Starting an Online Bakery Business: What You Need to Know

Bakery sales skyrocketed over the last three years. By the end of 2024, in-store bakery sales reached $25.1 billion. Fresh, locally made bakery items are in demand by consumers, and this is a purchasing trend that those looking to start an online bakery business can capitalize on.  

In this article, we’ll cover the ins and outs of starting an online bakery, how to build a reliable tech stack, and promote your business.  

What Is an Online Bakery Business? 

To get started, let’s look at what it means to have an online bakery business.  

Core Definition 

An online bakery business offers the same baked goods consumers expect to find in a grocery store or local bakery, but they make purchases through an online platform or mobile app. The baker then fulfills the order via delivery, pickup, or shipping.  

Since an online bakery doesn’t require a physical store, you have flexibility in where and when you work. You may bake in your home kitchen, a commercial space, or use a ghost kitchen.  

Key Benefits 

These are five key benefits of running an online bakery business: 

1. Fewer Startup Costs: You do not need a physical storefront, large staff, or extensive permits, so you face fewer overhead and startup costs.  
2. Flexible Scheduling: Fulfilling digital orders allows you to work on your schedule. Unlike a physical bakery, you don’t have to work specific hours.  
3. Creative Menu Options: Because you make the decisions, you can get creative with menu items and recipes, offering customers unique baked goods.  
4. Marketing Automation: You can fully take advantage of marketing automation by choosing the right software and using it to structure your promotional tactics.  
5. Seasonal Items and Loyalty Programs: Create seasonal offers, social commerce, and loyalty programs that work for your business and unique customers.  

Key Insight: There’s an increasing desire among consumers to purchase from local businesses. By serving your local community, you connect with customers who want to shop locally, which may positively impact your online sales.  

Steps to Start Your Online Bakery Business 

Ready to get started? Follow these three simple steps to kick off your online bakery business.  

Step 1 – Develop Your Concept and Niche 

Start by Identifying your baking area of expertise. If you love baking delicious flaky and buttery croissants or personalized birthday cakes, add these staples on your menu. The bakery niche or concept you choose will help with how you market your business— think of it as what makes your company unique.  

Part of this step one is getting a sense of customer demand by launching surveys, conducting market research, or opening waitlists. These data points will help you decide how to set up and market your business.  

Step 2 – Ensure Legal Compliance 

When selling baked goods from a home kitchen, you’re subject to Cottage Food Laws. These regulations determine specific labeling, sale limits, sanitization guidelines, food storage criteria, and more for your business. Make sure to look up the rules for your area. Note that Cottage Food Laws only apply if you run an online bakery from home.  

If you plan to work in a ghost kitchen or rent a commercial space, acquire the appropriate business licenses, insurance, and food safety certifications beforehand. There are industry-standard regulations as well as local rules. Monitor both and consider speaking with local health departments to ensure you cover all your bases.  

Pro Tip: If you run an online bakery from home, try to keep ingredients and bakery equipment separate from personal kitchen supplies. Doing so helps create a clear division between professional and personal expenses. 

Step 3 – Build Your Tech Stack 

Once you know which items you’ll sell and acquire the necessary permits, it’s time to construct your tech stack. When running a small business, lean on automation. Here are three go-to types of technology: 

1. Online Storefront and Website: Shopify or Square are high-quality platforms on which customers can explore your menu via an online store and place orders.  
2. Payment Processing: Stripe, PayPal, or Square are reliable payment tools for businesses of all sizes 
3. Shipping and Delivery: Implement intuitive software to help organize, process, and coordinate order fulfillment.  
4. Marketing and Loyalty: Organize and track marketing campaigns within one tool. You can also find creative ways to reward loyal customers.  

A comprehensive tech stack frees up more time to focus on baking delicious goods and finding innovative ways to connect with customers.  

3 Must-Have Features of an Online Bakery Website 

Now it’s time to take inspiration from bakery or even restaurant websites. As you craft a website for your online bakery, keep these three key features in mind:  

1. Menu with Clear Product Descriptions

Write a detailed description of each menu item alongside photos. When customers see images of delectable baked goods, they can feel confident in your establishment and excited to place an order. To boost confidence even further, add ingredient lists and allergy tags. If a menu item is gluten-free or vegan, add a note for that, too.  

2. Seamless Ordering and Checkout

Seamless online ordering and checkout are important for any business but they’re essential for an online-only bakery. Customers who encounter challenges when placing orders are more likely to churn. Set up your online ordering system to have as few clicks as possible, a mobile-friendly UI, order tracking, and the option to save payment methods.  

3. Loyalty, Promotions, and Upsells

Most customers love a good deal, so offer them limited time deals or seasonal sales. You can go further by implementing a loyalty rewards program with additional offers. Both techniques reward customers when they return to your business. Consider also adding upsell add-ons when a customer checks out. These may include coffee, celebratory cards, or birthday cake candles.  

How to Market Your Online Bakery Business 

Marketing your online bakery business is where the bulk of your order volume will stem from. Once you’ve determined the core functionality and identity of your online bakery business, use these three strategies to spread the word: 

1. Start with Your Immediate Network

Start by telling your social circles about your new business. Offer them samples in exchange for word-of-mouth marketing or social media endorsements. Additionally, create an email list where you can share business updates or join neighborhood apps like local Facebook Groups or Nextdoor to get the word out.  

2. Leverage Social Media

Social media platforms are among the best ways to reach new audiences. Visual-heavy platforms like Instagram and TikTok are the most valuable for food-related content. Post photos and videos about your baking process, final products, or any other unique details to help the target market get to know your brand. Utilize hashtags like #localbaker, #dessertbox, #supportsmallbusiness. 

3. Use Seasonal and Holiday Promotions

Limited-time deals create a sense of urgency. For your business, try using deal formats customers already know, like early-bird discounts or pre-orders. Label items with order deadlines to prompt customers to place early orders.  

Pro Tip: Set up a stand at your local farmer’s market. Customers will love enjoying a cup of tea and snacking on a pastry as they wander the market. You’re also spreading the word about your business.  

Retaining Customers with Loyalty and Communication Tools 

After you have a steady customer base, the next challenge is keeping them engaged. After all, returning customers are responsible for about 80% of restaurant sales. Use the following three tips for retaining customers: 

1. Use Loyalty Software

Comprehensive loyalty software makes tracking, coordinating, and rewarding customers easy. You can organize your loyalty program into tiered rewards. As a guest spends more, the rewards grow more exclusive. Free delivery, exclusive flavors, or birthday surprises may be compelling offers for your guests.  

2. Build a Marketing Email or SMS List

Email is one of the best ways to engage with your guests one-on-one. Send discounts for joining a reward program, birthday rewards, early access to new menu items, flash sales, and more. Finally, give customers the option to opt into text/SMS messaging as it opens another impactful way to reach them. 

3. Encourage User-Generated Content

Not only is it exciting for a customer to see their content on one of their favorite brand’s social media accounts, but it also allows you to engage with them on a personal note. Run a gift card giveaway that encourages customers to tag you in posts to have their name enter or organize a social contest to pick a unique flavor. The more you interact with customers, the stronger a connection they’ll feel to your brand.  

3 Typical Online Bakery Challenges and Solutions 

The best way to keep your business operations smooth is to identify potential challenges and create solutions. That way, you proactively mitigate problems instead of responding to them in real-time. These are three common challenges and solutions: 

1. Inventory and Shelf Life

As a small business using perishable supplies, it’s important to monitor storage for on-hand inventory and restock timing. One good strategy is the bake-to-order model. With this approach, you bake items as orders come in and request them. It’s a technique to help reduce waste. When shipping items, consider freezing or vacuum-sealing as options to help boost shelf life and preserve freshness.  

2. Delivery Logistics

If you allow customers to opt for delivery, you need strategies for managing delivery logistics. Maintaining the quality of baked goods and ensuring items like cupcakes or cakes arrive intact should be top of mind. You might only deliver to a certain area, allowing you to use a local courier and schedule delivery windows. 

3. Burnout and Scale

Starting an online bakery business is no small task. Slow and steady growth is the path to a sustainable business, helping avoid burnout. Begin with a short menu and limited availability, so you can also focus on growing and marketing your business. Use technology that features automated order confirmations or receipts to help save time. 

Real-World Examples of Online Bakery Success 

Want a real-life example? If you’re looking for a bit of inspiration while planning your online bakery, take a look at these three examples: 

1. Magnolia Bakery: World-renowned for its banana pudding, Magnolia Bakery offers a variety of other baked goods that customers love. The bakery has been around since 1996, with locations across New York City. It ships nationwide and markets its offerings for celebrations.  
2. Baked by Melissa: You may have seen Baked by Melissa cupcakes in stores, but the bakery also invites customers to place orders online. The bakery’s expertise is cupcakes, with its unique flavors and rotating menu items helping to keep customers engaged. The cupcakes are also small, which makes them perfect for customers who want to sample several flavors.  
3. Cookie Monstah: For a more local example, look at Cookie Monstah. They offer a variety of cookie bundles that customers can order in bulk for a large party or send a small package to a loved one for their birthday. They also offer upsell add-ons like t-shirts, water bottles, notepads, and other items. 

Key Insight: These examples are large-scale operations with several employees and commercial kitchens, but they didn’t grow to their current sizes overnight. It takes time and persistence to expand your business. Right now, focus on providing the best baked goods and customer experience possible. 

Frequently Asked Questions About Starting an Online Bakery Business 

Here are our responses to common questions on starting your own online bakery business.  

Is a home bakery a good business model? 

A home-based bakery business can be a good model if you’re just starting out or want to experiment with turning a baking passion into a career. You also have greater flexibility with how you manage the business. 

How much does it cost to start an online bakery? 

The cost to start an online bakery, including permits, initial ingredients, website fees, marketing expenses, and a business license, ranges from $1,000 to $2,500. However, you should always prepare for the startup costs to lean toward the higher end of the spectrum.  

Can you sell baked goods online from home? 

Yes, with the proper licenses and permits, you can sell baked goods online from your home. Just ensure that you have all the legal requirements in place.  

Do I need insurance to sell baked goods from home? 

Your homeowner’s insurance won’t cover a home-based bakery business, so you must acquire a cottage food insurance policy or home bakery insurance. Depending on your state, you may be required to purchase insurance to run the business.  

Turn Your Passion for Baking into a Profitable Online Business 

Starting your own online bakery business is well within reach. With the right setup, strategic marketing, and commitment to quality, your online bakery can grow fast with few overhead expenses. 

Book a demo today to learn how Paytronix can support loyalty, personalization, and guest experience for your online bakery business.