Skip to content

How To Create A Profitable Ghost Kitchen Business In 4 Steps

How To Create A Profitable Ghost Kitchen Business In 4 Steps

Share on facebook
Facebook
Share on google
Google+
Share on twitter
Twitter
Share on linkedin
LinkedIn

The global ghost kitchen industry is expected to become a $71.4 billion industry by 2027. Staggering, isn’t it? If you feel excited about tapping into this market, that’s because you should. Still, making a ghost kitchen profitable requires real effort on your part.

Ghost kitchens, cloud kitchens, virtual restaurants… The names may differ, but the concept remains the same – an online restaurant/food business with no physical presence, that takes advantage of tech solutions to offer off-premise dining.

For many looking to enter the industry, ghost kitchens seem like a way to make some easy money from the food industry. Low cost; huge profit; easy money. Right?

Truth is, it’s actually not that easy!

Simply jumping on the bandwagon of ghost kitchen entrepreneurs could be a major investment mistake, if you’re not careful. 

The big brands that are doing so well have mastered the art of managing their food costs, labor costs and operational costs in order to stay profitable. They have identified the keys to success and bought into them. You must do the same!

In this article, we’re going to be exploring the factors you must consider when looking to start a profitable ghost kitchen operation.

1. Have A Menu Pricing Strategy

How To Create A Profitable Ghost Kitchen Business In 4 Steps 1

Your menu pricing strategy is typically the difference between you making a lot of money versus you bleeding out and losing everything.

While there is no real “formula” or one-size-fits-all silver bullet to help you arrive at the right pricing model, carefully considering all your costs is a good way to start.

Of course, you’d do well to consider the cost of ingredients used in food preparation, and calculate how that works out for your cost of goods sold. But you mustn’t ignore other costs.

Packaging costs can eat deep into your profits, especially if you create custom packaging that takes a lot of extra hours to design and cost more than regular packaging. Even a 50 cent or $1 increase in packaging cost may greatly affect your margins if you don’t factor it into your pricing.

Costs from third-party apps also add up quickly and can be easy to miss.

For instance, while commissions could be stated as 20% of pricing, actual costs may very well add up to 30% by the time you throw in promotional and marketing costs. Leaving out the extra 10% in commissions could well lead to inexplicable losses on every item sold.

Simply put, you want to pay close attention to your operating costs. As a rule of thumb, avoid spending on whatever isn’t necessary to get your business off the ground.

How To Create A Profitable Ghost Kitchen Business In 4 Steps 2

For example, when Denny’s first launched their ghost kitchen operation, they started off with white boxes for packaging. Custom packaging wasn’t introduced until they had proven there was good demand for their product and gained some loyal customers.

The same was true of YouTuber, Mr. Beast, who didn’t invest in custom packaging until a few months after he had launched MrBeast Burgers.

As a bonus point, if you’re already in the restaurant business but wish to set up a virtual brand, stick to your existing ingredients. 

Want to start a cloud kitchen business but don’t know how?

How To Create A Profitable Ghost Kitchen Business In 4 Steps 3

You might be like a lot of others who have a food idea for their cloud kitchen, but feel overwhelmed and confused by what to do next. Cause there’s a ton of moving parts when it comes to starting a food business.

And any slight mistake could mean $10,000s down the drain…

Join me in my free masterclass where I help give you the confidence to build your cloud kitchen.

2. Avoid Playing the Price Game

How To Create A Profitable Ghost Kitchen Business In 4 Steps 4

Although this point aligns with the last, it is important enough to stand by itself.

NEVER try to play the price game. Put differently, DO NOT try to compete with pricing as your strategy for market domination.

For instance, imagine your kitchen is set up to sell burgers, and your competitor sells theirs for $10. Do not price yours at $7 simply because you want to undercut the competition and beat them pricing.

No one wins when you play the price game. You really don’t know whether your competitor is actually profiting at that price, or if they’re barely selling anything at the price.

If you set your prices simply to undercut the competition, you may end up taking over their customers without making any profits yourself.

Of course, if a lower price works great with your overall strategy and allows you make your desired level of profit, go for it! 

The problem comes from adopting lower prices simply to frustrate the competition. At the end of the day you only wind up spoiling the market for all the players – including yourself.

3. Market Like a New Business

How To Create A Profitable Ghost Kitchen Business In 4 Steps 5

Just because you’re on a third-party app that actively seeks to promote the businesses they list; doesn’t mean you should stop marketing.

Yes, third-party apps have the advantage of presenting you with a previously untapped market. Yes, you’re going to get new business.

However, the competition for places on these apps is on the up, and they’re getting saturated. So, you must have the mindset of always marketing your business like a new business.

In order to succeed, you need to increase the number of “touch/contact points” your customers have with your brand. Take advantage of the different available channels to reach them.

Do you, for instance, plan on selling chicken wings? Create your own website and make sure it is SEO-optimized so that when people go searching for “best chicken wings” on Google, they’ll find you.

Your social media channels should also be up and ready to go. Take advantage of everything; Twitter, Instagram, and TikTok. Work on influencer marketing to drive awareness, if necessary.

Always remember that no one knows what you’re doing until you tell them. Even if you’ve existed offline for ages, your ghost kitchen brand is a brand-new food idea which you must promote if it’s to succeed.

4. Optimize Your Costs

How To Create A Profitable Ghost Kitchen Business In 4 Steps 6

Now, a lot of the talk out there is about how cloud kitchens must be much more profitable than physical restaurants because of the lower cost of rent.

However, your cloud kitchen would only rely on delivery sales; and third-party app commissions could be anywhere from 20 to 30% of your prices. Throw in labor costs, packaging costs, and other operating costs, and there is suddenly a lot of money leaving your hands.

If you do not manage your costs properly, your overall cost of goods sold (COGS) could quickly go through the roof, making it very difficult to be profitable.

In order to properly manage your labor costs, you must understand how your customers behave. Simply put, you should be able to tell what their peak buying times are.

For example, although people buy lunch and dinner all the time, most restaurants experience peak times at particular hours of the day (11am to 1pm for lunch; 6 to 9pm for dinner).

You can optimize labor costs by increasing available labor at these times, and cutting down on labor outside of peak hours.

If you do not wish to cut down staff hours, you could also train them to handle other tasks like finance management, marketing, inventory management, etc. These could then be the focus of their attention during downtimes, thus maximizing their labor and reducing your costs.

Note that we have here assumed that you’d be hitting peak hours at traditional peak hours for lunch and dinner. This is a flawed assumption. Your locality as well as the type of food you sell could greatly alter your peak hours and downtimes.

Before deciding on what your peak hours are, and how you’d be optimizing labor to satisfy high demand during these times, be sure to listen to your customers and confirm with your business data.

This is what was done by one of the Dog Haus franchises – a franchise notorious for shutting down operations by 10pm. 

How To Create A Profitable Ghost Kitchen Business In 4 Steps 7

After hearing many customers openly wishing Dog Haus stayed open late into the night, one franchise owner decided to keep his store open past 10pm. His sales shot up as a result, with more than 50% of daily sales coming between 9pm and 2am.

So, test, test, and test some more until you find your peak hours. Never assume.

Once you discover what your busiest hours are, decide on a strategy to optimize labor costs for those hours.

Final Thoughts

The ghost kitchen model is certainly here to stay. For most operators, this is an important part of their lineup, helping them reduce costs and maximize profits. But your execution matters. 

Simple rookie mistakes could very quickly turn your virtual restaurant into a failed venture, even before it begins. To truly make your ghost kitchen profitable, you must be intentional about your costs, marketing strategy, and pricing models.

Want to start a cloud kitchen business but don’t know how?

How To Create A Profitable Ghost Kitchen Business In 4 Steps 3

You might be like a lot of others who have a food idea for their cloud kitchen, but feel overwhelmed and confused by what to do next. Cause there’s a ton of moving parts when it comes to starting a food business.

And any slight mistake could mean $10,000s down the drain…

Join me in my free masterclass where I help give you the confidence to build your cloud kitchen.

You May Also Like