Do you want to know how much money donut shops make yearly? If YES, here are 8 factors that determine the income & profit margin for donut shop owners. As expected, whenever any entrepreneur wants to start a new business, one of the first questions that they usually ask is how profitable the business is.
This narrative also applies to entrepreneurs who are looking towards starting a donut shop. They would want to know how much they are likely going to make annually from their donut shop. The truth is that there is no one-mold -fits-all when it comes to how much a donut shop is expected to make. There are some factors that we are going to look into before giving an estimate of how much an average donut shop can make yearly and these factors are;
8 Factors That Determine How Much Money Donut Shops Make Yearly
Table of Content
- 1. The Size of the Donut Shop
- 2. The Location of the Donut Shop
- 3. The Type of Donuts and other Products Retailed in the Shop
- 4. The Management Style of the Shop
- 5. The Business Model of the Donut Shop
- 6. The Advertising and Marketing Strategies Adopted by the Donut Shop
- 7. The Cost of Ingredients
- 8. The Number of Years the Business is in Existence
- Estimated Profit Margin for a Donut Shop
- a. Direct Cost (ingredients)
- b. Indirect Costs (Non-food)
- Calculating your Profit Margin On a Donut
1. The Size of the Donut Shop
One cannot conveniently state the amount a donut shop is expected to make yearly if you do not know the size of the shop. Donut shop business is one of the businesses that an entrepreneur can successfully start in the corner of a busy street or on a mobile basis without breaking the bank for cash.
The amount a mom and pop donut shop is expected to make annually will be far different from the amount a standard donut shop franchise with several outlets will make annually even if they operate in same location.
Of course, the amount invested in a small donut shop is different from the amount invested in a large and well – organized donut shop hence the amount they will both make will be different. The approximate cost of starting a donut shop could cost anywhere between $5,000 and $500,000 depending on what you want to achieve.
2. The Location of the Donut Shop
When it comes to setting up a new business, location plays a major role which is why feasibility studies and market survey are essential. The amount a donut shop that is located in a low traffic area will make yearly will be low compared to the amount a donut shop located in a high – traffic area will make.
So, if you want to make it big with your business, then you must be ready to rent a store in a high traffic area. Please note that you are going to be paying more to rent a store in a high-traffic area as against a low-traffic area.
3. The Type of Donuts and other Products Retailed in the Shop
Another important factor that will determine how much a donut shop is expected to make yearly is the type of donuts and products retailed in the shop. You will agree that there are donut shops that also retail other products such as sandwich, buns, salads, coffee, soft drinks and water, which will surely boost the amount they are expected to make from the business. So also, if you offer delivery services, you will make more money than your competitors who just sell only donuts from their store.
4. The Management Style of the Shop
Another key factor that will determine the amount a donut shop is expected to make yearly is the management style of the shop. Trust me, the results you will get when you have a good manager managing your donut shop and an average or bad manager will definitely be obvious and different. Even if you give the managers same conditions to work and same products to retail.
5. The Business Model of the Donut Shop
There are different business models that a donut shop can adopt and these business model offers different results. For example, the amount a donut shop that also run an online store with deliveries will make yearly will be different from the amount a strictly brick and mortal Take-out, On-premise donut shop will make yearly. The amount a donut shop that also sell and operate franchise will make yearly will be far different from the amount a strictly one location walk-in shop will make.
6. The Advertising and Marketing Strategies Adopted by the Donut Shop
Another key factor that will determine the amount a donut shop can make yearly is the advertising and marketing strategies adopted by the shop. Trust me, there are several advertising and marketing strategies that can help a business increase their earnings.
The results you will make will far outweigh the amount you spent on advertising and marketing. Of course, you don’t expect a donut shop that engages in aggressive advertising to make same amount yearly with a donut shop that is passive with its advertising and marketing.
7. The Cost of Ingredients
You cannot calculate the amount a donut shop is expected to make without putting into consideration the cost of the ingredients used in preparing the donuts. The truth is that if the owner of a donut shop has a factory where they source the bulk of their flours ingredients, they are likely going to make more money compared to a donut shop that rely on supplies from retailers because they have been able to eliminate middle – man cost.
8. The Number of Years the Business is in Existence
In business, the number of years you are in existence will go a long way to determine the amount you will make. For example in your first fiscal year (FY1) you might make a hundred thousand dollars ($100,000), in your second fiscal year (FY2) you might make one hundred and twenty thousand dollars ($120,000) and in your third fiscal year (FY3) you might make one hundred and fifty thousand dollars ($150,000). Interestingly, most businesses including donut shop usually breakeven from the third year of operations.
In conclusion, the amount a donut shop will make yearly is strictly dependent on all of the factors listed above. Usually, a small – scale but standard donut shop that is located in a high – prone human and vehicular traffic location will make between $120,000 to $150,000 annually all things being equal.
It boils down to making about $307 dollars a day on average, or $9,371 dollars per month on average. In essence, if the Big Donut makes $9,371 per month on average, that makes an annual revenue of $112,452.
Estimated Profit Margin for a Donut Shop
Note that the profit margin on a product is simply the difference between your cost and the selling price. This cost can be the wholesale price you pay your supplier or the cost to manufacture the product if you make it yourself. You will then have to minus the cost from the sale price to get profit margin, and divide the margin into the sale price for the profit margin percentage.
However, before you can calculate the profit margin of your donut shop, you have to first work out your costs. There are typically two types of costs to understand: direct and indirect.
a. Direct Cost (ingredients)
These are the cost of every single ingredient used to make your donut. You have to know the cost of a single donut and the cost of every ingredient that went into the making it donut.
b. Indirect Costs (Non-food)
This involves all the costs (apart from ingredients), that you must have incurred from running your donut shop business. These expenses are sometimes referred to as operational costs. You definitely have to make allowance for these when pricing your product. Here is a sample list of indirect costs:
- Rent (when producing food from a commercial kitchen)
- Mortgage payments (when producing food from an approved home kitchen).
- Commercial rates (refuse collection, water etc.)
- Equipment (even if you already own it)
- Logo design
- Business planning software
- Labor (how long did you or employees take to make the donut?)
- Lighting and heating
- Website hosting and maintenance
In this business era, a lot of home – based baking businesses crumble because the owners failed to inculcate the indirect costs (non-food) into the selling price.
It would be a mistake to assume that the costs of your cookies should not include the costs of labor and operational costs (i.e. the costs of running the business). This does not mean you should not include the cost of it and electricity as costs of production. It is a wrong approach to product costing and many businesses have paid dearly for it.
Calculating your Profit Margin On a Donut
Ideal, these are the counter price of different types of donuts
- Original Glazed 1 Pc. $0.99
- Original Glazed Dozen $7.99
- Assorted Varieties 1 Pc. $1.09
On the Average, it will take about $0.35 to $0.45 to produce a donut including the cost of the ingredient and indirect cost and the average amount a donut is sold ranges from $0.99 to $1.2.
Selling Price per Unit – Production Price per Unit = Profit Margin
$0.99 – $0.35 = $0.64
$1.2 – $0.45 = $0.75
Please note that a donut maker may decide to make use of ingredients and processes that will help him or her maximize profits and may make as high as $1 per donut with a production cost of less than $0.035 per unit of donut produced.