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Commercial Kitchen Rental General Questions from a Kitchen Owner - Page 2

post #16 of 35
Quote:
Originally Posted by jason_kraft View Post


For an apples-to-apples comparison you need to take into account all the expenses associated with running your own shop, not just rent. As a landlord, tenants who are paying cheap monthly rent filling your kitchen to capacity is exactly what you don't want.

Also, baking processes do not necessarily have to include a lot of waiting time. Even at low volumes there are ways to redesign your operations to utilize slack time and improve efficiency.

I respectfully disagree. As an incubator kitchen you do want it filled every second of the day, time is money. As a landlord who just wants to be a landlord you do want the most money for the least work. The OP has to decide which she is a landlord or a kitchen incubator, they are two different things sort of at odds with each other? And which type of business model she wants. In the food business you can choose to have high prices that attracts less clients or moderate prices with more clients...you rarely get your cake and eat it too.

 

She needs to work her numbers out for which profile will net her a better/consistent income....or what she desires from this adventure.

 

"Also, the baking processes do not necessarily have to include a lot of waiting time." When you renting hourly your working completely differently then someone with unlimited time, you can't compare those as if it's apples to apples. The hourly situation doesn't give you enough time in the kitchen to start any small projects you can't complete. Plus you have to lug back and forth those small time fillers with you. Instead your have to work toward getting out of the kitchen as fast as possible. You start packing light, learn how to pre-mix ingredients for recipes before you leave home, learn to clean up the kitchen so the second your work comes out of the oven your out of there. Going over 10 minutes cost the same as going over one hour...........you don't work in a "normal" manner this way.

post #17 of 35
Quote:
Originally Posted by Stitches View Post

I respectfully disagree. As an incubator kitchen you do want it filled every second of the day, time is money. As a landlord who just wants to be a landlord you do want the most money for the least work. The OP has to decide which she is a landlord or a kitchen incubator, they are two different things sort of at odds with each other?

I don't see how the two are at odds. If anything, being a landlord is an integral part of running a kitchen incubator, since it wouldn't be much of an incubator if there was no kitchen to rent. An incubator can offer all sorts of value-added services to its tenants over and above providing kitchen space, these services would complement the OP's role as a landlord.
Quote:
And which type of business model she wants. In the food business you can choose to have high prices that attracts less clients or moderate prices with more clients...you rarely get your cake and eat it too.

In this case, the product is available kitchen time. If OP produces a high quality product that's clean, reliable, and promotes efficiency, there should be sufficient demand to charge a decent price to hourly renters (e.g., $25/hour and down).

Offering unlimited time to monthly renters sounds like a great idea to fill the schedule, but the goal here is to maximize profit. Since the amount of product available is fixed, every hour you sell to a monthly renter has a significant opportunity cost, as that hour is not available to more profitable hourly renters. Allowing unlimited time to monthly renters also means those monthlies will fill up the schedule very quickly and lead to reduced tenant satisfaction from hourly renters when their preferred times are booked.
Quote:
When you renting hourly your working completely differently then someone with unlimited time, you can't compare those as if it's apples to apples. The hourly situation doesn't give you enough time in the kitchen to start any small projects you can't complete. Plus you have to lug back and forth those small time fillers with you. Instead your have to work toward getting out of the kitchen as fast as possible. You start packing light, learn how to pre-mix ingredients for recipes before you leave home, learn to clean up the kitchen so the second your work comes out of the oven your out of there. Going over 10 minutes cost the same as going over one hour...........you don't work in a "normal" manner this way.

It might be different in California...before the cottage food law, you were not allowed to work on products for sale outside the commercial kitchen at all, which means (for example) no pre-mixing at home. Any commercial kitchen should offer secure on-site storage so you shouldn't be lugging anything back and forth.

Whether you are renting hourly or monthly you still have to account for your labor and any employees, so you should be focused on filling your orders and getting out of the kitchen as fast as possible, without compromising quality of course. If you're not working as efficiently as you can, you are paying for it out of your own pocket, even if rent is free.

Regarding overages, this will depend on the kitchen. If we went over 10 minutes we would just note that on our time log, and we would only be charged for those 10 minutes.
post #18 of 35

I do honestly do follow your logic Jason and I can't disagree too much. Logic and reality can't always co-exist.

 

The OP asked about opinions........... and they also seem to know that people cheat the system. I'm just saying for the average bird, those $25.00 per hour rental fees closes the door for most people/small businesses to use them. It forces people to cheat the system to get started. If the person/business had enough income and business generated where they can afford to pay $25.00 per hour fees, they'd have enough money to rent their own space. At least they'd have a better chance of securing a loan based on their current income from their business.

 

In an ideal world there could be some compromise. Yes, I realize it's not that kind of world! I understand over head and costs, etc... but as long as the over head is too much money people are going to need to cheat the system to get started, unless they are already wealthy enough to start with-out a rental kitchen.                                                                                                                                                                                                                                                                                   Isn't that partly tied to the laws allowing producing baked goods from home? It's somewhat of a realistic reaction to controlling the reality of the situation. Poor people can't afford high rents.

 

If rental fees were in line with what we could realistically charge customers for baked goods, we'd charge more and pay more in rental fees. Unfortunately, they are completely out of balance. Which the OP seems to realize.

 

You can maximize profits by keeping the business busy/occupied. The owners need to decide if they have other goals in addition to making the most money possible? Many people do volunteer their skills and knowledge.........just as we are doing right now talking about this topic. Sometimes it's not what I receive in return that makes me happiest..........sometimes it's giving someone else a hand that is the best return on my dollar and time.

 

I kind of see this whole situation to be similar to investing. What kind of investor are you? Do you believe in the long term steady course investing or do you do you seek constant large profits? What's your tolerance, what's your goals and do you mix your ethics with how you spend and invest your money?

post #19 of 35
Quote:
Originally Posted by Stitches View Post

I'm just saying for the average bird, those $25.00 per hour rental fees closes the door for most people/small businesses to use them. It forces people to cheat the system to get started.
It's more difficult to be profitable at that price point, but it's certainly not impossible, even without cheating. I agree that it requires a business to be better than average.

There are ways to address this...the hourly rate would drop as you purchase more hours up front, which is why I said $25 and down. You could also offer a discount to new businesses for the first few months.
Quote:
It's somewhat of a realistic reaction to controlling the reality of the situation. Poor people can't afford high rents.

The business owner passes rental costs to the customer, so as long as the customers aren't poor there shouldn't be an issue.
Quote:
If rental fees were in line with what we could realistically charge customers for baked goods, we'd charge more and pay more in rental fees. Unfortunately, they are completely out of balance. Which the OP seems to realize.

If OP lives in an area where the market for his customers is depressed, then I agree that $25/hour would be too high. In low cost of living areas the range for rents is often more like $10-15/hour with decent volume.
Quote:
I kind of see this whole situation to be similar to investing. What kind of investor are you? Do you believe in the long term steady course investing or do you do you seek constant large profits? What's your tolerance, what's your goals and do you mix your ethics with how you spend and invest your money?

I have a moderate risk tolerance, and I'm a buy-and-hold investor. My portfolio is on autopilot, mostly in VTTHX (Vanguard's Target Retirement 2035 ETF) and rounded out with additional international equity and some treasuries. My only interaction with my portfolio is to rebalance every year or two, and my ethics don't impact my investment decisions.
post #20 of 35
Quote:

The business owner passes rental costs to the customer, so as long as the customers aren't poor there shouldn't be an issue.

You've got to be kidding.......have you been reading anyone's posts at this site? People place limits on the prices they want to pay for non-necessary purchases such as cakes. If cake decorators lived in wealthy neighborhoods where people were freely spending money left and right we wouldn't all be here talking about pricing and how hard it is to get people to pay us a living wage.

 

Sometimes when I read your posts I hope you realize how blessed you are to get the prices you say you get for cakes. CA must be a really different economy then the rest of the states in the US. In IL, there's only so many rich people and a lot of them don't eat cake...instead they pride themselves with how little they eat.

Quote:
Originally Posted by jason_kraft View Post

There are ways to address this...the hourly rate would drop as you purchase more hours up front, which is why I said $25 and down. You could also offer a discount to new businesses for the first few months.
 

The place near me does give a discount on the amount based off the hours rented in each calendar month. That never worked for me.....my business sales are never evenly spaced. It depends upon how much they drop the rate too. The place near me drops it like 2 or 3 dollars, which is still $22 or $23 per hour which is more then the starting business can afford realistically.

 

They do provide storage. Everything is charged ala carte, you pay by the month not by the usage. Some days I need the whole cooler to store raw ingredients and product, then I have a week or two when 1 shelf is too much. Who can afford to rent extra shelves and storage.........so you lug the stuff back and forth with you. When you do need a burst of extra space the place doesn't have it available or own it, so your still lugging your stuff.

 

Again, money is a factor! All the rental fees eat every penny of profit from a young baker. It forces them to get out of there as soon as they can make other arrangements. They can't make enough money this way to save up to buy their own place...........it forces people to cheat to survive.


Edited by Stitches - 4/24/13 at 8:23pm
post #21 of 35
Quote:
Originally Posted by Stitches View Post

You've got to be kidding.......have you been reading anyone's posts at this site? People place limits on the prices they want to pay for non-necessary purchases such as cakes. If cake decorators lived in wealthy neighborhoods where people were freely spending money left and right we wouldn't all be here talking about pricing and how hard it is to get people to pay us a living wage.

Sometimes when I read your posts I hope you realize how blessed you are to get the prices you say you get for cakes. CA must be a really different economy then the rest of the states in the US. In IL, there's only so many rich people and a lot of them don't eat cake...instead they pride themselves with how little they eat.

California doesn't have a monopoly on wealthy neighborhoods, they exist in every metro area. Even middle class brides will pay $3-6/serving for a wedding cake if they want a quality cake. Using some back-of-the-envelope math, if you sell a cake at the middle of that range with 100 servings the price would be $450. If ingredients and overhead are $100 and you spend 7 hours on the cake (with a $15 wage and $25/hour kitchen rental) your cost would be $380, which leaves you a decent 20% markup.
post #22 of 35

Here's the math I face. The average cake wedding cake is $3.00 per person, x 100 people is $300.00 per wedding cake. Kitchen rental fee is $100. not including any storage. Ingredients are approx.. $60. for cake ingredients, $20 for cake base, cardboard circles, supports, box.

 

That's $180. in costs before I add my labor and general business costs (insurance, home office supplies, accountant fees, etc...).

 

I put in:

2 to 3 hours worth of customer contact emailing details at night with bride from the time of tasting to wedding day

1 to 2 hours shopping for ingredients

Cost of gas and car expenses getting products

1 hour drive to rental kitchen each way

4 hours baking cakes, and prepping.cake boards, making frosting

4 hours decorating cake

= aprox. 14 hours labor

 

$300. - $180. = $120. for me. $120. divided by 14 hours of labor is $8.57 per hour. Not enough to live off of, not enough to save up for your own kitchen.

Costs can only be lowered by increasing business volume. Business volume usually is increased by advertising. But if you don't make enough money to advertise you have to build slowly off of word of mouth.

Or we could all move closer to richer neighborhoods because living in rich neighborhoods is no problem at $8.57 per hour (minus business overhead).


Edited by Stitches - 4/24/13 at 8:57pm
post #23 of 35
Thread Starter 

Engaging conversations! Thank you all for taking so much time in sharing your view points. I can not express how much I value your thoughts. 

 

I would have to say that while I enjoy money very much, I am not money driven. I have always had to struggle for every dime I make, and even now money does not come easy. I struggle and work hard every day in my restaurant, not because it pays me great money, or even good money, but because I get great satisfaction from hearing people tell me they love my food. 

 

When I first got into kitchen rental, it was because I honestly just needed some money to help me pay the bills. Then my goal was to rent enough time out so I could produce my wholesale product cost free. But then one day I rented to a lady who drove over an hour every day to use my kitchen. She did this for 6 months and then decided she was doing so well that she felt confident opening up her own brick and mortar. I will never forget that feeling. She was so thankful to have been able to use my kitchen to test out her products. To hear that if it wasn't for me, she never would have taken that risk. From that day on, it wasn't about the money as much as it was about helping people enjoy the freedom of being their own boss.

 

If you do very quick numbers, 5 people per shift, 4 shifts, is only 20 people. At a monthly rate of $800 or even $1000 inclusive of storage space etc....those numbers aren't so bad for myself considering my rent is under $3000 per month. I would almost have the best of both worlds, earning a good income AND being in a position to afford others who share my passion for baking a suitable place to work which is fairly priced. 

 

Although I should probably be more like other rental kitchens, I was never one to nickle and dime my clients. I do not charge extra for storage. I try to be as fair as possible. I feel I have had great success with my first kitchen, and I have a waiting list for my second kitchen. I do not charge the most in this city....which is pretty well off financially. I do not charge the least. I do try to be fair to each one of my businesses, while being fair to myself as well. (something I've had to learn to be better at) Could I have made more money? I'm pretty sure I could have. Would I have a higher turn over rate of clients coming in and out? I think so. 

 

I know I am also merging both a kitchen rental program with a kitchen incubator program. I don't feel I should define or separate the two. I have and will continue to offer advice and advisory support to those who need it. I offer recipe development and nutritional label creation for them as well. I also plan to offer a few more services and perks to my clients involving trade shows, industry nights and a sales team. I am a creative thinker and feel there are always additional ways to make money while helping my businesses grow. While I was struggling with my start up, I was WISHING there were resources available to me but it just wasn't there. 

 

I work with both our local Gov funded Food Business Incubator and Gov Funded Small Biz Development Centre. I know the Incubator here has not done well. It has become a money grab for suits who make big promises and then leave those start ups to fend for themselves. That is something that burns me up. They were charging fee's that were just not reasonable. A business might as well take the risk 100% and go get their own spot. It would nearly be the same costs for a fraction of the hours. 

 

I do have clients who have no issues with $25 an hour. Heck....some restaurants are charging $35 or $40 an hour plus $500 a month just to be allowed to work from their kitchen. whoopidy doo.  Some recent interviews I've done said that even the community centers here are charging $80 an hour! Who of us could or WOULD pay that? 

Who has the right to even ask that much? It's greed. Simple as that. 

Savory foodies can and do pay more then bakers. And I think they should. It's a completely different ballgame. The bottom line is bakers just can't pay that much and still make money on cakes. The wait times stall everything. Yes you can plan other things to do while waiting....but should you pay me $25 an hour while your sitting there decorating, which is the same rate the guy pays me if hes catering the wedding...and using every resource in the house?? Doesn't seem right or logical......from the production side of things. 

 

From the landlord side of things...maybe I shouldn't care. Or maybe if more did care, there would be a lot less of us working from our homes illegally (at least here). Maybe I would be contributing to changing lives, even if in the smallest ways. 

post #24 of 35

Wow! Your are an incredible person! People like you DO make the world a better place, thank-you.

 

Help the baker figure out how to be as profitable as the hot side/savory chefs are or the plumbers and oven repair persons.That would be a great gift to give to society. The world would be a lesser place with-out great desserts, but it's hard to convince people they are worth supporting.

post #25 of 35
Quote:
Originally Posted by canadiancookie View Post

If you do very quick numbers, 5 people per shift, 4 shifts, is only 20 people. At a monthly rate of $800 or even $1000 inclusive of storage space etc....those numbers aren't so bad for myself considering my rent is under $3000 per month. I would almost have the best of both worlds, earning a good income AND being in a position to afford others who share my passion for baking a suitable place to work which is fairly priced.

If you can put together a schedule that will keep 20 people with unlimited hours happy that scenario can work, but it might be more challenging than you think. Just don't forget about your other expenses - administration, security, insurance, taxes, depreciation and maintenance, utilities, etc.

I will echo Stitches' post above...you're doing a great thing giving back to the community in this way.
post #26 of 35
Quote:
Originally Posted by Stitches View Post

$300. - $180. = $120. for me. $120. divided by 14 hours of labor is $8.57 per hour. Not enough to live off of, not enough to save up for your own kitchen.
Costs can only be lowered by increasing business volume. Business volume usually is increased by advertising. But if you don't make enough money to advertise you have to build slowly off of word of mouth.

That's why it's so important to have enough money to cover startup costs when you launch a business. Your startup fund should be able to cover your initial out of pocket expenses, your living expenses until your business becomes profitable (if you have no other source of income), and the costs involved in executing your advertising
strategy. It's possible to be successful without a startup fund, but it requires both lower overhead (e.g. a cottage food law) and luck.
Quote:
Or we could all move closer to richer neighborhoods because living in rich neighborhoods is no problem at $8.57 per hour (minus business overhead).

You don't need to live close to a rich neighborhood to target rich people. Using your example with a sale price of $4.50/serving, you would be making $19.28/hour, or $15.71/hour at $4/serving.
post #27 of 35
As an example, using ArcGIS I was able to find a census tract (IL 170318042.01, near Crabtree Forest Preserve in Barrington) about 15 miles from Crystal Lake that has 566 households with an annual income over $250K. With some research you should be able to find dozens of similar areas to serve as a base for marketing high quality custom cakes.
post #28 of 35

That's a whole different discussion, which I'd LOVE to have. How about I start a new thread on marketing and we meet there?

post #29 of 35

Canadiancookie if there's anything else you want feed back on please don't hesitate to ask.

 

From a clients perspective if I'm paying top dollar then I expect top notch service from the kitchen owner. I think great communication is essential, it's like running a large family. I'm really into suggestion boxes where people can communicate anonymously with you. Or having a board where people can write messages telling others issues or concerns would be cool, too. So they can tell you what they need from you with-out you reacting personally. They also need to be able to tell you that there was a problem when they entered the kitchen space so you can follow up with whom ever left a problem. Where I rent she'd like us to call her and tell her about issues. But the truth is, she can be really hard to get a hold of and I just want to focus on my business and not spend time whining about someone else.

 

When there is a problem, I don't understand the mass emails to everyone about one persons screw up. You have to be tough and confront the person who abuses the space directly so they know it's them who's the problem.

post #30 of 35
Thread Starter 

I do have a board that clients can write on, however I never thought about people wanting to be anonymous. I will definitely consider the drop box as you suggested to get more honest feedback from others. We also have a facebook group where everyone communicates and we are working on launching a social network side to our site for ALL local entrepreneurs to communicate through, make contacts etc. 

 

I am also guilty of sending out the mass email. I don't do it because I am afraid to confront that person, I usually confront the person first and then send out the email once in a while to everyone with a bunch of different things I've dealt with. I was thinking it was my effort to avoid those problems with others, to help keep others aware of potential situations that have come up. I try to make it newsletter-ish....not just me complaining, but also fill it with positive information and events that we have coming up that they might be interested in as well. Maybe that is what other landlords are trying to achieve by doing this as well? I'm not sure but it's just a thought. 

 

I was curious about freezers. Do you think it's a necessity to have walk in freezer space? Is that something that could wait to see about demand? I do agree about walk in cooler space. I think I would start straight with that and save the hassles that you have all mentioned. 

 

I also really appreciate the feedback about dish washing. I don't know why, but I never considered a jam up an hour before everyone has to leave. I think a dishwasher makes the most sense. 

 

And Thank you both for the kind words. I hope it all works out as well as it sounds on paper. 

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