HOW TO MAKE MONEY IN THE KITCHEN PRODUCTS BUSINESS
1993 by Home Business Publications
There are many business possibilities that can be built on
products from your kitchen: candies, jams, pies, egg rolls, and
special recipes of all descriptions, and the same general
business approach will work with most of them.
You can produce any one or more of these or other kitchen
products -- or specialize in one category, such as diet foods
(sugarless pastries), ethnic dishes (strudel, lumpia rolls),
breads, or old fashioned meals. Whatever your specialty, the
business applications are similar.
Your first decision is to select a line of products -- a decision
that will be heavily influenced by what you are good at!
Another influence should be what will sell in your area. If there
are a lot of a particular ethnic group, that may be good or bad
for a potential business: good because people will know what
makes your dishes are; bad because every housewife makes the same
thing.
Many Vietnamese restaurants have failed because they advertised
vietnamese food, most of which is delicious, but still not
well-known in this country.
Accordingly, most of their clientele were other Vietnamese -- who
can cook their own Vietnamese dishes.
Some of those who did quite well specialized in Chinese food --
which is similar but more importantly it is well known here.
Once the patrons were inside, they found both Chinese and
Vietnamese cuisine on the menu! The message here is that it is
usually better to start a new business with a known product. Give
your product a name that will be recognized by your intended
market!
Next, you should decide whether to wholesale or retail your
products (or both).
Where you live will have a lot to do with type marketing you use.
In rural area, you might check with stores to carry your
products, or it might be better to build a route and deliver
fresh to several stores and/or individuals on a daily or weekly
basis.
An alternative is to preserve your products (freeze, can,dry so
they can be accumulated and sent over longer distances. Shipping
and advertising costs are higher in rural areas, but operating
costs are lower.
In more densely populated areas, you have more choices and more
marketing opportunities in the immediate area. Sometimes you can
simply advertise your products for pickup or special order and be
in business.
When you wholesale, you are spared the extra effort (and worry)
to find and collect form individuals and have less waste because
you fill orders -- but you don't get as much for your products.
The question is, can you make more profit by concentrating your
efforts on production? If so, you will rely on your retailers to
find, sell to and collect from the customers.
Or, should you do all that yourself and pocket the extra markup?
The answer might well be influenced by your personality as well
as other, more practical considerations like how much time you
have and the size of your market.
An easy way to handle your price list is to print retail prices
only and simply inform the client of his discount. This way, the
client and store clerks can refer to a ready-made price list --
it is easy for your retailers to sell your products.
It is also a good idea to leave a margin between your name and
the prices -- so the retailer can fold or cut it off and post it
for his customers.
For some products, it would be wise to have stands or display
cartons made to help assure your products will be displayed
tastefully and to make it easy for the retailer to show and sell
your products at their best.
These could be cardboard or Masonite, and you can have your name
or brand put on them to prevent them being used for other
products. You can even lend them to the accounts with an
understanding as to their use.
As your wholesale business grows, you should consider advertising
now and then -- it will help retail sales, which in turn, helps
wholesale sales. Although some of these may sound like little
things -- making your products easy to display, price and sell is
the way to make BIG THINGS happen!
Retailing definitely requires advertising.
Since you do not have a store, where many people can see your
products each day, you need some way to get out the word and keep
your products before the public.
Word of mouth is great (highest quality), but painfully slow in
the beginning.
Think about an ad in the local paper, a pair of magnetic signs on
your car (a cake logo, your name and phone number), renting a
display window, notices on community bulletin boards, even
announcements on the local radio or cable station.
Arrange to have some of your products given away as prizes at
community affairs or auctioned at fund raisers, anything that
will help make people aware of your products.
A third option is to "wholesale" to the public. This is simply
taking orders for subsequent pick-up. You can set minimum orders
for small items (a dozen tamales) and give discounts for large(
or family size) orders.
This option does not necessarily require delivery and there is
very little waste, Since you know ahead of time how much will
sell. You will either make a little more profit this way, or you
can lower your retail rates about 20%.
Whichever option you use, plan your activities carefully to take
fullest advantage of your capabilities.
For example, if you are filling an order
for 6 dozen cookies, always make the
maximum amount you can at one time.
If you can bake up 15 dozen cookies
at one time and you have a way to keep
the overages fresh, NEVER bake fewer
than 15 dozen UNLESS YOU CAN USE
THE VACANT PART OF THE OVEN
for something else.
The same holds true for the batter -- if your mixer will make
dough for 15 dozen cookies, make as much as you can and store any
excess. This will save you time, your equipment and your sanity!
Whenever you produce a less than your capacity, your production
costs per item go UP; your profits go DOWN. it is also good
business to select products and ingredients that do not spoil
easily -- things that can be frozen, canned or dried.
In this business, like any other, you must keep records to tell
how you are doing, learn from your experience and keep out of
trouble with the IRS.
As long as you are a one person (or family) business there need
not be complex records keeping.
Keep a notebook by the phone and systematically write down all
incoming orders -- and "suspense" them with a circle or box that
you check off as the orders are filled. This lets you tell at a
glance which orders are still pending. Use the same notebook to
write down any information that could help your daily or
long-term activities.
DO NOT TRUST THEM TO MEMORY.
Those "I won't forgets" soon get lost in the confusion of a new
business. This is a LESSON that many beginners PAY DEARLY to
learn.
If you have a tax person, all you need is an accurate (and
complete) record of what you spend for the business and what you
take in form it.
Many single proprietorship use a simple single-entry ledger.
Put down all business transactions that involve money in
Chronological (by date) order: date, name or company, action,
amount.
If the money is paid out, put the amount in a column marked OUT
or EXPENSES;
if it came in, put in the other (IN or INCOME) column. At the end
of each month, total them both to see how you are doing.
This record, along with ALL RECEIPTS and checks will be the meat
of what your tax person will need to make out your taxes.
Kitchen products can, but need not remain a small operation.
While it is easy to stay small (raise prices when business gets
"too good," cut back on advertising, etc.) it is also quite
possible to "graduate" to supplying gourmet dishes to restaurants
or delicatessens or package your products for supermarket sales.
Always keep your eyes open and your imagination alive. Be on the
lookout for that special need that YOU can fill!
A couple of possible problem areas are licenses and insurance.
When you process and sell any type of food, you may come under
any number of state or local regulations.
Some of these will prevent you from making doughnuts in your
kitchen and selling them to the local market.
Admittedly, sometimes these rules are more to prevent competition
than protect the public, but they must be obeyed just the same.
Most rules are quite logical -- if you make sandwiches, your
kitchen should be open to health inspections from time to time,
and your area and procedures should meet minimum standards. If
you run up against "one of those" rules, consider alternatives.
For example, if it is illegal to make doughnuts in your kitchen,
perhaps it is legal to open a snack shop or rent a corner of
local cafe for your operation.
The second area to watch is insurance.
Ironically, passing a health inspection is not an absolute
guarantee that someone won't sue you.
If you wholesale AND retail, it is very important to maintain
your prices. If you cut prices to retail customers your wholesale
accounts will feel betrayed.
The best way to handle this situation is to give your wholesale
accounts "suggested retail" prices -- which are actually your own
retail prices.
Of course, you can't control what they charge, but they can't
accuse you of underselling them if you sell at your own
"advertised" prices.
To price your products, you should scientifically compute the
exact cost of all the ingredients, containers, wrappers, shipping
or delivery, plus an estimate of the utilities (gas,
electricity).
Then, add your labor (what it would cost to hire someone to do
the job). Add these and double the result for your wholesale
price.
This formula will give you a quick and easy way to price your
foods, and allow for some spoilage and waste.
Now, add another 66.7 percent to get the "suggested retail" price
(this equates to a 40% profit margin for your retailers).
For example, if a loaf of your homemade rye bread costs fifty
cents to make (counting all costs), your wholesale price would be
$1.00 (double).
To add 66.7 percent, punch in 1.00 on your pocket adding machine
then "+," then 66.7, then "percentage." This will give you
$1.6667, which rounded off to $1.67. Note that 40% off that
(1.67 - 40% is 1.002(rounded off to a dollar).
If you wanted to give your retailers a 40 percent markup (which
is not the same as a 40% profit margin), you add 40% to the
wholesale price (1.00 plus 40%) you would get a suggested retail
price of$1.40 per loaf.
The more markup you give your retailers, the more incentive they
will have to push your products, os if most of your business is
wholesale, consider the bigger markup. Your retailers can always
lower the price.
For clarification, MARKUP is the amount the dealer adds to his
wholesale cost.
An item that costs him one dollar and he sells for 41.25 is
marked up 25 percent.
PROFIT MARGIN is the percentage of the sale price that is gross
profit.
If the item costs him a dollar and he sells for $1.25, the 25
cents is only 20 per cent (5 quarters in $1.25, each = 1/5 of 20%
of the total) of the total sales price (profit divided by sales
price, or .25 divided by 1.25) -- or, a 20% profit margin.
To set up an area wholesale business, call on prospective
retailers,let them know of your plans and ask for their
suggestions.
If possible leave a few samples with them, and ask for an order.
Do this early, so if any needed production adjustments can be
implemented before your procedures are finalized. tell the
prospective retailers what you have too offer, what it costs, how
much profit then makes, and when you deliver.
It is extremely important that you do exactly what you say you
will.
If you say you deliver on Monday's make it a point to drop by
those who have not yet ordered -- just to show them they can rely
on you.
If your products could be blamed for something that would involve
a lawsuit, consider some general liability insurance.
Check with (more than one) commercial insurance agents to find
out how you can be protected against such an eventually. This is
an area where conferring with others in similar businesses is a
particularly good idea.
BUSINESS SOURCES
FROSTY, Box 8014, Blaine,WA 92830. Offers a booklet showing how
to set up an ice cream making business - $12.
OZARK COOPERATIVE WAREHOUSE, Box 30, Fayettville, AR 72702.
Consumer owned warehouse that sells mostly to privately owned
food buying clubs; over 1,000 items; Catalog $4.78.
FOOD SERVICE MARKETING, 2132 Forden Ave.,Madison, WI 53784.
Monthly trade journal for the food service industry.
SO-GOOD, INC.,Union, IL 60180. 815/923-2144. Supplies local
distributors with specialty foods (bar-B-Sauces, etc.) for
restaurants, church groups, etc. Free info.
OLSON PUBLICATIONS, INC., Box 1208, Woodstock, GA 30188,
404/928-8994. Publishes monthly FOOD PEOPLE for retail food
industry (not restaurants).
HBJ PUBLICATIONS, INC., 131 W. 1st St.,Duluth, MN 55802,
218/723-9343. Publishes SNACK FOOD, monthly trade magazine for
manufacturers and distributors.
WHOLE FOODS COMMUNICATIONS, INC., 195 Main St.,Metuchen, NJ
08840. Publishes WHOLE FOODS, "Largest circulation in the natural
food industry," monthly for health food dealers.
EDWARD HAMILTON BOOKSELLER, Falls Village, CT 06031-0358.
Discount reference books, including cookbooks.
DISCOUNT BOOKS, INC.,427 Ferry St.,Newark, NJ 07105. Discount and
close-out books, including cookbooks.
BARNS & NOBLE, 126 Fifth Ave.,New York, NY 11011. Discount books,
clip art, stencils, etc.
QUILL CORPORATION, 100 Schelter Rd.,Lincolnshire, IL 60917-4700,
312/634-4800. Office supplies.
NEBS, 500 Main St.,Groton, MA 04171, 800/225-6380. Office
supplies.
SWEDCO, Box 29, Mooresville, NC 28115. 3 line rubber stamps - $3;
business cards - $13 per thousand.
ZPS, Box 581, Libertyville, IL 60048-2556. Business cards (raised
print - $11.50 per K) and letterhead stationery. Will print your
copy ready logo or design, even whole card.
WALTER DRAKE, 4119 Drake Bldg.,Colorado Springs, CO 80940. Short
run business cards ($250 - $3), stationery, etc. Good quality,
but no choice of style or color.