Are ice cream shops profitable? What are the pros and cons of starting an ice cream shop business? Here is everything you need to know. It is a fact that the average American consumes 22 lbs of ice cream every year.
As a matter of fact, the ice cream industry produces more than 870 million gallons of ice cream every year — over a billion lbs if you count frozen treats like cakes, Popsicles, and ice cream cookies. So much ice cream is consumed every year that the ice cream industry generated over $5 billion in 2014, and that number is climbing every year.
Table of Content
- What is the Cost Margin for Ice Cream?
- 1. Fast Growth and High Revenue
- 2. You Can Make Own Decisions
- 3. Very Flexible
- 4. Cost of goods sold is high
- 5. Low product cost
- 6. It doesn’t require highly skilled labor
- 7. You can get creative
- 8. It is a loved product
- 9. Minimal staff requirements
- 10. You Control Your Hours
- a. Expensive equipment
- b. Seasonality is a problem
- c. Heavy competition
- d. Significant equipment maintenance cost
What is the Cost Margin for Ice Cream?
The average cost margin of ice cream (depending on the amount of materials you use in producing the ice cream) is around 40%. When it comes to the italian gelatto where you serve the ice cream without a specific measurement, your costs can vary significantly due to the size of each portion you serve.
In this industry, product prices are set at 4 times of what the cost per product happens to be. If it costs you $1.50 to make a bowl of ice cream, that means you will be charging $6 per bowl of ice cream. This shows significant profitability in the business.
Your ROI would usually depend on your sales price and costs. If you focus on high market ice cream you can charge high and keep costs down. Yet another thing that can affect your revenue is employee pay. Ice cream store workers make about $8.00 to $12.00 per hour. Management salaries run between $25,000 to $38,000 a year. These are costs you’ll have to factor into your business plan when figuring out your earning potential.
If you’re an independent store, you can set your prices and your margins as high as you’d like – but if your product doesn’t meet expectations, you won’t be in business long. However, if your offering does well, you can charge as much as you like for ice cream.
There’s an upward trend in disposable income as the economy continues to improve. This drives a higher demand for frozen treats. The ice cream industry in the U.S. brought in just over $5 billion in 2014, reports Statista, and that number is growing every year. They predict that global revenues will reach $74 billion annually by 2020.
For those who succeed, the ice cream business offers longevity not available in every industry. This soft serve business can be very profitable if you apply a proper business plan, acquire quality ice cream tools and efficient management.
Pros and Cons of Starting an Ice Cream Shop
With the low startup cost and the high success rate of ice cream businesses, one thing that usually plagues the business is competition because everyone wants to be in on the pie. But before you jump on the bandwagon, you need to examine the business thoroughly to know if it suits your intents and purposes. For that reason, we would help you analyse the pros and cons of starting an ice cream shop business.
1. Fast Growth and High Revenue
One of the biggest pros of starting an ice cream shop is that it has a faster opportunity for growth and higher returns in revenue. Whether you start the business in a van or rent a store, it is important to put your customers first. This will help you grow a successful business and earn high profits. Quality of your products is also crucial.
Invest in high-quality ice cream making equipment and use only the best raw ingredients to attract customers. To ensure a good start, hire professionals to help you with grand opening, use creative flyers with pictures of your products on, and post them on local bulletin boards. Also, create a website, fan pages on all social network sites to make sure more people find out about your super delicious ice creams.
2. You Can Make Own Decisions
With ice cream business you guaranteed to have flexible working hours. Since you will be your own boss, you can decide on your working schedule. Also, you will have the freedom to decide on the types of ice creams you’d like to sell, flavors, decorations, price of each product, etc.
3. Very Flexible
Because of the flexibility and simplicity of an ice cream business, you can choose to use it as your second job. This business does not require too much effort and energy, just impeccable service and fresh products. You can still keep your current job and be in your ice cream shop afterward. Or it can be your part-time job on weekends or a seasonal job during summer only.
4. Cost of goods sold is high
The cost of goods sold (COGS), once again, is relatively low in comparison to a full-service restaurant. This could come out to around 20% to 25% in cost of goods sold (COGS). This is another reason why the ice cream business is very profitable.
5. Low product cost
Yet another pro of running an ice cream business is that its products are low cost. The cost of ice cream is under $.10 per ounce on average, but you can often sell the product between $.25 – $.50 per ounce. This would enough that that you have higher returns on investment.
6. It doesn’t require highly skilled labor
Another pro that comes with the ice cream business is that it does not require any complicated labour and your staff does not need to go through rigorous training to be able to help in the business.
The quality control is also a pro because when you make these things in batches, it becomes a formula. Basically, you just need to follow the recipe and create mix A, mix B, mix C, and out comes a product. This means it doesn’t require highly skilled labor and talent to create the product.
7. You can get creative
There are many ways to differentiate your product from your competitors and as well remain innovative. If you love experimenting with flavors and trends, this can be a fun business from a creativity standpoint. There are still loads of ice cream flavors to discover and you can put on your thinking cap and set to work.
8. It is a loved product
And who doesn’t like ice cream? Everyone loves ice cream and if you position your business properly, you can easily make profits. The interesting thing here is that you may not even need to be picky regarding your venues as there is a great potential for sale almost everywhere you set up in the right season.
9. Minimal staff requirements
An ice cream shop doesn’t necessarily need much staff to get running. If you operate a self-serve shop, you only need 1 – 2 employees to operate the business at a time. Even if you have a standard shop, you may not need more than 3 or 4 employees. This is because apart from the person serving the ice cream, the person taking care of the check out and a cleaning person, you don’t need much other staff to run your business.
10. You Control Your Hours
There is great freedom when it comes to running your business. You can choose when you’re open and when you close. You can tailor your hours to exactly what you want. If you want to stay open late, you can. It all depends on what you want.
a. Expensive equipment
The main factor to ensure fruitful business is investing in quality equipment. Of course you do not want an ice cream machine that keeps breaking down. But it is quite expensive to get new equipment for your ice cream business.
Most commonly used ice cream tools are sinks, fudge warmers, freezers, dry storage, soft-serve machines, dipping cabinet and of course, high-performance and durable ice cream making equipment. Although the core product is low, other expenses like rent, labor, marketing, and machinery and insurance can reduce profitability to just 15%.
b. Seasonality is a problem
Much like weather concerns, unless you live somewhere with warm weather year-round, ice cream shops can only be open during the warmer seasons. Some traditional ice cream shops are only open seasonally. A mobile ice cream shop would be a good idea if you’re okay with only being open part of the year.
c. Heavy competition
Because of the low startup cost, a lot of entrepreneurs are currently in the business thus making it almost saturated. In many markets the competition can be cutthroat. Over the past 6 years, many independent shops have gone out of business for this reason.
d. Significant equipment maintenance cost
Maintaining your ice cream equipment can be a challenge. Ice cream machines are not set it and forget it. They must be cared for to maintain the quality of product. Equipment maintenance is one expense that is hardly budgeted and so it strikes a big blow on the business both in repair cost and loss of business revenue.
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