How to Start a Gift Basket Business

Last Updated on

Quick Reference

How to Start a Gift Basket Business

Many people find that it’s difficult to find that perfect gift for a friend or loved one, or they may simply not have the time that it takes to search out an ideal gift. If you have a knack for always putting together memorable gifts, then you might put those talents to use in a gift basket business of your own. When you’re creative and find giving others the perfect gift rewarding, chances are that you’ll enjoy the work you do in starting and running this type of business.

Business Overview

Gift basket businesses offer pre-arranged baskets for a variety of occasions. Many businesses create custom baskets for special occasions, like birthdays, anniversaries, weddings, baby showers, or holidays like Valentine’s Day, Mother’s Day, or Easter. Other businesses focus on corporate gift-giving, providing corporate buyers with a streamlined and easy gifting option.

Customers who buy gift baskets are looking for an easy, fast shopping experience, but they’re also looking for value. An owner who has strong networking and negotiating skills can build relationships with suppliers and source quality items at a good price, allowing them to pass that value on to the customer and potentially drive sales.

Keep in mind that any gift basket business will face plenty of competition. Focus on what your business can do differently and what unique benefits it can offer customers. Many businesses offer gift basket options, so it’s important to give customers to buy from your business and return again and again in the future.

These businesses may specialize in certain types of gift baskets. Some businesses focus on gourmet food, candies, and chocolates, while others may focus on baskets based around certain items like candles or flowers. While many of these businesses exist, they face competition from some large retailers, like flower stores. However, it’s possible to start these businesses on a smaller scale, growing the business based on its success. This lower barrier to entry makes starting a gift basket business a practical option for many entrepreneurs who are creative and who appreciate the art of gift-giving.

Industry Summary

Detailed data about the gift basket industry isn’t widely calculated, but 2016 data from Packaged Facts reveals that since 2010, consumers have increasingly sent food as gifts. As of 2016, consumer and corporate food gifting sales neared $18 billion, which is a 3.5% increase over sales in 2015. Brandon Gaille reports that, since many gift basket companies targeted specific industries, like real estate companies, the recession effects from 2007 to 2009 resulted in a decline in sales for the gift basket industry.

There are many signs that the industry is growing, too. According to Entrepreneur, the gifting industry may be worth as much as $31.63 billion by 2021. This growth is due to a growing gifting culture, the expansion of online retail channels, and an increase in innovative gifting solutions. In 2019, Quartz reported that 1-800-Flowers.com made more money selling gift baskets than it did selling flowers. The second-quarter earnings reported $440 million in revenue from baskets and food, whereas consumer flowers brought in just $108.1 million and flower wire service brought in $23.4 million. Gift baskets and food brought in four times as much revenue as flower sales, the foundation of the business.

Industry Trends

Many trends continue to shape the gift basket business. The Statesman reports that there’s more demand for convenient delivery options than ever before. This is particularly important in the gift basket industry, where consumers may want to purchase baskets online and have them shipped directly to recipients.

There’s also more demand for personalization. Rather than traditional gift-giving, customers are looking for gifts that make meaningful connections. The ability to customize elements in gift baskets can give them a more personalized feel and may help to drive sales.

Customers are also increasingly shopping online, which means businesses need to ensure that their websites are easy to use and provide a great customer experience. The same is true of a business’s social media pages.

The gift-giving business is also strongly driven by holidays, with Christmas being one of the largest sales-driving holidays. While customers will need other gifts, such as for birthdays or thank-you occasions, businesses need to be prepared to withstand the holiday-centric rush in this industry while sustaining themselves when sales are slower.

Target Market

The gift basket industry traditionally has two different target markets: Individuals and corporate consumers. Individuals are customers who are looking for a gift to give to someone in their life. They’re looking for an easy shopping experience and a gift basket that the recipient will appreciate. Corporate consumers usually make a purchase to give to someone within their corporation or give to a recipient at another business. They are also looking for an easy gift-buying and giving experience, especially since they’re often pressed for time.

Checklist for Starting a Gift Basket Business

Starting a gift basket business can be an incredibly rewarding experience, but it’s important to make sure you’re prepared for the challenges ahead. Use this checklist to help get your business off on the right foot.

Step 1: Write a Business Plan

After coming up with the idea, the next step in starting your business should be to write a business plan.  Not only will a bank require you to have a business plan, but multiple studies have shown that a business plan helps increase the odds of starting a successful business.

Related: How to write a business plan

Step 2: Form a Business Entity

A business entity (also referred to as a business structure) refers to how a business is legally organized to operate. There are four primary business structures to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.

When deciding on which business entity is best for a gift basket business, it normally comes down to the sole proprietorship and Limited Liability Company.

A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay.
 
The corporation can be a good choice to minimize liability risk because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.

That leaves the sole proprietorship and LLC.

The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is that the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.

Related: Guide to forming your LLC
 

Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.


Some popular LLC formation services include:


IncFile - $0 plus state fees & free registered agent for 1 year!

IncAuthority - $0 plus state fees & free registered agent the first year!

ZenBusiness - $49 plus state fees & free registered agent for 1 year!

Step 3: Select your Location

It’s possible to start a gift basket business out of a spare room in a home, but as that business grows, it may be necessary to expand into a retail store or larger workspace. Rental costs will vary depending on the size and location of the space. A store located in a prime retail location can generate walk-in traffic and spread overall awareness of the business. However, these spaces typically have higher rental costs, too.

Related: Choosing a business location

Step 3: Name the Business

Finding the perfect business for a gift basket business can be challenging. Not only does the name have to reflect what you do and be appealing to customers, but it also has to be available to use. You can check your state’s website to see if the name is available and register your name.

Step 4: Apply for Business Licenses and Permits

A gift basket business will need to obtain certain business licenses and permits. These permits and licenses can vary based on the state and town where the business is located.

Some general business registrations most businesses need will include a business license, sales tax permit, Employer Identification Number, and Occupancy Permit, among others.

Related: Common business licenses, permits, and registrations by state

Step 5: Find Financing

Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start a gift basket business is another.  While the costs to start are generally low, funding to start a gift basket business can be difficult as the majority of costs come from inventory and cash to pay employees and marketing.  In order to get a loan, the borrower(s) will need to have good credit and be able to personally invest 15-25% towards the total start-up costs.

Related: Finding the money to start a business

Step 6: Open a Business Bank Account

Keeping your small business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
 
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.

Step 7: Get your Marketing Plan in Place

Marketing is an essential ongoing activity for any gift basket business. These businesses can explore many different types of marketing, but some of the most popular include the use of social media (including targeted Facebook and Instagram ads), online marketing, print advertising, and email marketing.

Businesses can also establish discount programs for returning customers to drive customer loyalty.

Corporate sales are another target for a gift basket business to welcome new team members, sympathy baskets, or employee recognition, sending a sample basket can be an effective way to show your beautiful gift basket firsthand.

Related: Low-cost ideas to market a new business

One important task while working on the marketing is developing an online presence. A website developer may be out of the budget, but Wix makes it easy for non-technical people to get a website running quickly and affordably.

Step 8: Get Business Insurance

There are several types of insurance to consider when starting a gift basket company. A few of these include:
– General liability insurance protects the business if a customer is ever injured while on the property. This type of policy can help to cover expenses like legal fees and medical bills.
– Worker’s compensation insurance helps to cover expenses like lost wages and medical bills if an employee is hurt while on the job
– Commercial auto insurance helps to cover related expenses if a business-owned vehicle is ever involved in an accident.

Many factors affect the cost of an insurance policy, such as the business’ location and the value of its inventory. It’s best to request quotes from multiple providers to get the most accurate idea of what insurance will cost. Be sure to look beyond how the premiums compare and consider other elements, like coverage limits, exclusions, and deductibles.

Related: Types of insurance your business may need

Step 9: Hire Employees

A business owner may be able to run a smaller gift basket business entirely on their own. Larger businesses may need additional staff, especially during the times surrounding popular holidays. According to PayScale, sales clerks make an average of $10.61 per hour or $30,000 per year.

In addition to budgeting for employee salaries, a business will need to cover additional expenses like paid time off, health insurance contributions, and worker’s compensation insurance.

Related: Hiring your first employee

Step 10: Set up an Accounting System

Setting up an accounting system for your gift basket business is critical to the long-term success of your business.
Staying on top of taxes not only keeps the business out of trouble with the government, but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.

Related: Setting up the accounting for your business

The thought of accounting can be intimidating for a lot of new entrepreneurs. There are a number of ways of handling bookkeeping, from DIY to hiring a bookkeeper. These include:

- Pen and paper - Low expense, but difficult to track.
- Spreadsheet - Low expense, but easy to make errors.
- Accounting software - Medium expense, but owner typically inputs expenses. Some great accounting software programs include Freshbooks or Wave Accounting.
- Hire a bookkeeper - Higher expense, though very affordable at $100-$200 per month in most cases. A dedicated bookkeeper will probably save money because, in addition to handling all of the bookkeeping (so you can focus on the business), they also provide personalized tax advice and ensure the business is in compliance.

Find bookkeepers in your local area or use a service like 800Accountant.

How much does it cost to start a gift basket business?

One major benefit of the gift basket industry is that the financial barrier to entry is low. It’s possible to start a business out of your home for as little as $1,000 to as high as $20,000 if operating out of a retail location.

Some common startup costs for a gift basket business include:
– Inventory, including baskets and gift items
– Gift basket supplies like gift wrap, labels, ribbon, cards, shrink wrap, bows, etc.
– Equipment like a heat gun, storage shelves, etc.
– Vehicle for deliveries
– Signage
– Working capital to cover the first few months of salary, rent, utilities, etc.

How much can a gift basket business owner make?

Potential profits from a gift basket business vary widely and can vary from factors such as whether the owner works full-time or part-time, the business’ specialty, profit margins, and location. Gift Basket Business World reports that gift basket businesses earn an average profit of $65,700 before taxes.

Remember that there are many ways you can maximize your business’ earnings. With a thorough understanding of your target market, you can identify an unmet need in the gift basket industry. That might be offering local deliveries or offering a number of personalized gift options that can be included in the baskets. Creative, themed baskets that tie into holidays can appeal to a broader audience and may bring new customers into your store. Sourcing gift basket elements in bulk and at low prices can also help to maximize prices.

What skills are needed to run a gift basket business?

While starting a gift basket business doesn’t require a business degree, certain skills and experiences can increase the business’s chances of success.

Creativity. One of the most important skills for a business owner to have is creativity. By creating unique, surprising, and one-of-a-kind baskets, an owner can position their business as offering something that consumers can’t find anywhere else.

Resourcefulness. A business owner may run into many challenges in running a gift basket business, like finding new sources of items. An owner who is resourceful will be better able to deal with these challenges.

Attention to detail. There’s a lot of detail that goes into every basket, and a business owner needs to monitor inventory, basket quality, and shipping dates to keep the business operating smoothly. Attention to detail is an important skill here.

Knowledge of aesthetics. Appearances matter in the gift basket industry. A business owner who has an eye for aesthetics can make sure that everything looks good, including the product photos and the gift baskets that go out.

Customer service skills. Strong customer service skills will be an advantage for any gift basket business owner, and they can play an integral role in developing a returning customer base.

Multitasking skills. From processing orders to handling marketing and preparing for big holidays, gift basket business owners will benefit from strong multitasking skills.

Are there grants to start a gift basket business?

It’s extremely rare to find a grant to start a gift basket business. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.

Legitimate federal grants can be found at Grants.gov, and you can check on your state’s economic development office to see if they have any grants available.

What is the NAICS code for a gift basket business?

The NAICS code for a gift basket business is 453220, which is classified under Gift, Novelty, and Souvenir Stores.

The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.

Related: What is a NAICS code?

Resources:
Association of Gift Boutique Retailers of America
The Gift Basket Association

Subscribe Now to the 60-day Startup Challenge!

Subscribe Now to the 60-day Startup Challenge!