Are Ice Cream Shops Profitable?
Are Ice Cream Shops Profitable?
People love ice cream.
It remains one of the most favorite foods in the world. Regardless of nationality, religion, or culture, ice cream easily wins the hearts and minds of consumers everywhere.
As far as products go, it is undoubtedly a winner. And I’d bet that you love ice cream too! That’s probably why many of you have thought about starting an ice cream business.
If you are considering opening an ice cream shop, you’ll probably want to know whether or not ice cream shops are profitable.
This post explores the elements that play an essential role in your ice cream shop’s profitability. We’ll look at the main factors every ice cream shop owner should consider and how to forecast your ice cream shop’s profitability.
Are Ice Cream Shops Profitable?
Factors that Determine Profitability
Several important factors determine whether or not you’ll have a successful ice cream shop. These will include everything from the cost of starting an ice cream shop to developing growing sales and growth. Let’s dive deeper below.
Factors of Ice Cream Shop Profitability
Your Ice Cream Business Concept
Your ice cream business concept will impact your ability to generate revenue and profit. The assumption is that the more revenue you make, the more profit you’ll be able to create. However, your earnings doesn’t always equal profits. Higher revenue often means higher expenses (variable costs), so your profits might not be that much if your expenses are out of control.
Consider the following example.
If you compare a small mobile ice cream truck versus a busy retail brick-and-mortar, you’ll probably generate more revenue at the brick-and-mortar. Yet this may not always be the case, and in the end of the day, your profits will be just as high as with an ice cream truck. A lease at a traditional ice cream shop may cost you thousands per month. You may not generate the profits you want with inventory, labor, insurance, and other expenses. If you are situated in a poor location, you may also struggle to get the sales you need to be profitable.
On the other hand, if you have a popular mobile ice cream unit, you’ll likely have fewer operational costs, can quickly adapt to a new location, and schedule your hours to where your customers are.
Either way, the concept – and its capacity to generate sales – will impact your ice cream shop’s profitability.
Your Ice Cream Shop’s Location
If you opened up an ice cream shop at a touristy beach, your business would likely be busy during the warm summer months. If it is three blocks away from most foot traffic, your ice cream shop business will likely struggle to get enough customers.
Choosing the right ice cream shop location is almost a life-or-death business decision. Where you decide to operate your business will determine what kind of business you’ll have – and how much revenue and profit you’ll make.
Our blog has covered the topic of the best location for an ice cream shop. Be sure to check it out.
Further Reading: Why Ice Cream Shops Fail
Your Target Market (Ideal Customer Base)
Whom you sell your ice cream to will impact your revenue. For example, catering to a “high-end” target market will likely generate higher sales receipts.
A high-end clientele will allow you to increase your retail prices and hopefully make a healthy profit margin on every item you sell.
Your target market will constitute about 80% of the general market you want to capture. For example, if you open an ice cream shop near a university, you’ll likely be interested in capturing university students as your target market. These students will be roughly 80% of your customers, while parents, community members, and visitors will make up 20% of your customer base.
Before you set out to open an ice cream shop, you’ll want to have a general idea of who your ideal customer will be. Study the area, and look at which customers you are trying to reach. From there, you can determine who your competitors are, what type of business concept will most appeal to them, and how you will maximize your sales.
Startup and Operational Costs
Your startup and operational costs will undoubtedly impact your ability to generate a profit. Your ice cream shop startup costs may require you to borrow money to get it up and running. The principal and interest will need to be paid back monthly – this will be a part of your fixed monthly operational costs.
Additionally, your operational costs will include your monthly rent, inventory, labor, utilities, and other supplies.
The costs of doing business should ideally be lower than your overall revenue. Therefore, you want to create efficient systems that maximize profit and reduce waste.
Volume of Sales
It’s no secret that the number of sales you have will determine your ice cream shop revenue.
The more sales, the more money you make.
As an ice cream shop owner, your main focus is increasing sales. That means doing everything possible to get get more customers into your doors.
Every struggling business likely has one of two problems: They need more sales or to reduce their costs. To run a successful ice cream business, you need to answer these two questions in advance.
You should consider, er wider marketing opportunities and cooperation with other local small businesses to get more sales. You might want to rely on your ice cream shop POS system’s information and optimize your inventory to reduce your costs. Every business is different, so there’s no universal answer – you will have to discover one or more for yourself.
Further Reading: How to Write an Ice Cream Shop Business Plan
How to Forecast Your Ice Cream Shop’s Profitability
If you are opening a new ice cream shop, you’ll need to forecast your sales – and ultimate profitability. The question is, “How do you forecast sales if you don’t have any idea of what type of volume you’ll have?”
This is a legitimate question if your business hasn’t even opened yet. If you buy an existing ice cream business, you’ll have some complex data (receipts and income statements) from the previous owner.
However, assuming you’ll open up a new ice cream shop, you’ll want to determine how much revenue you’ll get.
Let’s take a look at a few options.
Study at Demographics
Consider the overall demographics of the area you’re considering opening your ice cream shop. Is it a densely populated area? Are there a considerable number of students, families, and tourists that you’ll be catering to?
Or you may decide to open your ice shop in a high-end location where the income level is much greater. All these factors play into your ultimate location choice.
General Vehicle and Pedestrian Traffic
Vehicle traffic, especially foot traffic, will play an essential part in your success. The more accessible your ice shop is to pedestrians, the more likely you’ll have more significant sales.
Your foot traffic should be one of the factors in determining where you choose your ice cream shop location. This is because accessibility and convenience will be a big part of your customer’s decision-making.
Count Customers at Neighboring Business
Counting prospective customers to your new business will be essential to collecting the information you need to generate your ice cream shop profit estimates.
If there is an existing ice cream business, you’ll likely need to count each customer that goes through the door during regular business hours.
If you are establishing a brand-new ice cream business, you won’t have that luxury. Instead, you’ll have to visit the nearest competitor or business substitute.
Determining how to count customers without an existing business is a bit of art and science. Nevertheless, you will want to find a suitable compatible business, such as another ice cream business, coffee shop, or restaurant.
You don’t want to count customers at a McDonald’s or fast food establishment with a different clientele.
The data you receive from counting customers will give you a sound basis on which you can estimate your sale.
The Role of Marketing & Promotion
The promotion that you do for your business should have an impact on your sales. You can implement several marketing and promotional strategies that affect your brand awareness, goodwill, and sales.
Your promotional efforts should be factored in as having some impact on your revenue, of which the effects would have to be re-evaluated after some time.
Everything from grand-opening activities, coupon mailers, or social media ad purchases generates interest and customers.
Are Ice Cream Shops Profitable?
Collecting Data and Using it to Forecast Sales
So, what do you do with all this information? You’ll want to plug these numbers into your ice cream shop revenue forecasting to give yourself a general ballpark of what you’ll be making.
I want to emphasize that you can best estimate these numbers based on your data collection and observation. I recommend erring on the side of caution and being slightly more conservative with the numbers.
How to Calculate Your Profitability
You’ll need a few essential data points to forecast your ice cream shop’s profitability.
Number of Sales
You’ll want to estimate how many transactions you’ll make daily. This is where your counting comes in. For example, let’s say that you determine you’ll have 130 transactions per day based on your average estimates of neighboring and similar businesses.
Average Price of Your Receipt
The average cost of your receipt can be calculated using your ice cream shop POS system. However, it is essentially the number of daily transactions versus the total amount of revenue you made that day.
Let’s say, for example, that, on average, each customer spends is:
$4.50 – 1 cone with two ice cream scoops
$3.00 – 1 Coffee
= $7.00
Seven dollars would be your average receipt price. Of course, some customers may order more, and others can order less.
Ice Cream Business Costs
It costs money to make money. But how much money are we talking about?
Your operational costs will be calculated by how much you pay in rent, labor, insurance, payroll, and taxes.
Ice Cream Profitability
If you’ve been able to get the information you need through estimates, you can plug in some numbers.
Let’s say we’ve estimated you’ll have 130 customers daily. On average, they each spend $7.00.
130 Customers X $7.00 (Average Receipt)
= $910 Daily Sales
If you are open six days a week, you may need to average your weekly and monthly revenue totals.
Next, you’ll need to calculate your ice cream shop’s operational costs. If you conclude that your daily costs are $420, you will need to subtract this from your gross revenue.
$910 (Daily Sales) – $420 (Daily Costs) = $490 (Daily Profit)
This is a rough way to profitability, but it can give you a good ballpark to help you create your ice cream shop startup budget and forecast your sales.
You will want to consider what type of business you have and your sales numbers to make your estimates.
For example, if you utilize an ice cream truck only on the weekends, you’ll also need to determine how much revenue to income you’ll have by subtracting your costs and arriving at your profit.
Conclusion
If setting up a profitable ice cream shop is your aim, you’ll want to learn as much as possible about the retail ice cream business. It’s essential to have some financial estimates before you open the doors to your first customer. That’s why we have created a package that will provide you with the information and tools you need to start your ice cream shop planning. We encourage you to get our Ice Cream Startups Business Kit which comes with an ice cream shop business plan.
