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Calculate Your Food Business Affordability

Posted by OAFVC on Dec 24, 2018 9:00:00 AM

Running a food business from your own kitchen is fun, but demand has grown and you’re a bit worried about how you can possibly process these bigger volume requests in the time you have. You now have to stop and assess your food business affordability.

While it might seem cheaper to continue running your business from home, making lots of small batches takes more time and limits the number of orders you can take - and the opportunity cost could be holding you back. Expanding your business may seem risky, but renting a commercial kitchen space is an affordable option for growing your business - without the risk of investing in kitchen renovations or equipment upgrades.

Calculating Your Food Business Affordability

There’s no strict way to calculate the opportunity cost here, but if you’re trying to work out whether it’s worth upgrading to commercial kitchen equipment: try forecasting the number of new orders you could take - and the amount of money you can make.

One Way You Can Estimate Feasibility:

1. Calculate your profit margin for each item.

For example, Sophie makes jam in her kitchen at home, which she sells at the farmers’ market on the weekend. Sophie calculates that she nets $1 for each jar sold.

2. Calculate how much time it takes to complete a batch of products - and how much money that makes you.

So Sophie can make 40 jars of jam in two hours, which means Sophie nets $40 in two hours, or $20 an hour.

null3. Forecast how many products you can make in a commercial kitchen - and how much money that could make you.

In OAFVC’s commercial kitchen, the 60-gallon steam jacketed tilting kettle is more than 10 times the size of Sophie’s pot at home, so Sophie can make more than 400 jars of jam in two hours. This means Sophie can make $400 in two hours or $200 an hour.

4. Decide whether it’s feasible - remember to account for factors like the extra time it takes to drive to OAFVC, or the money saved in utility bills.

Sophie knows she only needs to rent OAFVC’s commercial kitchen for half a day (which costs her $150), so she nets $250 profit, or $125 per hour. This is more than six times what she was making in her kitchen at home!

Low-Risk Trials: Affordable Rates and No Commitment Required

OAFVC is a non-profit municipal initiative, with a mandate to assist food business owners. This means OAFVC can help you with food business affordability by providing:

  • Affordable rental rates
  • No long-term commitment - allowing infrequent rentals

Affordable Rental Rates:

Time in Commercial Kitchen

Rates

Great for...

Half day

$150 + any labour and HST*

Trial runs, testing new products, recipes, and processes.

Full day

$240 +any labour and HST*

Processing large batches, (like a bumper crop).

* Prices subject to change.

No Long-Term Commitment

There’s no lock-in contract, so you just pay for what you use: whether you only need a once-off rental, or only use it during peak periods, or if you have an unexpected bumper crop.

Just check the booking schedule for availability.

Start with a Business Plan

While it may seem tedious, making a business plan is a great way to decide if it’s feasible for your business to rent a commercial kitchen.

Farmers Market Business Plan Checklist

References:

https://www.investopedia.com/terms/o/opportunitycost.asp

https://www.investopedia.com/ask/answers/071015/what-profit-margin-usual-company-food-and-beverage-sector.asp

Topics: Food Business