How To Start $500K/Year Cupcake Business (2020)

  • by Norm Tedford
  • 1 month ago
  • Blog
  • 1

Have you ever thought about starting a cupcake business? If you have, you might want to take a cue from Craig Watson, founder of Baked Cravings, a great cupcake bakery in New York City.

Craig’s wildly successful cupcake shop isn’t some little rinky-dink store.

It generates massive amounts of revenue–much more than most cupcake bakeries:

…our numbers are round $400,000/year, but expect next year to increase to 650,000.

We interviewed Craig for this article. So, you’ll be able to find out how, in the space of only a few short years, he took his cupcake business from zero to six figures.

You’ll also find out how he creates raving fans for his New York cupcake shop, whether you need a business plan, how he bests competing cupcake companies, what he does to rank his business so high, his plans to add more cupcake stores, and much more!

If you want to know how to start a cupcake business, read on…

A Little Bit About Craig’s Company

Craig WatsonCraig Watson was an accountant for years. How does a bean counter and number cruncher make the transition to a cupcake entrepreneur par excellence who is constantly dreaming about cupcakes? Here’s what Craig has to say about that:

I was a CFO of another bakery in the city. We shut that retail business down. I asked the owner if I could start my own bakery, and she said yes.

So, in 2017, he founded Baked Cravings. His first business location was in Harlem, New York, and his cupcakes soon garnered a reputation for being super scrumptious and aesthetically pleasing.

His store sold so many cupcakes, he soon opened a second cupcake shop in East Harlem. His cupcakes are so mouth-wateringly delicious, Baked Cravings won “The Best of Manhattan” two years in a row.

The most popular offering of his amazingly successful cupcake shop is “Cupcake in a Jar:”

Our cupcakes in a jar sell the best as we are able to do those nationally. We also just signed a deal with Amazon Fresh, who will be carrying our cupcakes as well.

One thing that differentiates his successful cupcake business from every other cupcake shop is his cupcakes are 100% nut-free. By doing that, children plagued by food sensitivities get to enjoy his concoctions. This includes his own daughter, who is allergic to nuts.

The Mt. Sinai Allergy Clinic is three blocks from his cupcake shop. This means that kids who go to the clinic have a place to indulge their cupcake cravings.

How to Start a Cupcake Business

Baked Cravings CupcakesHere are the exact steps to take if you want to start your own six-figure cupcake business:

Have Clarity About What You Want to Do

A clear plan is essential for entrepreneurial success. This could either be a formal business plan or a less structured map that shows you how you plan to build the business of your dreams.

When asked if he had a cupcake business plan, he had this to say:

No, by the time you make one, you change it. I have started so many, and by the time you start one, you have to redo it. You can have goals. You can also try this and try that. Basically, just watch your financials and make sure you are making money and then go from there.

This just goes to show you that while you don’t necessarily need a business plan, you need to be crystal clear about your business goals.

Come Up with a Name for Your Cupcake Business

Baked Cravings BrandingYou’re going to have to come up with a unique name for your business. When registering your business name, research it by checking:

  • Your state’s business records
  • Federal and state trademark records
  • Social media platforms

Get an Employer Identification Number (EIN)

You’ll need to register for a variety of state and federal taxes before you can open your cupcake bakery. To register your business for taxes, you’ll have to apply for an EIN, which is free to do.

You can get your EIN through the IRS website.

Open a Business Bank Account

You’ll also have to open a business bank account because using a dedicated banking and credit card account is crucial to protecting your personal assets. Learning how to build business credit can also help you get credit cards in your business’s name (instead of yours), better interest rates, and higher lines of credit.

It also makes accounting and tax filing for your business so much easier.

Good companies to get a business account include Wells Fargo, Capital One, and Chase.

Get Insurance

To operate your cupcake business safely, you’ll need to get insurance. Insurance protects your business when coverable losses occur.

If you’re not sure of the types of risks you might face as a seller of cupcakes, ask an expert. If you don’t want to do that, get general business liability insurance. This is the most common type of coverage small businesses need.

A few of the best insurance companies for small businesses include State Farm, Nationwide, and Travelers.

Stand Out from the Competition

Baked Cravings assorted cupcakesRunning your own cupcake business involves a lot more than merely baking and decorating cupcakes.

You’ll have to come up with things to differentiate your cupcake company from a zillion other sellers of cupcakes. When asked how he makes his business stands out from his competition, Craig had a one-word response:

Quality.

Another way to remain one step ahead of your rivals is to choose a niche, such as vegan, gluten-free, organic, or kiddie cupcakes. Once you’ve identified your target niche, you’ll better understand your customer type and how to sell cupcakes to them.

In fact, according to Craig, identifying your target demographic is one of the secrets to making your cupcake business thrive:

The key to growing it is knowing exactly who you are marketing to.

Go where your niche customers are. If you specialize in organic ingredients, head out to the Farmer’s Market. If you sell vegan cupcakes, go to a vegan food festival.

To appeal to your target demographic, ask for feedback on your cupcakes. When you have new cupcakes to sell, entice your raving fans to be your taste testers. Consider their input and adjust your recipes accordingly.

By taking an interest in your customers, you’ll build word of mouth for your cupcakes.

Decide on Your Business Structure

You should establish your cupcake business as a legal entity apart from you. This way, you protect yourself from being held personally responsible if your company gets sued.

The most common business types are as follows:

  • SOLE PROPRIETORSHIP: This is an unincorporated business with a single owner. Personal income tax is paid on profits earned from the company.
  • PARTNERSHIP: is a formal arrangement by two or more parties to manage and operate a business and share its profits.
  • LIMITED LIABILITY COMPANY: is a legal entity with the attributes of both a corporation and a partnership. It offers its owners corporation-like protection from legal liability.
  • CORPORATION: is a group of people allowed by law to act as a single entity.

When deciding on how to legally structure your cupcake business, you need to look at how complex it is, how many owners it will have, and your business goals.

Be careful when considering whether to take on a business partner. Craig had this to say:

When I first started, I had another partner that was sweat equity. I wish I had never had a partner. You need a partner that is as good as you and understand how the business works if you are going to have one. Unfortunately, my partner did not meet those expectations, but you live, and you grow and learn.

Choose Your Location

Baked Cravings LocationBefore starting a cupcake business, you’ll have to decide precisely how you want to sell your cupcakes. For example, you can sell them using one or more of the following ways:

  • Home
  • Brick-and-mortar store
  • Delivery truck
  • Food truck

If you want to sell your cupcakes from a food truck, check out our article on how to start a food truck. We also have a video interview with a food truck business that you can find here or watch it below.

You’ll also have to decide if you’re going to operate a franchise or start your own cupcake business from the ground up.

Take time to carefully consider all your options before making a final decision on how you want to sell your cupcakes.

Get Your Permits and Licenses

To start your cupcake business, you’ll likely have to register it in your local county and then follow the licensing requirements set by the state you live in. Each state has a dedicated website that outlines the business registration process.

If you neglect to get the required licenses and permits, you could end up paying massive fines or even have your business shut down.

One thing you’ll need to do is to get your cupcake business licensed by your local health department.

You’ll also have to get a certificate of occupancy if you’re planning to sell your cupcakes in a brick and mortar store. An occupancy certificate verifies that a space conforms to all zoning laws, building codes, and government regulations. If you’re leasing a space, it’s probably the landlord’s responsibility to get this document. Before signing a lease, ensure that your landlord can secure a valid certificate for a food-preparing business.

Most legal experts recommend that you insert language in your lease agreement stating that you won’t have to start paying rent until you get the CO.

Purchase Your Equipment

Cupcake toolsIf you want to operate a cupcake bakery, you must first purchase equipment and cupcake business supplies.

Here’s some of what you’ll need:

  • Commercial mixers
  • Wooden spoons
  • Rubber spatulas
  • Baking pans
  • Cupcake molds
  • Decorating bags and tips
  • Mixing bowls
  • Non-stick cupcake trays
  • Digital scales
  • Cupcake cooling racks
  • Measuring spoons
  • Cupcake display cases
  • Cupcake stands
  • Carryout boxes
  • Containers

Keep Your Costs Down

According to Craig, you need to “really watch your costs” if you want your cupcake business to thrive.

By keeping his costs down, Craig has generated profit margins of “between 50% and 70%,” for his business, which is pretty darn good.

One way to ensure maximum business profitability is to keep your food costs below 35%. If you want to find out how much one of your cupcake recipes costs to make, check out Pricing Baked Goods. Make sure you include all the time you spend baking when figuring cost.

If you don’t do this, your business selling cupcakes won’t be profitable. In the early years of a business, incorrectly managed finances often lead to failure. Proper business pricing is crucial, so you’d better decide on an effective pricing strategy. Factor in things like supplies, rent, utilities, salaries, and your own time and effort.

For Craig, his highest costs for his business are “rent and payroll.”

Find the right balance between wickedly inflated prices and prices that are so low your business won’t make any money. You’ll also need to keep your labor costs under control. For bakeries, these costs usually run anywhere from 20 to 30% of gross profit.

If you exceed this, you’ll have to find ways to cut back on this expense.

POS System

Cupcake shop POS system

A POS system (Point of Sale) lets a customer pay a business for goods or services. By using one, you’ll spend less time on your finances and more time making your cupcakes.

Try to purchase one that’s specifically for bakeries. These systems have all the regular functions of a retail POS system, such as the ability to process business payments, look at sales reports, and customer relationship management (CRM) features.

However, they also let you manage your cupcake recipes and do ingredient-level supply tracking.

I recommend using Lightspeed, TouchBistro, or Loyverse.

Get a Website

You’ll need to get a website to promote your cupcake company because every small business needs one nowadays. More than two billion people users surf the Internet every day. If you haven’t established a web presence, all these potential cupcake customers will slip through your fingers–no matter how delectable your cupcakes look!

A website is one of the most inexpensive marketing tools and gives you maximum bang for your buck.

Shopify

Craig likes to use Shopify to supercharge his website:

Shopify powers our backend, our website, and our POS. On our website, you can design your own cake. You can schedule delivery. [Shopify] handles the entire sales process. The technology of our website is what really allows us to function effectively and efficiently.

Shopify is a proprietary e-commerce platform for online stores and retail point-of-sale systems. It simplifies the running of an online store for small businesses.

For many small merchants, it’s a godsend.

Get Ranked On Google

To pull in the most customers for your cupcake business, strive to get ranked by the search engines.

Baked Cravings ranks high in the Google ratings. One way you can emulate their success is by writing long-form blog posts. These are articles of more than 2,000 words in length.

Baked Cravings does this. Check out one of their posts here.

You can also amp up your SEO by uploading a sitemap to Google. This shows the company everything on your site, making it easy for the search spiders to crawl through your domain.

Create your own by using the XML Sitemap Generator.

You’ll also have to optimize your business website for mobile. If your site isn’t mobile-friendly, you’ll need to switch to a more responsive design. Make sure it loads quickly for all devices, too, because internet users are notoriously impatient.

Use Google’s PageSpeed Insights to see how quickly your site’s primary pages take to load.

Ensure that your site’s pages use a descriptive title tag to tell users and the search engine what the page is about. You’ll also need to do a little keyword research to find keywords your business should be trying to rank for.

Google Ads

Google Ads is a terrific way to reach new cupcake customers. When you do, it’s crucial to target a specific audience, build SEO-friendly webpages and ads, and continuously adjust your campaigns using Google Analytics.

Other Ways to Do Marketing

Baked cravings product marketingCraig spends “between $400 and $600 per month” on advertising for his cupcake business. However, it’s not so much how you spend—it’s how you use those advertising dollars.

Nowadays, some people think business cards are passé. However, nothing could be further from the truth. There’s an old school charm to handing one to a potential customer.

This is especially true if your business cards are creatively done.

Another old-fashioned marketing technique that still has possibilities is posting flyers. You can put them up in stores, send them out as mailers, or hand them out to passerby.

Try donating gift certificates for your cupcake company to charity events to both drum up goodwill and new customers. You could also partner with big companies, who might think a creative cupcake vendor is just the thing to liven up company events. Craig had this to say:

Try to also align yourself with corporate events and other businesses.

One of the best ways to promote your products (especially if your cupcakes are out-of-this-world) is by letting your cupcakes speak for themselves.

How do you do that?

By whipping up a batch of delicious, eye-catching cupcakes and letting everyone have a taste. You or one of your employees can stand outside the door of your business and hand out free samples.

Lastly, make sure you join the Cupcake Bakers’ Association to get industry tips and a featured listing on their website.

Harness the Power of Social Media

Make sure you add social media to your promotional mix. These days, small business owners who ignore social networking sites like Twitter and Facebook do so at their own peril.

When Craig was asked how he markets his cupcake company and which form of advertising has been the most successful, he had this to say:

I use Google Shopping. Facebook. Get leads through social media. We get a bit of press as well.

Expand Your Product Line Beyond Cupcakes

Baked Cravings productsWith a cupcake business, you don’t just make money by selling cupcakes. There are other ways to rake in cash too. You can sell other baked goods, such as pies, cookies, and cakes, like Baked Cravings does.

Here’s what Craig had to say:

Try to not pigeonhole yourself. Try to look at all different products.

One novel way to sell your cupcakes is by using a cupcake ATM, which looks like a regular ATM (only with prettier colors). However, it dispenses cupcakes instead of dollar bills.

You can also teach classes in the fine art of cupcake decorating, or a even class on starting a cupcake business!

Learn Entrepreneurial Hacks

As you progress in your entrepreneurial career, you’ll undoubtedly pick up hacks that’ll help accelerate your growth.

For Craig, it was YouTube:

YouTube has really helped. If you don’t know anything, just go to YouTube. I have a close friend in the bakery industry who is an expert at the business. Whatever I see them do well, I will then go on YouTube and learn about that particular topic. It’s amazing how much you can learn on YouTube.

Identify Your Biggest Challenges

If you want to succeed as a cupcake salesman, you need to identify your biggest challenges. Here are Craig’s:

Getting your production in order. Also, handling staff and making sure they are doing what they are supposed to do.

Craig went on to identify other battles:

We are struggling with space. We have trouble storing everything and having enough space for production.

Depending on your personality, local business conditions, and other factors, your challenges might be quite different. In any event, it’s essential to know what they are, so you can concentrate more of your efforts on them.

Continue to Grow and Scale Your Business

Packaged cupcakesIf you don’t want to stagnate, you’ll need to keep growing your business. This means that scaling your business might be in your future. When asked if he planned to scale his cupcake enterprise, Craig said this:

We plan to grow our sales. Our partnership with Amazon is going to help. We have a reality show, so that should help. We just opened another location in East Village, New York, which is a trendy location. Our original shop is in East Harlem.

Work Hard

When Craig was asked, “to what do you attribute your success?” He had two words:

Hard work.

Strategies will never be effective unless you put in the effort!

Craig’s Top Three Tips

When Craig was asked what the top three tips were for starting a cupcake business, he had this to say:

Tip 1: Get your things in order, your costs, pricing, and your target customer. Tip 2: You must have a retail location or an online/commercial space platform. Tip: 3 Understand how you are going to market it.

How Much Money Will You Need To Start A Cupcake Business?

Start-up costs for a cupcake company vary depending on your business model.

Ongoing expenses for a cupcake business include ingredients, packaging, and promotional items. If you have a dedicated storefront, you’ll have the overhead of rent and utilities.

How to Start A Cupcake Business with No Money

When Craig was asked how he got the funding to start his cupcake empire, he had this to say:

Self-funded. I paid to get it going myself. It was from savings.

Another way to start a cupcake operation with no money down is by selling your cupcakes out of your home.

Final Thoughts

Starting a cupcake business isn’t that hard.

However, making six figures in a cupcake business requires the ability to make tasty creations, creative design, impeccable customer service, and perseverance. Craig Watson’s story shows that it can be done. This means that you can do it too!

If you’re planning to start a cupcake business, are you going to have a storefront, a food truck, or something else?

Let me know in the comments.

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