How to Start a Cupcake Shop Today

Despite the recession, cupcake shop owners are experiencing brisk sales as consumers seek affordable indulgences.

Cupcakes take us back to childhood birthday parties and school bake sales. The nostalgia and comfort associated with baked goods helped generate more than $6 billion in cake and pie sales in the U.S. last year, with cupcakes comprising one of the biggest chunks of that market, according to Mintel, a market research firm.

The trend is expected to continue in 2009, as the popular Sprinkles Cupcakes in Los Angeles and Crumbs Bake Shop in New York City franchise across the country. At the same time, other new cupcakeries are popping up, like Megan Faulkner Brown’s The Sweet Tooth Fairy Bake Shop, which opened last month in Provo, Utah. According to Faulkner Brown, the recession’s not holding back customers. If anything, hard times are boosting traffic to her store. “People are still spending money on the smaller luxuries that make them feel good,” she says. “Sure, maybe no vacation to Hawaii, but they’ll pay $2.25 for a cupcake.”

Intrigued? So am I. Fascinated by how to open up your own cupcakery, I did a little research and here’s what I gathered to be the must-have ingredients.

1. Location, Location, Location
While some large cities may be saturated with cupcake shops (think New York and Los Angeles), there are many locations that offer fewer barriers to entry. Kimberly Martin opened Main Street Cupcakes in her hometown of Hudson, Ohio, about two years ago because her area had little to offer in the cupcake department. “What could be better than being the first?” says Martin. The store is situated in an historic building on North Main Street, a destination spot for locals and out-of-towners.

The Sweet Tooth Fairy Bake Shop in Provo isn’t in the hottest section of town, but it’s foot traffic-friendly, nestled between a Sam’s Club and a giant crafts store. “If we get even a tenth of their population, we’re fine,” says Faulkner Brown.

2. Get Online
If you can’t find or afford a smart location for your cupcake start-up (although now is a great time to haggle down rental rates), consider being strictly virtual. Some successful cupcake shops are web-based, like Baked By Melissa.

Faulkner Brown began selling her cupcakes as a mail-order business from her home two years ago, using a web site to draw customers. Investing in a talented web designer with search engine skills is important. In Faulkner Brown’s case, her previous work experience in web design and social media helped optimize her online business without making an extra hire. Even with her new store front, she hasn’t abandoned the mail-order side. Traffic is up on her site and there’s even more money to be made selling cupcakes to other zip codes, she says.

3. Conceptualize the Cupcake (and Be Pretty)
“Part of why cupcakes have been so successful is that they’re catchy,” says Rachel Kramer Bussel, founder and co-editor of Cupcakes Take the Cake, a popular blog dedicated to all things cupcake. Unless they’re for your child’s third grade classroom, slapping some Betty Crocker frosting on a vanilla mini cake is not going to win you much attention.

To thrive in this industry, you need to offer something unique, experts say. Some cupcake store owners offer customized designs, or different shapes and sizes to differentiate themselves. Cupcakes Squared in San Diego, Calif., offers square-shaped cupcakes. Baked By Melissa boasts miniature tie-dyed and flavor-filled cupcakes. Manille Bakery in West Covina, Calif., creates special fondant toppings and Cupcakes Nouveau in Coral Gables, Fla., sells “couture” styled cupcakes inspired by France’s haute couture fashion. And don’t forget, no matter what the concept, appearances count. “If [your cupcakes] don’t look fabulous, people are not going to stop by your bakery,” says Kramer Bussel.

Other cupcakeries like to create an experience inside the cupcake shop. Sweet Revenge in New York City, for example, takes an upscale approach and encourages patrons to pair cupcakes with a glass of wine or beer at its bar.

4. Deeee-lishousness
Of course your cupcakes need to taste great. Spending time perfecting the recipe is no waste. Faulkner Brown thinks her business secret might just be in her special frosting, the ingredients of which she refuses to share with anyone. By demand she recently began jarring up and selling the cream icing to customers, adding extra revenue. “[My frosting] is what we’re going to be able to hang our hat on one day,” she says.

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Here’s what it took to launch The Sweet Tooth Fairy Bake Shop, a brand new cupcake shop in Provo, Utah.

Owner Megan Faulkner Brown, 28, tapped out her entire savings account first and then called up her grandmother for the rest. “My grandma is acting as our bank,” says Faulkner Brown, who didn’t even bother filling out a traditional bank loan application amid all the bank brouhaha.

Her family loan carries an unbeatable 5% interest rate, and for Grandma, it looks to be a promising investment so far. Daily sales at the Sweet Tooth Fairy—which sometimes exceed $1,000 a day—are surpassing expectations. “If we keep going at [this] pace,” says Faulkner Brown, “we’re going to be out of debt easily in seven to eight months.”

The Start-Up Costs:
Security deposit = $3,600
Construction = $25,000
Start-up inventory =$5,000
Oven = $8,000
Pots, pans, tables and racks = $8,000
Permits = $1,000
Total start-up costs = $50,600

The Monthly Expenses:
Staffing = $3,500
Rent and utilities = $3,000
Inventory = $1,500
Insurance = $100
Rough monthly expenses = $8,100

Number of $2.25 cupcakes she must sell a day to break even: 120