How to Start a Lemonade Stand   Leave a comment

Today is Monday, which means invoicing and reconciling for me. I spend the morning updating all my charts, so I know what’s due, what’s been paid for, what hasn’t been. I imagine that this is what makes me different from my predecessor in this role — they thought it was all about calculating cost of goods. Ah, no. It is so, so much more than that.

It is a truth universally acknowledged that you must spend money in order to make money. But how to spend money? How to make that money back? After all, if I buy an apple for 79 cents, then sell it to you at 80 cents, technically I’ve made that money back. But what about my costs for transporting that apple? How did I let you know that I had an apple available to sell? No no, the cost of doing business is so much more than the cost of goods.

So let’s imagine that we are opening the simplest business imaginable. A business so simple, that children do it all the time. Let’s open a lemonade stand.

According to <a href=”https://www.bettycrocker.com/recipes/old-fashioned-lemonade/7ec9a486-f657-4a36-81cd-71e3a2224866″>Betty Crocker’s Old-Fashioned Lemonade Recipe</a>, the ingredients for lemonade are as follows:

6 cups of cold water

8-10 lemons (2 cups lemon juice)

1 cup sugar

 

This will create roughly 8 cups of lemonade, or half a gallon. So the first thing you must do is calculate the Cost of Goods.

Sugar: Thanks to the <a href=”https://en.wikipedia.org/wiki/U.S._Sugar_Program”>US Government subsidizing US sugar</a>, sugar is super cheap in this economy! Therefore a 4-lb bag of sugar is roughly $3.50. 1 pound of sugar is roughly 2 cups, so one common 4-lb bag has enough sugar for 8 batches of lemonade. In a real business, you would buy your goods in much larger quantities, but we’re sticking with 4 lbs of sugar for now.

Lemons: One pound of lemons is roughly <a href=”https://www.statista.com/statistics/236893/retail-price-of-lemons-in-the-united-states/”>$1.99</a&gt;, and there are roughly <a href=”https://www.thekitchn.com/heres-what-1-pound-of-lemons-looks-like-232376″>four lemons in a pound</a> on average. So we’re looking at $4 in lemons in a batch of lemonade.

Water: this will be the trickiest part! If you take your water out of the tap, that will be roughly <a href=”http://www.slate.com/blogs/business_insider/2013/07/12/cost_of_bottled_water_vs_tap_water_the_difference_will_shock_you.html”>$0.004 per gallon</a>. However, most tap water tastes pretty nasty! I know it does here in NC. NoVa water tasted better, but still not as good as filtered water. So you might have to adjust your recipe, by adding more sugar or more lemon. Alternatively, you could buy filtered water: 1 gallon of filtered water is $1 in my personal experience, and a 5 gallon bucket is roughly $15. Or you could buy a filtered water system, which costs <a href=”https://www.brita.com/faucet-systems/”>$20-30</a&gt;, which lasts for 100 gallons. For the sake of making the math easier, we’re going to go with $1/gallon.

So your costs are:

6 cups water: 6/16ths of a gallon, or $0.38 per batch

8 lemons: $4 per batch

1 cup sugar: 3.5/8, so $0.44 per batch

So the lemonade is $4.82 per batch. Now “per batch” is a half-gallon, or 16 cups.  4.82/16, each cup is roughly $0.30 at cost.

But your lemonade isn’t your only cost! You also have to buy the cups the lemonade goes in! The ice the lemonade go on! The table your lemonade stand sits on. The pitcher, the construction paper sign, the markers to advertise, and the tape to hold up the sign. What do you do with the empty cups? Are you hand-squeezing the lemons? How much does the squeezer cost? How much does it cost for you to squeeze the lemons?

1 10-lb bag of ice: $1-$3 (we’ll go with $2 for the sake of simplicity)

100 pack of disposable cups: <a href=”https://www.target.com/p/dixie-everyday-disposable-paper-cups-bath-cups-100ct/-/A-12969897″>$2.99</a&gt;

1 folding table: $30 give or take, last time I checked

Poster Board: $2.19 at Office Depot

Markers: The classic Crayola set of 10 is <a href=”http://shop.crayola.com/color-and-draw/markers”>$3.50</a&gt;

Lemon Squeezer: $9-$10 if you’re not buying from like Williams-Sonoma

All of this combined is $50.68. That means that a batch of lemonade is $55.50. That would mean that the cost per cup of lemonade is $6.94. Just to make cost!

But you’re not going to be buying cups, poster board, markers, lemon squeezers, and tables for every single batch. This is why you have to assume that you’re operating at a loss at first. Since you have enough cups for 100 servings, let’s see how that’s spread out over 100 servings.

Water: 16.67 gallons of water, or $17

Lemons: 100 lemons for $100

Sugar: Since I don’t hate anyone, you can buy <a href=”http://stovercompany.com/granulated-sugar-25-lbs.html”>a 25-lb bag for $26.16</a>. Buying in bulk is easy!

1 10-lb bag of ice: $2

100 pack of disposable cups: $2.99

1 folding table: $30

Poster Board: $2.19

Markers: $3.50

Lemon Squeezer: $10

So you’re looking at $193.84, and $1.94 per cup, just to cover your costs. Which is much more reasonable. And hey, that’s just for your first 100 cups. Let’s say you plan on selling 200 cups. Because you’re only buying some things once, that’s $1.70 per cup!

But what about the time it takes to make the lemonade? Since I hate lemons I have no idea, but I assume a few minutes. Let’s say 2 minutes per lemon — or 3 hours and 20 minutes.

This is where economics come in. This is where the idea of opportunity cost comes in. How much is your time worth? What money could you be making, if you weren’t squeezing lemons? How much value does hand-squeezing your lemons add to your lemonade? One gallon of lemon juice is anywhere from $3-$3.30. So if you buy your lemon juice by the gallon, you can get 8 batches of lemonade from each gallon. For a batch of 100:

Water: $17

Lemon Juice: 13 gallons of lemon juice (12.5 gallons per 100 servings), for $41.25

Sugar: $26.17

Your total cost of goods is now $135.10, or $1.35 per cup. You’re already saving $0.60 per cup. Or, if you hand-squeeze, you could think of it as costing sixty cents per serving to have someone squeeze the lemons by hand. Is being able to say “this is fresh, hand-squeezed lemonade” important to your brand? Are you willing to mark up your lemonade by another $0.60? What about the cost of paying someone to man the booth? Or is this a one-man operation, and you just have to pay your rent?

And this is all just your cost of goods. You haven’t even done the simple mark-up to make any kind of profit or revenue. That’s why organic, hand-squeezed lemonade might cost $3, but the regular factory-produced stuff might cost $1. That’s why a black cup of coffee costs $2.50 at Starbucks, even though you can get 8 servings out of that $2 in coffee grounds.

The farther away you get from your initial cost: the table, the marker, the paper, the squeezer, the less you have to charge.

Children save a lot of money. They don’t have to buy the table or the posterboard or the markers. They’re granted those by their parents. They’re not buying lemons and sugar themselves. Their parents pay the water bill. They can get away with charging $1 for something that should cost $3, because they’re not footing the costs themselves. So instead, children get to see the fun part of the business — the part where you can sell your product directly, without worrying about the overhead.

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Posted November 27, 2017 by agentksilver in Uncategorized

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