Ice Cream Business Guide: Introduction
Hello my fellow ice cream enthusiasts! Today were going to touch on a few topics, which should hopefully provide you with the information necessary to get your ice cream business off the ground.
All of the information covered today is just a sample from our free Ice Cream Business Guide. I wanted to share some of the book's content on our blog so that it would be more accessible to some viewers.
Today I just want to go over some of the basics of starting a business; the steps you’ll need to take if you want to at least give your ice cream store a chance at success! Some of the things we will talk about are:
- Setting Up & Organizing Your Business
- Location Traffic & Lease Overview
- Cost Per Scoop Analysis
- Ballpark Initial Investment
These are all important aspects to running an ice cream business, and will hopefully steer your in the right direction. Now, let's just jump right into it.
Setting Up & Organizing Your Business
When starting an ice cream store, or really any business, there are few things you'll want to consider right from the onset: Will your business be a sole proprietorship, a partnership or a corporation and, maybe more importantly, whats the difference?
Well, to put it simply, a
- a Sole Proprietorship is a business owned by one person or a married couple that files jointly,
- a Partnership is a business owned by more than one person &
- a Corporation is a business organized as a separate legal entity owned by stockholders. You technically can have a corporation with as few as 1 or 2 people.
Most new business owners choose a Sole Proprietorship when beginning the ice cream venture. The Sole Proprietorship business model is made to be (somewhat) simple. It will likely simplify things during tax time too; Generally in the Sole Proprietorship model, you only have to fill out a business profit and loss form & then claim the shop income on your personal return.
Once you've decided that, your ready to move on to setting up & officially registering your business. For now im going to move onto the more ice cream related business decisions, but if you'd like to know more about setting up your business license & Tax ID numbers, feel free to read our Ice Cream Business Guide eBook. Anyways, moving on:
Location Traffic & Lease
Ice cream is a very peculiar product. It’s target audience is seemingly everyone (i mean, 96% of Americans eat ice cream!), but in general most people won't go out of their way to actually go get it.
Ice cream is an ‘Impulse’ product, meaning that most times people see an ice cream parlor while there doing something else, and become tempted to go get some. An example would be, maybe a family just left the movie theater, and the kids see your ice cream parlor when they walk out - the chances that the whole family ends up getting ice cream is than pretty high! For this reason, where you put your store can really make or break it.
|Good Locations||Bad Locations|
|Indoor Malls, Airports, Zoo's, University Campus, Amusement Parks, strip malls (high traffic), next to a movie theater, superstore (inside a Walmart), professional building train station, beach area, sporting arena||Strip Mall unless in thriving area with obvious high traffic (low traffic, no real anchor's), busy street(but being on the wrong side), gas station, fast food/snack operation that failed...|
Your location is the most important thing to consider when starting a new business; a bad location is something that is next to impossible to overcome and can really plummet any other plans you had. Take your time, and make sure the location you choose is really the location you want.
For a list of some other considerations/tips to follow when it comes to choosing the best location for your ice cream parlor can be found in the full version of our free Ice Cream Business Guide.
When choosing your location, don't be afraid to try and negotiate with the landlord.It is really in the best interest of both you and the landlord for your business to be successful, and often people are surprised with out accommodating business space landlords can be.
At least when opening your first ever ice cream parlor, i would highly recommend not spending more than $3000 per month on rent. Its difficult to really find success if your having shell anymore than that, unless you are renting a guaranteed, very high traffic space or airport unit.
An average rent for a parlor is in the $1800 range, and an average parlor should sell around $18,000 per month; A rough industry standard says that rent should fall within 8-12% of your sales (10% x $18,000 = $1,800 per month)
Cost Per Scoop Analysis
Okay, so before we get into this breakdown, I want you to know that it is going to be pretty elementary in terms of source material. The prices listed for particular products are estimates/placeholders, and will be different depending on your location, time of year, etc.
Most of the time, ice cream is packed in 3-gallon tubs. House hold brands like Edys, Breyes, Blue Bell and most other premium brands come in 3-gallon tubs as well. A rough estimate could be ~ $30 a tub for premium ice cream. Some companies charge less for the core flavors like chocolate, vanilla or strawberry - while charging a bit more for everything else. For our sake, we will average out the cost at $26 a tub.
Now, with one 3-gallon tub, you should get around 55 four-ounce scoops. This works out to .47 cents per scoop... I like to add 8 cents to try and cover the cost of waste, giveaways, etc. So we are looking at .55 cents per scoop. Add another .5 cents for the cup & spoon or the cone, for a total of .60 cents per scoop.
from experience, you may end up paying a few cents more, but likely not any less. Even if you decide to try a cheaper ice cream, often those come with more air whipped in and actually yield less ice cress, therefore having the same or even higher cost when it comes down to it.
So, how do you decide what to sell your ice cream for? You want to try to set your price, and not change it; customers are much more likely to be okay paying a higher price to start, but won't be so forgiving if you keep increasing the price further down the line. So define your pricing strategy, and stick to it. A good rule of thumb is that the retail price should be 30% of the cost of goods sold (.60/$2.00= 30%) so, for a .60 scoop, $2.00 would be a fair price.
Ballpark Initial Investment
Your initial investment includes all the expenses you’ll need to get your ice cream parlor open. Some of these expenses are probably pretty obvious; rent & utilities, your product, and your ice cream equipment. On the other hand, there are some initial expenses that will often catch new business owners by surprise; Those expenses include things like Insurance premiums, Advertising, Contractors (for Cabinetry, etc.) as well as any other miscellaneous products (ex: proper cleaning products for your store & your equipment).
The expense breakdown below comes directly from our Ice Cream Business eBook, which goes over everything we are touching on today, but just in more detail!
|Rent ($1500) x 3 (first/last/security)||$4500|
|Contractor (Cabinetry, etc)||$10,000|
|Ice Cream, Drinks, Cones, Candies, etc.||$2,500|
|Paper goods, cleaning supplies, office sup, misc||$750|
|Plumbing (sink, dipper wells, etc.)||$1500|
|Cosmetic work to space||$1000|
|Architectural & Legal||$2500|
|Dipping & Storage Freezers||$8000|
|Under counter Fridge||$1800|
|Waffle Cone Baker||$750|
|Hot Fudge Warmer||$350|
|Glasses/Metal Shake Tins||$350|
You may have noticed in our initial investment breakdown I included Working Capital as an expense. To put it plainly, Working Capital is just the money in your bank account. Ideally you’d want as much Working Capital as you can get; some franchise numbers even suggest the average Working Capital to be around 10k. Realistically, many new business owners just aren’t going to have 10k sitting in the bank; definitely not after all the other initial investments needed to get your ice cream store afloat! More working capital means you're better protected against unanticipated costs, however it is possible to run your store without a 10k cushion. In fact, your Working Capital can really be as low as $3500 without running into too many problems (as long as you’ve covered all your other initial expenses!).
Now that you have a rough estimate of your initial start--up costs, I want to move onto the basic operating profit & loss statement. This statement is intended to be very basic; All the numbers are really rough estimates, but they get the point across - in reality it will take you about a year (give or take a few months) to earn back your initial investments used to open the store.
The first table is your Gross Profit, which is how much money you’ve made after taking into account your cost of goods, while the second table is your Total Overhead, which are your monthly bills and business expenses. Both of these tables are for a (theoretical) single month period.
Period: 1 Month
|Cost of Goods (30%)||$(6,750)|
|Equipment/Biz start Loan||$1,200|
Now we’ve gone through all our overhead expenses, as well as all the money earned from our pseudo ice cream parlor sales.With this data, you can now easily deduct the overhead costs from your gross profit, to get your total monthly profit!
$(15,750) Gross Profit - $(10,000) Total Overhead = $(5,150) Total Monthly Profit
As many in the business will tell you, running an Ice Cream parlor is no easy thing. It requires lots of planning, time, and money to do well. Even the most successful Ice Cream businesses usually operate on thin margins. Even if everything were to run perfectly and you weren't hit with any unforeseen costs in your first year of operation, it would still take you about ten months to even turn a profit. Using our initial ballpark investment estimate from above; 50k to really get your store off the ground.
50K Initial Investment / $5,150 Total Monthly Profit = ~ 9.7 Months
My suggestion? If you don’t have some vision or passion for ice cream, than this job will likely be no fun, and not worth the cost of entry. Running an Ice Cream Parlor is definitely not a get rich quick scheme. On the other hand, for those who do find themselves passionate about this industry, who are willing to get creative and work hard, than there is definitely room for you in the ice cream industry to succeed.