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Written by: Carolyn Young
Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.
Edited by: David Lepeska
David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.
Published on January 29, 2022
Investment range
$15,050 - $31,100
Revenue potential
$130,000 - $325,000 p.a.
Time to build
1 – 3 months
Profit potential
$52,000 - $130,000 p.a.
Industry trend
Growing
Commitment
Full-time
Here are the key factors to keep in mind when launching your donut shop:
You May Also Wonder:
Can a donut shop be profitable?
Yes, donut shops can be profitable. Donuts only cost around $.12 to make, and you can sell them for 10 times that amount. You just need to make donuts so good that people keep coming back!
What’s the secret to making a donut shop successful?
To succeed with a donut shop, focus on creating unique donuts and exciting flavors. Offering special, limited-time flavors can attract more customers. Above all, ensure your donuts taste great to keep people coming back.
What is the most successful donut business?
Dunkin Donuts is arguably the most successful. It’s been around since 1950 and has 13,000 locations.
How do I differentiate my donut shop business from competitors?
Unique flavors can differentiate your donut shop. You could also offer breakfast or lunch items in addition to donuts.
What are the most popular donuts in the US?
Glazed donuts are always popular. Cronuts have also emerged as a popular flavor. Apple fritters are not far behind.
Opening a donut shop, or a doughnut shop, has pros and cons that you should consider before deciding if it’s right for you.
More than 200 million consumers in the US ate donuts in 2020. The number is seen to continue increasing through 2024.((https://www.statista.com/statistics/283198/us-households-consumption-of-donuts-doughnuts-trend/))
Trends in the donut industry include:
Challenges also exist in the donut shop industry, which include:
An Ipsos survey in 2021((https://www.ipsos.com/en-us/news-polls/cream-filled-donuts-most-popular-flavor-amongst-americans)) lists the 5 most popular donut flavors in the US.
Among the employees in donut shops are food counter workers.
Startup costs for a donut shop range from around $15,000 to $30,000. The largest costs are for donut making equipment and other kitchen tools.
You’ll need a handful of items to successfully launch your donut shop business, including:
| Start-up Costs | Ballpark Range | Average |
|---|---|---|
| Setting up a business name and corporation | $150 - $200 | $175 |
| Business licenses and permits | $100 - $300 | $200 |
| Insurance | $100-$300 | $200 |
| Business cards and brochures | $200 - $300 | $250 |
| Website setup | $1,000 - $3,000 | $2,000 |
| Shop space deposit | $2,000 - $4,000 | $3,000 |
| Donut making equipment and other kitchen equipment | $10,000 - $20,000 | $15,000 |
| Tables and chairs | $1,500 - $3,000 | $2,250 |
| Total | $15,050 - $31,100 | $23,075 |
The cost to make a donut averages $.12, while the same donut can be sold for $1.25, resulting in a 90% profit margin. After the cost of space rental and overhead, your profit margin will be around 40%.
In your first year or two, you could sell 2,000 donuts a week, bringing in $130,000 in annual revenue. This would mean a nice profit of around $52,000, assuming that 40% margin. As your shop becomes better known and you get repeat customers, sales could climb to 5,000 donuts a week. With expected annual revenue of $325,000, you would make an impressive $130,000 in annual profit.
There are a few barriers to entry for a donut shop. Your biggest challenges will be:
Now that you know what’s involved in starting a donut shop, it’s a good idea to hone your concept in preparation to enter a competitive market.
Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.
Research donut shops in your area to examine their products, price points, and what sells best, as well as customer reviews. You’re looking for a market gap to fill. Maybe your area is missing donut holes, a good mini donut option, or a vegan donut shop.
You might consider targeting a niche market by specializing in a certain aspect of your industry, such as cake donuts.
This could jumpstart your word-of-mouth marketing and attract clients right away.
You’ll want to develop a menu of classic and unique donuts. You’ll also want to offer beverages, such as juice and coffee drinks. You could add to your product list by offering other baked goods, like croissants and muffins.
The average price for a donut is $1.25, although specialty donuts may have higher prices. Your ongoing costs will be rent, overhead, and labor. You should aim for a profit margin of at least 40%.
Once you know your costs, you can use this Step By Step profit margin calculator to determine your markup and final price point. Remember, the price you use at launch should be subject to change if warranted by the market.
Your target market will be very broad, so you should market on a variety of social media sites, such as TikTok, Instagram, Facebook, and even LinkedIn.
Selecting the right location for your donut shop is crucial for attracting customers and ensuring its success. Look for a spot in a high-traffic area with good visibility, such as a popular shopping district or a busy street corner.
Consider accessibility and convenience, ensuring that the location is easily reachable by public transportation and has ample parking. Additionally, assess the local demographics and aim to select a location that caters to a wide range of customers, from families to professionals.
By strategically choosing the right location, you can establish a profitable and popular donut shop that offers a variety of flavors and styles and stands out in the competitive food and beverage industry.
Find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.
Here are some ideas for brainstorming your business name:
Discover over 290 unique donut shop name ideas here. If you want your business name to include specific keywords, you can also use our donut shop name generator. Just type in a few keywords and hit “generate” and you’ll have dozens of suggestions at your fingertips.
Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.
Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that set your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.
Here are the key components of a business plan:
If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.
Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.
Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!
Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you’re planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to donut shops.
If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.
Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your donut shop will shape your taxes, personal liability, and business registration requirements, so choose wisely.
Here are the main options:
We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.
Choose Your State
The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.
Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.
The IRS website also offers a tax-payers checklist, and taxes can be filed online.
It is important to consult an accountant or other professional to help you with your taxes to ensure you’re completing them correctly.
Securing financing is your next step and there are plenty of ways to raise capital:
Bank and SBA loans are probably the best options, other than friends and family, for funding a donut shop business. You might also try crowdfunding if you have an innovative concept.
Starting a donut shop business requires obtaining a number of licenses and permits from local, state, and federal governments.
You may need the following, depending on the requirements in your area:
Federal regulations, licenses, and permits associated with starting your business include doing business as, health license and permit from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits.
You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more.
You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.
This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties.
If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.
Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.
Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your donut shop as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.
Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.
Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.
Here are some types of insurance to consider:
As opening day nears, prepare for launch by reviewing and improving some key elements of your business.
Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.
You may want to use industry-specific software, such as aptean, cybake, or Flexibake, to track customer orders, inventory, and nutritional content.
Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism.
You can create your own website using website builders. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.
They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google.
Here are some powerful marketing strategies for your future business:
Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your donut shop meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire.
Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your donut shop could be:
You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a donut shop, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in donut shops for years and can offer invaluable insight and industry connections.
The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in donut shops. You’ll probably generate new customers or find companies with which you could establish a partnership.
You will likely need workers to fill various roles. Potential positions for a donut shop business would include:
At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need.
Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.
Frosted chocolate, vanilla cream, bacon maple, coconut – whatever the flavor, donuts are always a hit. Opening your own donut shop can be a creative endeavor, as well as a way to make a nice living – as long as you don’t eat the profits!
Specialty donuts are all the rage, so fry up some tasty treats and grab a slice of this $7 billion industry. You can build the go-to donut shop in your community with yummy donuts that keep people coming back for more. Now that you know the ins and outs of the donut business, you’re ready to get your plan together and launch your donut dream!
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