What volume needed to make profit? (commercial bakery)

I've worked in bakeries for most of the last 15 years, as both a baker and in the office running numbers, and I can say without hesitation that volume is not a guarantee of profit. Yes, a higher production can help in attaining economies of scale, but if your processes are not inherently scalable then a higher volume will actually hurt your profits. It becomes very possible that the increase in revenue from the higher sales volume is not enough to offset the increased costs of higher production (labor, packaging, delivery, raw materials, energy, etc.)

I don't mean that as discouragement, just a very real possibility that you need to consider.

Efficiency is key to profit when it comes to baking. How much can you produce with minimal investments in machinery and labor? What kind of quality can you produce while keeping processes streamlined? And will that quality require prices that are acceptable to your target market, or will they be cost prohibitive?

Different kinds of bakeries benefit from different business models. A primarily wholesale artisan bakery that sells mostly to restaurants, delis and grocery stores does well with some machinery like dividers, molders, and high capacity mixers. The reduction in quality isn't necessarily a drawback to these customers, but the lower price point is definitely a benefit. This kind of bakery trades high capital costs at start-up for increased economies of scale. This bakery needs high volume to profit, but the profits can be very high.

At the other end you have the small mom and pop artisan bakery whose selling point is quality and business is mostly retail. The customer base tends towards the elite. They're willing to pay a premium for what they view as the best available product. So you'd best give them quality worth bragging about. Now you're talking more hand work here. Labor costs go up, volume goes down, economies of scale are less significant, and profit is found in maximizing your margin. 

In either case, efficiency is key to making money -- but how you approach that efficiency/quality balance will depend on what kind of bakery you operate.

So best first have a clear vision of what kind of operation you're going to run. Once you know your market, you'll have a much better idea of the processes required to meet demand. Once you know your process, you can start to maximize the efficiency/quality ratio in your favor. High efficiency means reduced costs, higher margins, and ultimately more profit.

That said, it's not really possible to say how much volume you need to make a profit. That all depends upon your process. I've seen bakeries losing money at high volume, I've seen bakeries make a killing at low volumes. And I've seen bakeries that were doing well at a low volume struggle when their business grew beyond their capacity for efficiently increasing production.

It always comes back to process. Make sure your process is efficient and scalable from the start and you'll make profit at both low and high volume. That's the secret to strong growth. Good luck.

Cheers!

Trevor

Also keep in mind, that you can increase profit without increasing volume. Profit is just the difference between your costs and your revenue. Yes, you can increase sales to earn more money. But keep in mind, that every increase in sales dollars comes with increased costs like labor, ingredients, advertising, etc. So if you make an extra dollar in sales you may only end up seeing an extra $0.20 in your pocket.

But by reducing costs, that money goes straight to the bottom line. As they say, a penny saved is a penny earned. If you cut you costs by one dollar then that entire dollar is going into your pocket. Often times, the best way to increase profit is to cut costs (so long as you do so intelligently). Again, efficiency is key to reducing costs.

So make sure you understand ALL of your costs. Everything. Even costs you might not consider, like liability insurance, health insurance (both personal and employee), taxes, equipment maintenance, delivery, marketing, packaging, leases, fees, etc. It's vital you understand every single cost so that you know your cost per loaf. If you don't know your cost per loaf to a high degree of accuracy then you're just guessing at your pricing and hoping you make money. Don't leave it to chance.

Cheers!

Trevor

enough for your bread to make a profit, I have been in businesses where they almost apologize for their pricing.  The most recent one was a ice cream parlour that made their own ice cream and gelato.  I asked how much a scoop was and she was very apologetic that they charge by weight rather than by scoop.  I thought a better way to handle this would have been to just state it is sold by weight and on average the cost of a cone is $x.xx.  Anyway I was left with the impression that she was not confident that she was providing value for my money.  You will get people that say hey at the supermarket I can buy bigger bread for half the price, maybe have a handout that shows the difference par baked breads and your bread.

Good luck with your venture

Gerhard

... to Trevor and Gerhards comments above, but I'm running a home-based bakery (technically catering company as a bakery has a retail outlet - according to the insurance company!)

So my overheads with regard to premises are low but that them imposes a limitation in the ovens I can run, and the space I have. To get to the next level for me means an industrial unit or shop somewhere and even though I'm now making more than half my income from the bakery (and as of tomorrow when my last bit IT contract runs out - more like 90% eek!) I don't feel the need to jump out of the house - yet.

I've concentrated on easy to make breads, cakes, pastys, etc. with higher values - but I'm not going to sacrifice quality of ingredients, so I use organic wheat, etc. when I can, otherwise British, local sugar in cakes (The UK grows 50% of its own sugar!), local farmed meat and so on.

Tonight/tomorrow is going to see me make more bread in one shift that I could imagine - in the region of 65 loaves - I'm attending a new farmers market which could in-theory prove to be good value for me - as long as I don't mind the 4am start. 9pm to bed tonight then.

I was lucky in that I started small - 3 years ago it was 4 loaves a day... Which I made a profit on if I discounted my own time (as you do when you're self-employed) Now... Well I'm making a profit on 150-200 loaves a week, but is it enough profit from the business to live on?

If you don't have capital then you're going to hit the ground with a huge debt on day 1. You need to seriously sit down and do the sums. You can offset labour for machinery though - if you're willing to make the effort. So one modest mixer plus a lot of time planning and you can make 100 loaves. You probably need to give it a month to see if it's a viable business too - that's about how long its taken me to get noticed in new farmers markets when I've visited them - however I'm in a very rural place - you might be in the trendy part of an urban sprawl with hipsters begging for their sourdough soup buns and artisan croissants to go with their cream egg latte ...

Have a look at this: http://www.hartsbakery.co.uk/ that was my inspiration and something to desire, but I live in ruralistan and it simply wouldn't work here,

To answer some of your questions - I sell via local community shops and a local deli. I've tried resturants and pubs, but chefs change and they often want to maximise their profits, so will buy frozen yuk bread than fresh artisan soup buns. I also sell via local farmers markets - that's great as I get to be face to face with the customer so can get instant feedback. I've a few neighbours who buy direct, but I really try to get them to go to the local shop whenever possible.

I've also branched out from bread and cakes, to savouries - beef pastys, vegetarian empanadas, quiche and so on. I also make patisserie for partys and people who want their "plated desserts" and so on.

However teching is an easy way to earn money too - and share the knowledge - which I have a passion for, so I have one day a week with a reltively light baking load in the morning when I can quickly get the place recycled and take in people who want to learn to make their own breads, pastrys, etc. This is relatively common in microbakeries like mine. At least here in the UK.

Do be realistic about your expectations though - good luck!

-Gordon

First, I do not nor do I want to operate a bread business. I am, however, a former small business advisor who has worked with over 100 start-ups in various fields, including a few food-related ones but no bakeries. 

Trevor, Gerhard and Trevor have addressed a number of very important topics. I'll add a couple more based on my experience. One is that almost none of the people I worked with took "know your market" seriously enough. A very common mistake was not identifying their actual market segment or niche, which led to mis-identifying their actual competitors as well as the balance of price and quality required to compete in said segment or niche. 

As a small-scale producer, your goal isn't to compete against operations that have huge advantages in their economies of scale. It's to identify enough customers who prefer the overall value of your product enough to pay a price that allows you to make a reasonable profit / living. Note that the market research element here can and often should include determining what your product and its value proposition should be, not just taking a known product you have and seeing if it will sell. 

My second point is related. It's that value can include more than just the actual product and price. As a hypothetical example, if a wholesale customer wants deliveries at a different time each day from the current supplier's schedule, or twice a day rather than once, fulfilling that preference may be enough get that business. If it's important enough, said customer might even be willing to pay a bit more, especially if he regards your product as superior. 

Another related point is to make sure your selling proposition lines up. If you're selling hand-made artisan bread using premium ingredients, you should charge accordingly. The goal is to figure out the highest price at which you can consistently sell your entire production, not just to sell it.