Hot Pot Club's Thin Profit Margin Challenges 💸
It meant we had little room for errors and accidents, or we'd be operating at a deficit.
We experienced first-hand the challenge of having thin profit margins as a bootstrapped food business.
It meant we had little room for errors and accidents, or we'd be operating at a deficit.
With hot pot being a cuisine consisting of multiple ingredients (dry, fresh, frozen) and Hot Pot Club being a high-touch business, there was a limit to how much we can increase profit margins by cutting costs.
That, plus doing everything by the book meant our upfront, overhead, and operation costs were crazy high.
So even though we were able to sell our hot pot kits without monetary discounts, our profit margins were thin and became non-existent once we factored in labour costs.
I could probably write an essay on every aspect of running Hot Pot Club. To keep it brief, some of the aspects that ate into our profit margins were:
Ordering supplies
As you know, the more you order, the cheaper per unit. But when you're bootstrapped with limited cash, there's a limit to how cheap per unit you can lower it to.
Most manufacturers we spoke to had an MOQ (min. order quantity) between 100 to 200. The next MOQ up to reduce the wholesale price was at 500. If we were selling just one product, 500 would have been fine. But we had a total of 30 items per Hot Pot Kit (wtf was I thinking)?!
In hindsight, I should have traded authenticity (more like perfectionism) with simplicity. But that's another post to add to my backlog.
Kitchen space rental
We actually only needed a few clean benches to pack, no cooking required. But I had cats at home, so that was out of the question.
Having only a few spaces in Brisbane meant we had to accept the high rental costs despite they were located in less than ideal places.
We definitely overpaid for the space and could have just looked for a cafe to use their space at night, but we couldn't find one that had dry, chilled, frozen storage big enough to fit all our inventory.
I'd have also needed to apply for a license at the address since I wanted to do everything by the book. (We found out later on not many people follow the rules anyway, in order to cut costs.)
Helping hands
Obviously the more helping hands you have the better, as it meant you'd rent fewer kitchen hours.
We tried to save costs by renting off-peak (11pm-5am), and my friends would come help before they go to work, but ultimately the cost savings were minimal. It wasn't as effective as having more people helping out.
Dry, chilled, frozen storage space
This was the biggest contributor to our overhead costs. If our homes were big enough to put an extra fridge and freezer, we'd have saved a lot on chilled and frozen storage costs. But we all lived in apartments, and it also meant we had no garage to place the extra fridge and freezer either.
Kitchen rentals understood this, and charged all tenants expensive prices for a small surface area.
All these contributed to additional operational costs and led to several accidents beyond our control, further affecting our cash flow and profit margins. I'll continue this story in my next post!