I always wonder this when I read about people renting kitchens. If you're paying $10-50 an hour for using the kitchen....how do you ever make money? I spent like 20 hours on my last cake! So that would have cost me $10-50 per hour just to make it?? Am I misunderstanding this? Or do you bake and decorate elsewhere? Here the law is the food has to be baked/prepared in a commercial kitchen if you're licensed. And I put a lot of money into my comm. kitchen in my house, but eventually it will be profitable, ya know?
You make money by pricing based on your cost. If a cake takes 20 hours to put together, rent is $15/hour, and a comparable wage is $20/hour, the labor cost component of that cake would be $700. For argument purposes, add $100 of ingredient costs and $100 of marginal overhead, and you get a cost of $900. Add 20% for your profit margin and you get $1080.
If your market won't support a price of $1080 for that type of cake, you need to become more efficient (in terms of cost and/or time), focus on different products, or target a new market.
Comparing the cost for a kitchen renter vs. someone baking from a home-based commercial kitchen, the cost for the home baker would be about $300 less (since there's no rent), but the home baker would also have greater marginal expense for utilities and either interest from loans for the build out or the opportunity cost of existing funds invested in the kitchen (contributing to increased overhead). The home baker could also be facing lower productivity (increasing labor cost), since rented commercial kitchens generally have equipment that allows for more efficient baking.
Thanks for the explanation- I guess I was thinking maybe I misunderstood it.