Do you want to know how much money bakeries make in profit yearly? If YES, here is an estimated analysis of the income potential of bakery business owners. Bakeries, no matter what range they are started, can make very profitable businesses. A good many people have the sweet tooth, thus making them prime customers for baked goods of all kinds. And the fact remains that the more people crave their cakes, pies, cookies and what have you, the more these businesses smile to the bank.
If you want to open a bakery, you should know that the earnings of your bakery will depend on a range of variables ranging from scale to experience to Business model. If you are a small bakery owner, you will expect your revenues to fluctuate from month to month depending on the seasons and big bills such as tax liabilities coming due in particular months and cutting into your net earnings.
If your bakery experiences surges in business during the holiday season and the summer wedding season, you can be especially vulnerable to such business fluctuations. If you are about to start a bakery business, or you have already started one but are wondering what your profit potentials will look like, we are going to try to give you a rough estimate in this article.
Calculating the Net profit of your Bakery Business
Experts have said that there is no such thing as an average revenue for a bakery, because not all bakeries are the same. You will notice that some items you bake sell very easily, thus yielding much higher profit margins than others, so it really comes down to your size, location and product mix, and these indices vary from one bakery to the next.
A bakery’s profit margin is a percentage of profit to sales, using factors that depend on what kind of profit margin you are calculating. A gross profit margin is beneficial with regard to the profitability of a single product by subtracting the total costs it took to make those cakes from their total sales.
A net profit margin is the preferred metric of choice when determining a business’ overall profitability; because it takes into account your total revenue minus all of your expenses.
For example, if your bake shop generated $300,000 in sales last year and accrued $250,000 in expenses, the difference of $50,000 would equate a net profit margin of 16 percent. Revenue and profit are important, but those alone won’t give you the full financial picture.
Revenue shows how much you’ve earned and profits show how much money your company has made in absolute terms. But a profit margin tells you how much you’re actually putting into your bank account, compared to your revenue. This makes it a more helpful tool in letting you know where your bakery stands financially. It can also help you determine where your time and resources may be better spent.
Ignoring your margins can have a direct impact on your ability to effectively manage your emerging bakery. Understanding them will help you avoid issues with pricing and losing money on sales, both of which are the downfall of bake shops that appear to be thriving on the outside but are crumbling on the inside because of low prices and high operating costs that yield a profit of zero.
How Much Money Do Bakeries Make in a Year?
To determine how much the owner of a small bakery makes per month, subtract the bakery’s gross revenue or receipts from its monthly operating expenses, including labor, ingredients, rent and advertising. For a sole proprietorship, partnership or Limited Liability Company, the bakery’s net income equals the income of the owner or owners.
A bakery structured as a C or S corporation will pay its owner a predetermined salary, but this owner will still be responsible for dealing with cash shortfalls if the business does not earn enough to cover this salary.
Bakery Owner Income
Annual income for a baker ranges from around $18,000 per year to $57,000 per year, or $1,500 to $4,750 per month. Annual income for a bakery production supervisor ranges from $37,000 to $71,000 per year, or $3,083 to $5,917 per month. But annual income for a bakery general manager ranges from $25,000 per year to $52,000 per year, or $2,083 to $4,333 per month.
Even if your bakery does take in $450,000 per year, you’ll take home considerably less than that. Your profit, or owner’s income, is the amount left over after subtracting operating costs such as materials, labor, rent, utilities, office supplies, equipment repairs and all the other expenses necessary to keep your bakery running. It’s better to have lower revenue and a higher profit than higher revenue and lower profit.
How to Increase Revenue in your Bakery
One big way to increase revenue at your bakery is by selling more baked goods or by charging more for the baked goods you sell. It’s tough to start charging dramatically more once customers have grown accustomed to your prices, so develop a clear understanding of your expenses right away. You can increase sales by offering a broader selection of breads and pastries, or by surveying your customers to develop a more focused understanding of what they want.
It is good to keep your food costs under 35 percent and your total cost of goods sold under 50 percent. The cost of goods sold includes materials such as ingredients and packaging, and the direct costs that go into producing the physical product you sell, such as hands-on baking time.
The yearly earnings of a small bakery depend on how effectively the bakery is run. If the bakery owner is committed to using only high quality or specialty ingredients, the price of the baked goods must cover the added cost of these ingredients.
Greater volume allows you to purchase ingredients at lower prices, increasing your profit margin and owner earnings. Economies of scale also allow you to produce more cost effectively, spending less and earning more for each unit produced.