get done. Think about any upcoming holidays and get your special menu finalized in advance. Get photos and draft your social media posts, so they are ready to go when the menu is available for sale.

Make a list of everything, including those tasks you think aren’t important. Highlight the most necessary items and focus on those (and factor in deadlines proportional to the importance).

Also, it’s easy to say yes to requests when you have nothing better to do. Taking a job to keep your hands busy is the opposite of what you’re going for. Don’t settle on a project you find too easy or not profitable; only do things worth your time.

Understand you will stagnate sometimes and make a plan to move forward or prepare for something coming up.

Deal with Defeat

Having a rough one or two years doesn’t mean you can’t do it. It might just mean you need a little help.

Don’t let your first year be a litmus test for how well things will be in the future. The first year is the hardest! Especially since a business only goes up after the first year if you follow the right strategies.

The secret is listening to what the people want and adjusting accordingly. Also, remember WHY you started a business. For sure, there will be long, lonely, exhausting days, but there can also be a lot of joy, especially from customers who love and appreciate your work.

Growing Your Business

Growth typically is measured by years in business.

There’s a base profit to expect, and specific steps to take each following year.

However, you should base expansion on milestones, rather than years. Relying on benchmarks is a great business model, as you’ll run your business based on a specific goal rather than based on a timeline that seems far away and can sneak up on you.

Your business may be ready for more in year 4, and if you take too long to expand, it could fall flat because you took too long.

If you simply want to make cakes for the people in your neighborhood, you have covered all the bases to this point.

However, you likely want to expand this to more of your community, if not your town or city. Perhaps you even want your own full-service bakery.

Should You Start A Home Bakery?

So:

You know how much you can earn.
You know the struggles you’ll face.
You know what you NEED to do.

But should you start your baking business? Here are a few pros and cons to help you make your final decision. Check out my blog post about deciding if baking is a hobby or if you are ready to transform it into a business.

Pros

Easy to start, and you’ll love your job if you love to bake.
Continually in demand, people will always buy treats!
You can sell locally or, if your cottage law permits, online. This is great if you like to work from home, but you get to control how much you get out of the house.
Semi-flexible schedule where you choose how many orders to accept.
You decide if this a part-time side hustle or more.
There is a lot of flexibility. You can tell customers upfront about any temporary closures, for example, extended vacations. Not having to worry about paying rent for a business space can be very freeing.
You probably already bake for fun; you’re taking it to the next step and monetizing your hobby!

Cons

There are several regulations you have to follow, which may limit what you want to make.
Since you’re working this business for income, you have to make enough to turn an actual profit. This process can be time-consuming and may make you enjoy it a little less. It’s a business. Your business!
In some states, you have to separate your bakery equipment from your personal equipment. Some states even require you to cook in a different kitchen.
It is a pretty competitive field, so it’ll require time, money, energy, and growth to make any profit.
Baking and decorating takes time and can be physically exhausting.

It’s Time to Get Started!

You know what you need to do, so it’s time to begin! The main thing to remember is to go in with a business plan, track expenses and revenues, and don’t undercharge. For your home bakery to be profitable, make sure you keep an open mind to opportunities for growth and change. You’ll get the most profit from keeping the customer happy, so everybody wins!

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Have you gotten my Essential 5 P’s for Perfect Product Pricing pdf yet? I created this freebie to take the guesswork out of determining how much to charge for baked goods. S ign up for my email list and your very first email has the pdf.

Check out my blog archive for more helpful articles. Follow me on Instagram at @whiskwarrior where I post weekly tips, resources, and personal experiences operating a home bakery and retail bakeshop.