Small Biz 101: How to Start a Cupcake Shop

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? Want to open your own cupcakery? Here are a few of 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 (Stock Ticker: WMT) 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.