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The ghost kitchen industry is projected to grow 7.6% by 2027, with a total market volume of $466.2 billion. This delivery-only sector is primed to see significant growth in sales in 2022 and beyond, according to Statista projections.
The location of the kitchen, the restaurant’s marketing strategy, and supply chain contingencies all affect a digital brand’s ability to become and stay profitable. Use this guide to help you calculate your ghost kitchen’s profit and loss potential, map a timeline to breaking even, and develop strategies for maximizing your ghost kitchen sales.
Costs to Start a Ghost Kitchen
The startup costs for a ghost kitchen range from $75,000 - $200,000. These costs include essentials like labor, goods, insurance, and marketing.
Increased costs for take-out containers, third-party delivery fees, and digital marketing are unique to ghost kitchens and virtual brands. However, the rent or lease of your commercial kitchen space or dark kitchen will likely be lower than a traditional restaurant.
If you run your ghost kitchen brand, you can avoid franchising fees. But, you will pay the costs in labor. You’ll also have to allocate more of your operations budget to marketing for your new virtual concept.
Startup costs include:
Equipment $50,000 - $150,000
Permits/licences - $500 - $1,500
Contingency funds $25,000 - $125,000
Franchising or branding fees - $0 - $10,000
Planning Your First Year
The first year of business is crucial – finding the proper kitchen space, applying for licenses, and securing the right staff is hard work. Once the kitchen is up and running, the monthly expenses for utilities and labor in the first year keep the need for liquid funding urgent.
Contingency funds help restaurants run smoothly for the first few years until they become profitable. Liquid assets in the form of a personal loan or savings help to cover food costs and keep the range burning.
Average Ghost Kitchen Costs
The monthly operating expenses for any food service business total 85-90% of the sales once the business becomes profitable. Dedicated ghost kitchen business owners can see slightly larger profit margins when the savings from not operating a FOH balance out.
For the first year or more, restauranteurs expect to keep investing in their ghost kitchen businesses and virtual brands to cover unexpected labor, food, or marketing costs. Delivering quality meals is only half the battle – the proper financial plans solidify your ghost kitchen’s chances of long-term success.
Operational costs include:
Commercial kitchen rent or lease
Forecasting Your Ghost Kitchen Sales
It can be tricky to paint an accurate financial picture of a restaurant that doesn’t exist yet. Yet, you can use key performance indicators (KPIs) to forecast your ghost kitchen sales. The indicators for delivery-only concepts are different than traditional restaurants – you can use markers like your ability to do marketing and your kitchen’s capacity to predict your business' financial success.
Start by calculating your ghost kitchen’s daily capacity. Factor in the number of meals your team can make in your kitchen during a shift. Balancing labor costs against food costs with the costs of delivery and paper goods will give you an accurate picture of each menu item’s prime cost.
If you are not up and running yet, you’ll have to make some clever projections about your sales. Once you have sales data from a few months, you can make accurate projections about average sales per shift, week, and month. The right point-of-sale technology provides the analytics you need to make these sales projections.
Calculate Ghost Kitchen Revenue
Ghost kitchens are a new business model on the market. Fortunately, the demand for restaurant-quality delivery is high and projected to keep growing.
The revenue of a ghost kitchen is calculated by taking the projected sales for each month (which will vary based on KPIs) and balancing the operations costs (which will be more consistent than sales.) An idea of your concept’s sales potential will help you calculate your kitchen’s potential revenue range.
Ghost Kitchen Profit Margin Per Month
The profit margins of most restaurants are slim – typically between 3% and 5% in traditional restaurants. Part of the ghost kitchen appeal is the opportunity to make an additional 5% profit (or more) by eliminating the costs of operating a front-of-house.
Calculate your ghost kitchen's profit margin using projected sales and prime costs – the costs of producing each menu item from ordering ingredients to delivery. This calculation will give you a reliable estimate of your profitability.
How Much Does a Ghost Kitchen Owner Make?
Across the restaurant industry, the business owner pays themself 50% of the profit and invests the other 50% into the business. So, if a ghost kitchen's average monthly profit margin is 7%, the owner makes about 3.5% of the sales.
Nonetheless, your salary can increase depending on how many roles in the business you choose to fill. If you’re the executive chef, accountant, and marketing guru, you’ll be able to afford to take a higher percentage of the profits for yourself than if you manage staff to do that labor.
As the owner, you have to make strategic decisions about how much to pay yourself while actively investing in the growth of the business. The first year can be especially rough. But, investing in the right marketing strategy and technology will move your ghost kitchen toward success.
Timeline to Breaking Even
Ghost kitchens are an investment like any restaurant. The time, labor, and funding you invest into your business will be directly proportional. Depending on food costs and local KPIs, ghost kitchens can expect to become profitable within the first two years of operation.
Using sales forecasts and average revenue, you can estimate how long it will take for your ghost kitchen to earn more than it costs to operate. Local KPIs, specific startup costs, financing and loan repayment, and the unique operating costs of your business all matter to measure your new concept’s profitability.
Example Ghost Kitchen Sales Forecast and Timeline
Let’s calculate the sales and revenue potential of a hypothetical ghost kitchen concept - June’s Jambalaya - that delivers Cajun staples in the Washington D.C. area.
The owner, June, starts the concept in the many commercial kitchen spaces available to lease around the area. She hires a team of cooks and managers to run three ghost kitchens six nights a week.
To amass enough capital to ensure the success of her business, June took out a personal loan for $75,000 to pay for labor, paper goods, food, and delivery commissions while she gets started. The repayment period is five years at 6.4% interest.
Equipment costs are low, only $4000 to supply her line cooks with knives, uniforms, and other equipment not provided by the shared kitchen. June spent $1,000 to get business licenses and permits to operate in D.C. and Nothern Virginia.
The monthly costs of the kitchen include:
Commercial kitchen rental (includes utilities): $3,500 x 3 = $10,500
Food costs: $8,000
Paper goods: $1,200
Loan repayment: $2,050
Total monthly operating costs: $34,750
In a delivery-only restaurant model, factoring in the cost of third-party delivery app commissions is the equivalent of operating a FOH staff. The cost of that staff is directly related to sales, so June expects to pay about 22% of her monthly sales in delivery commissions.
June sells New Orleans-style red beans and rice and fried catfish to the market of southerners who have made homes around D.C. Her best seller is a fish sandwich served with a portion of award-winning jambalaya. There is consistent demand around the D.C. area, but people tend to stay inside and order during the winter months. Therefore, she sells more plates from November - February than the rest of the year.
June’s business plan estimates an average of 1,700 fish sandwich orders received by the three ghost kitchens weekly. At $13 a plate, the profit on each order is about $5.50, factoring in labor, paper goods, and delivery fees. Annual sales at June’s Jambalaya are $486,200 or $40,500 per month.
Ideally, June’s Jambalaya has a potential profit of $6,766 a month, a profit margin of 19%. However, the KPIs of the region and fluctuating sales as her business starts do not allow the business to be profitable until the second winter season. Here’s how:
June opens in the summer with a strong marketing campaign while only operating at about 25% capacity for the first couple of months.
She laid a strong foundation with her marketing campaign and has up to 55% capacity in the first winter season. But, operating three kitchens from the start forces her to keep investing in the business beyond the first year.
June saw she needed to prepare for the upcoming fall and winter, so she invested in a professional social media campaign and created loyalty programs to generate repeat customers. She maintained 55% capacity through her second summer.
By the end of the winter, however, she won the hearts of southerners in D.C. with her social media campaign. She operated at 75% capacity in November and reached 80% in December.
Following the popularity, June spent time keeping up her social media presence. By March, her three kitchens were operating at 93% capacity. June’s Jambalaya becomes profitable, making $41,400 in sales after a year and a half of business.
June works to maintain those profits, keeping up her social media presence and maintaining brand awareness through the summer so that the business stays profitable throughout the year.
Improve Your Ghost Kitchen Revenue
You won’t be able to rely on the charisma of your staff to upsell and target high-value menu items. Boosting sales for ghost kitchens requires artistic high-tech solutions.
Create a brand that will capture your customer’s imagination. Draw them in with a professional-looking website, persistent social media campaign, and user-friendly mobile app. A marketing manager can accomplish these tasks using promotions and loyalty programs of third-party delivery apps.
The Right Tech
The technology that empowers your ghost kitchen is more important than ever. Maximize profitability with a restaurant management software solution that combines inventory tracking, time sheets, payment processing, banking, and delivery orders. The right platform has what you need to scale your business and keep operations organized for growth.