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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,
or 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, Fayetteville, 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.
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