Kitchen Rental--Bartering?

Business By aces413 Updated 24 Mar 2011 , 3:41am by aces413

aces413 Posted 20 Mar 2011 , 6:54pm
post #1 of 29

Hi all,

I've been contacting various places regarding renting kitchen space by the hour, and I found one within a few miles from my house that seems really great. It's an AWESOME little coffee shop. The owner responded to my query right away, even though I made it clear that I have very little money to spare. In my initial request, I suggested that I could pay them the cost of their utilities that I'd be using (water, electric, gas), plus a teeny bit more. He invited me over to check out a different location, their production facility, as he said it would better suit my needs. I would be just starting out, so I don't expect many orders. That also means I don't have much money to spare...so this brings me to my questions:

Would it be silly of me to suggest giving them a certain amount of cupcakes each week (they don't currently sell them)? That way, they'd get all the money from them as profit, and that could cover most--if not all--of the utility cost I'd be using.

If not, what amount is typical for kitchen rental (hourly)?

Or maybe a combo--cupcakes and a little money? icon_wink.gif

When I meet with him, I'd like it to seem like I have a clue! Can someone educate me a bit?

TIA!

28 replies
jason_kraft Posted 20 Mar 2011 , 8:31pm
post #2 of 29

I would recommend negotiating a wholesale deal (where you would sell them the cupcakes) separately from the hourly kitchen rental. I've seen rental rates vary from $10-30/hour, and since you only pay for the time you use there shouldn't be any problems affording the rental cost, since it would be built in to the amount you are charging for your products.

If I were renting out a kitchen I would only accept cash money on an hourly or monthly basis.

MimiFix Posted 21 Mar 2011 , 12:08am
post #3 of 29

I, too, used to recommend a payment for use. But my students have had excellent results in bartering for kitchen space. I'm not sure why, but the commercial kitchen owner sees more value in having the fresh baked goods than in taking money. It may have to do with their bookkeeping, but regardless, the barter system works. And it can be cheaper if you figure out ahead the amount of what you're willing to trade.

aces413 Posted 21 Mar 2011 , 5:25pm
post #4 of 29

I'm having trouble building it into my charges...I'm new to this, as I said, so I can't buy in bulk yet (and so far, have no need to). So, I added up my current cost--about .70 to make 1 cupcake. If I sell a dozen for $30 (2.50 each), then I'm left with $21.60 after supplies. Then I take out approx $15 for the kitchen rental...and it doesn't seem worth it, does it? Maybe I'm expecting too much. I know I'd probably be better off just doing cakes, but I'm more comfortable with cupcakes for now...
I recently got laid off and have a lot of free time on my hands, and could use a little extra money to help me pay for my hobby. I'm not trying to make this a full-time endeavor yet. I just want to be able to do this, get some practice, get my name out there, and see what happens.
I thought maybe bartering could be an option because I could give them, say, a dozen cupcakes a week, which would cost me about $33/month...and they could make about $130 that month from them...for example. But if I was paying for the kitchen and giving them a separate wholesale deal, I'd be losing the hourly kitchen rental from my wholesale "profit". So, on my end, that doesn't seem worth it. I see how the kitchen owner would probably prefer that, though...and I can't do anything if he doesn't want to work with me.

*edit--I realize that 1 dozen/week is not really considered wholesale, lol.

::sigh::

jason_kraft Posted 21 Mar 2011 , 6:05pm
post #5 of 29

When you are first starting out and only have small orders here and there you will probably lose money, but eventually as you build your customer base you will be able to organize order production to maximize efficiency, especially if you have a commercial kitchen with plenty of oven and prep space. For example, making 5 dozen cupcakes doesn't really take that much longer than making 1 dozen.

Selling wholesale to the coffee shop would be a great way to get the ball rolling, and you can certainly bring this up with the proprietor, but make sure it is handled as a separate transaction. If you sold each cupcake wholesale for $2, the coffee shop can resell for $3, and you would have $1.40 in gross margin per cupcake helping pay down your other costs. If they get enough foot traffic they may be interested in a dozen/day, which would be $117/week gross margin after ingredients. If you can make 7 dozen cupcakes in 2 hours (cupcakes usually freeze well) and you pay $10/hour in rent and $15/hour as a comparable wage, your margin is still $67/week before overhead. If you have $2K/year in overhead ($38/week) your net profit from just that wholesale order would be $29/week or $1500/year.

aces413 Posted 21 Mar 2011 , 7:09pm
post #6 of 29

Ahhhh Jason, that does make more sense. Another kitchen just got back to me and would like to meet as well. So, at least I have options! However, the second kitchen probably wouldn't order from me since they do their own cakes and cupcakes. I'm liking the wholesale idea now that you've spelled it out in wholesale-for-dummies style. icon_wink.gif Thank you!

I haven't contacted my HD yet (since I don't even know if I'll have a kitchen to work out of) but I'm assuming that if I work out a deal with a kitchen, my next step would be to call the HD and then get a food safety certification? Then work on the business licensing? Is insurance super expensive? Should I have figured some of this out before I meet with them, so they know I'm serious? Or should I just wait until after I've spoken with them?

Any other suggestions? Sorry for the abundance of questions... icon_redface.gif

jason_kraft Posted 21 Mar 2011 , 8:01pm
post #7 of 29

It depends on the area, but usually you will be inspected by your state or county dept of health after you secure a commercial kitchen rental and move your stuff in. You'll probably also need a food safety training certificate (i.e. ServSafe). You can contact the relevant food safety agency now and ask what the process is in your county.

Licensing is typically handled with your city, and you can do that after you get your commercial kitchen in order. I would start looking for business liability insurance now though, you can get some quotes ready for when you open for business. Business liability insurance is usually $400-500/year. You also may want to look into creating an LLC to protect your personal assets.

Don't forget to get your bookkeeping in order, either by hiring an accountant or doing it yourself with QuickBooks. Keeping track of your startup costs is critical since they can almost always be deducted, and losses from your business can sometimes be used to offset other personal household income.

aces413 Posted 21 Mar 2011 , 9:11pm
post #8 of 29

Very helpful, thank you! I've run out of questions...for now. Don't worry, I'm sure I'll have more later. icon_wink.gif

AHAM25 Posted 23 Mar 2011 , 4:14am
post #9 of 29

Can I ask what types of businesses you contacted about renting kitchen space? I am in Oklahoma and have had no luck with the businesses I have contacted so far. Most have told me that since I would not be an employee of their business, it is an insurance liability.

aces413 Posted 23 Mar 2011 , 4:41am
post #10 of 29

One place was actually advertising kitchen space on Craigslist, but it seems like they aren't interested in my teeny operation. One is a cafe/coffee shop--however, he has a separate kitchen that he uses for production and suggested I use that. The other sells gourmet foods to-go (full meals, appetizers, desserts), and they do catering.
I feel like I got lucky...there didn't seem to be anything promising in my area, but I just went to Google and typed in "coffee Wilmington, DE" and some results came up...I picked a few...and I actually just looked at the 'street view' nearby and found the gourmet food store less than 5 minutes away.
I've never done this before, but I would imagine that they would require you to carry your own insurance--then you won't be a liability. But it makes sense...you could burn their place down (not that you would, just an example).
Point is, just ask cafes, coffee shops, anything with a commercial kitchen...maybe you'll get a hit here and there. I hope you do!
I can send you the blanket email I sent out if that might help you. Nothing special, but if it worked for me, maybe something similar might work for you. icon_smile.gif

Annabakescakes Posted 23 Mar 2011 , 1:40pm
post #11 of 29

I am sorry, but I fail to see how a single cupcake could be costing you that much! For a batch of batter, which makes 24 cupcakes, it would cost $16.80. I use an extended mix and buy my papers in bulk from a resturant store, but figure my cost, (just expense, not time or profit) to be about .17. A batch of 36 cupcakes cost me about $6 in suplies. I would think that if you use the best of the best, from scratch with premium flavors and alcohol and gold plate it, it would still be under that cost. And I am just using cost of ingredients, to make, not including the overhead of license, insurance, rent and bookkeeping, and equipment depriciation and gas and time and such.

And even at 3 times my cost, I would be all for bartering. I LOVE bartering! I would give the guy 5 dozen cupcakes every day I bake in his kitchen. It will all fit in one mixer, and in one batch of baking in a commercial setting. The cost for me would be about $10 (just ingredients) and he could make $120 if he sold them for $2 each.

aces413 Posted 23 Mar 2011 , 5:56pm
post #12 of 29

Well, like I said, I don't buy in bulk. I'm not selling anything yet. So, I go to the grocery store and buy my ingredients as I need them. I don't buy mixes, so I'm using my own flour, baking soda, sugar, salt, extracts, cocoa, whatever. Nothing against people who use mixes, but I won't. My baking cups cost $2.96 for 30, so that's almost 10 cents just for the cup. Also included in that 70 cents is my buttercream (I only use real butter--no shortening--which costs me 80 cents per stick). Pure extracts are also pricey if you calculate per-cupcake use, when bought in small quantities. I know it would be much cheaper to buy in bulk, but I can't afford to right now. I don't have the money to put out up front and I have no guarantee that I'll use everything that I buy (as I said--not selling yet). Plus, I barely have room to store the ingredients I currently have in my teeny apartment's kitchen.
I feel like bartering would be cheaper than paying hourly IF I could buy in bulk and get my costs down. But of course, it would ultimately be up to the kitchen owner.

WykdGud Posted 23 Mar 2011 , 6:13pm
post #13 of 29

I'll have to disagree with selling wholesale to the shop owner in addition to paying rent.

I pay rent where I bake from at $12/hr. and the owner wants me to sell my cookies to her for the same price she wholesales hers to coffee shops ($1.25 each - we sell totally different types of cookies though). She then wants to turn around and sell my cookies in her store to customers for $2-3 each. So in essence, she is making a profit off me twice - once by me baking my products and paying her rent for the privilege, and once more because she is making $.75-1.75 off of each of MY cookies and it's all profit for her. How much does that leave me?!? Yeah, I did it once for her as a favor, but she doesn't understand why I won't do it again.

jason_kraft Posted 23 Mar 2011 , 6:17pm
post #14 of 29

I can understand not wanting to buy large quantities of bulky ingredients, but you can do much better on items like baking cups...you can buy 500 baking cups for ~$4 at restaurant supply stores. Extracts are also much cheaper in bulk and don't take up much space.

I'd recommend doing some research and calculating your costs with bulk prices, since you will definitely be buying in bulk once you have a commercial kitchen. You should also work out some projections for profits for the first year in a bartering scenario vs. paying rent out of pocket and selling wholesale, you shouldn't make a decision until you do the math.

jason_kraft Posted 23 Mar 2011 , 6:25pm
post #15 of 29
Quote:
Originally Posted by WykdGud

So in essence, she is making a profit off me twice - once by me baking my products and paying her rent for the privilege, and once more because she is making $.75-1.75 off of each of MY cookies and it's all profit for her.



That's how wholesale is supposed to work. You are going to incur operating and overhead costs regardless of where you make your wholesale products, in your case those costs just happen to flow to one of your customers. It is important to separate emotion ("fair" vs. "unfair") from business decisions in order to make the best decision possible.

You are paying rent to cover the landlord's costs and make her a little profit. The retail markup on a wholesale order is the same...it covers the retailer's costs (which can be significant) and makes the retailer some profit.

If you are making a profit at your wholesale price (and your reselling customer isn't cannibalizing your sales) you are doing fine. Even if you are breaking even on wholesale orders, those orders are still contributing to your fixed overhead and have a much lower marginal cost if there is slack time in your manufacturing process.

WykdGud Posted 23 Mar 2011 , 8:21pm
post #16 of 29

I'm well aware of how wholesale works. It just doesn't work so well when you are renting by the hour and charging wholesale instead of retail prices. I don't sell wholesale to the lady I rent from because she would be profiting far more than I would - and I am not willing to work for nothing. I prefer to sell retail only, however, if the lady I rent from wanted cookies instead of rent, I'd certainly consider it.

aces413 Posted 23 Mar 2011 , 8:33pm
post #17 of 29

I plan to meet with 2 kitchens on Friday, so I'll be using the days in between to do some calculations and some thinking. I really like brown or black, preferably greaseproof, baking cups, and can't seem to find them much cheaper anywhere (when I look online, I am deterred by shipping costs, and I only have one cake store in my area). Anyone have any good sources? I don't like the way plain white ones tend to soak up the grease and become translucent. Maybe I'll have to get over it, if that's going to be hurting my bottom line.

There is a restaurant store nearby...I should probably take a look in there as well. I saw a few good bulk deals on their website for containers, food coloring, etc. And...no shipping! Yay! I'll note their prices and do calculations based on that.

Another question...what should I be asking these people? I'm guessing it will be a bit like we're interviewing each other...If they've never rented the kitchen before, I can suggest a lower rent (like $10/hr). But if they've rented it out before, then I'm stuck paying whatever the last person paid, I guess. I just feel like I'll be going in there with nothing to say except "Can I rent this kitchen, hourly for now, for x/hr?" and that's it...I'm such a newbie. But I guess, as long as I pay them, they don't really care how experienced I am or how my business runs. Speaking of paying them--will we be doing a written contract? Should we agree upon a minimum # of hours per month?... Etc Etc all that jazz... icon_razz.gif

WykdGud Posted 23 Mar 2011 , 8:41pm
post #18 of 29

If I were operating a business and was going to rent my kitchen out to someone, I would insist on a minimum number of hours per month, and let the renter know that the first month they didn't pay, I would consider them out of business and I would notify the health department. That way, I wouldn't get people who just wanted to use me to get licensed and then never show up because they were baking from home.

When I started renting from the lady I rent from now, she hadn't even considered that. I was the one who insisted on giving her a deposit and paying a monthly minimum. I drew up the contract myself and made sure that it included a 60 notice to either of us. Since I went through the expense and hassle of getting licensed through her, I don't want her to decide it's not working and throw me out when I have pending orders and nowhere to bake from. 60 days gives me time to find somewhere else or make other arrangements.

jason_kraft Posted 23 Mar 2011 , 8:48pm
post #19 of 29
Quote:
Originally Posted by WykdGud

If I were operating a business and was going to rent my kitchen out to someone, I would insist on a minimum number of hours per month, and let the renter know that the first month they didn't pay, I would consider them out of business and I would notify the health department.



The kitchen we currently rent from charges an annual fee in addition to an hourly rate. If a tenant decides to rent and never actually uses the kitchen, that's actually great for the landlord since they still get the annual fee without having to do anything extra for that tenant.

jason_kraft Posted 23 Mar 2011 , 8:54pm
post #20 of 29
Quote:
Originally Posted by WykdGud

I'm well aware of how wholesale works. It just doesn't work so well when you are renting by the hour and charging wholesale instead of retail prices.



It sure can work well, as long as your wholesale prices are set correctly. Obviously direct retail sales have a higher margin, but wholesale can provide the volume needed to drive down the per-order fixed cost component.

Quote:
Quote:

I don't sell wholesale to the lady I rent from because she would be profiting far more than I would



How do you know that? Has she shared her cost structure with you? Even if she is making more of a profit than you, if you are making a decent profit yourself then her margin doesn't really matter (although it does provide leverage for negotiations if you have access to her financials).

Quote:
Quote:

I prefer to sell retail only



Retail only is of course preferable but it may not be realistic for a new business or one that has already saturated the local retail market and wishes to continue growing.

WykdGud Posted 23 Mar 2011 , 9:12pm
post #21 of 29

You know, it gets really friggin' annoying to have you pick apart everything I post. I know that she would be making more profit off of my cookies because she would be profiting between $.75-1.75 per cookie and I would only be selling them to her for $1.25 each. Do the math... I clearly stated this previously.

jason_kraft Posted 23 Mar 2011 , 9:28pm
post #22 of 29
Quote:
Originally Posted by WykdGud

I know that she would be making more profit off of my cookies because she would be profiting between $.75-1.75 per cookie and I would only be selling them to her for $1.25 each. Do the math... I clearly stated this previously.



You are confusing gross profit with net profit. If the retailer's overhead (rent, labor, insurance, etc.) on a $3 cookie is $1.50, and the retailer pays you $1.25, the retailer is only making 25 cents in net profit. Without knowing actual overhead figures you can only guess at how much profit the retailer is making.

And I'm sorry you don't like my posting style, but when there are multiple points in a post I prefer addressing each separately to avoid confusion.

jason_kraft Posted 23 Mar 2011 , 9:35pm
post #23 of 29
Quote:
Originally Posted by aces413

Another question...what should I be asking these people? I'm guessing it will be a bit like we're interviewing each other...If they've never rented the kitchen before, I can suggest a lower rent (like $10/hr). But if they've rented it out before, then I'm stuck paying whatever the last person paid, I guess. I just feel like I'll be going in there with nothing to say except "Can I rent this kitchen, hourly for now, for x/hr?" and that's it...I'm such a newbie. But I guess, as long as I pay them, they don't really care how experienced I am or how my business runs. Speaking of paying them--will we be doing a written contract? Should we agree upon a minimum # of hours per month?... Etc Etc all that jazz... icon_razz.gif



You should definitely get a written contract, if they don't already have one you can probably find a template online and plug in your desired terms.

Personally I would start by offering a relatively low hourly rental rate ($10/hour is good) with on-site storage included. If they already have a figure in mind you may be able to get a better deal by prepaying for a few months or a year in advance. I wouldn't suggest a minimum number of hours per month unless they insist.

WykdGud Posted 23 Mar 2011 , 9:45pm
post #24 of 29

I'm not confusing anything. Perhaps you are the one who is confused.

Her overhead is the same regardless of whether I sell her my cookies. I am talking about how this relates to me. She would be profiting twice off of me - once from the rent, and once from the cookies that she neither invested time/labor or ingredients in.

I mentioned that her profit would be far more than mine - and I'm pretty sure I would be more aware of my own profit margins than would you.

jason_kraft Posted 23 Mar 2011 , 11:40pm
post #25 of 29
Quote:
Originally Posted by WykdGud

Her overhead is the same regardless of whether I sell her my cookies.



Her fixed overhead is the same, but that overhead contributes to the cost of each item sold in the store. More items sold means that the overhead can be spread around more and thus the per-item overhead cost is lower, but it is still there. Small retailers tend to have a higher per-item overhead cost, since they can't take advantage of economies of scale.

Quote:
Quote:

I am talking about how this relates to me. She would be profiting twice off of me - once from the rent, and once from the cookies that she neither invested time/labor or ingredients in.



You are engaging in two different transactions, one as a vendor (selling cookies wholesale) and one as a customer (renting kitchen time). The fact that the counterparty happens to be the same person in both transactions is irrelevant.

Quote:
Quote:

I mentioned that her profit would be far more than mine - and I'm pretty sure I would be more aware of my own profit margins than would you.



Exactly my point...I can't comment on your absolute profit margins because I don't have access to your financials, and you can't comment on the retailer's absolute profit margins because you don't have access to her financials. The only thing we know for sure is that we don't know who is getting more relative net profit in the wholesale transaction.

MimiFix Posted 24 Mar 2011 , 12:02am
post #26 of 29

Hope you don't mind my butting in here, but I hate to see this exchange. WykdGud, you are a professional and I can understand your feeling under attack, but Jason has an analytical way of looking at business. He's only explaining things the way an accountant would. Really, he's just trying to help.

aces413 Posted 24 Mar 2011 , 3:05am
post #27 of 29

Thanks Jason. Stupid question--how would I prepay if I don't know how many hours I'll be using? You're right, I have heard others say they got a better deal doing it that way. Makes sense.

jason_kraft Posted 24 Mar 2011 , 3:16am
post #28 of 29
Quote:
Originally Posted by aces413

Thanks Jason. Stupid question--how would I prepay if I don't know how many hours I'll be using? You're right, I have heard others say they got a better deal doing it that way. Makes sense.



It really depends on how you structure the contract. For example, if you think you'll use at least 40 hours/month, you could negotiate a rate of $320/month plus $10/hour for each hour over 40. If you have no idea how much kitchen time you will be using, you could offer to prepay $1000 for 120 hours (which could be used at any time and deducted from your account balance) as opposed to paying $10/hour on a pay-as-you-go basis. As always YMMV since the landlord would probably only be amenable to a prepay discount if they needed cash quickly.

aces413 Posted 24 Mar 2011 , 3:41am
post #29 of 29

Thanks again. AH, so much to think about!

Trying not to overwhelm myself.

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