How Much Do Ghost Kitchens Make?

Ghost kitchens have the potential to be more profitable than other types of food establishments. Operating with smaller space requirements keeps rent, decor, utilities, and maintenance costs at a minimum, increasing the amount of revenue you can take home. With effective menu design, operational efficiency strategies, and marketing campaigns, you can maximize the profit you gain from ghost kitchens.

How much profit do ghost kitchens make?

Profit margins for ghost kitchens run between 10% and 30%, with an average of 15%. In the U.S, the average turnover for ghost kitchens is $50,000 to $150,000 per month. This will net you anywhere from $5,000 to $45,000 in profit per month.

Like with all restaurant profit margins, ghost kitchen profit margins depend on your fixed costs, variable costs, semi-variable costs, and one-time costs. The factors with the biggest impact on these expenses include location, ghost kitchen type, and delivery service efficiency.

How much does running a ghost kitchen cost?

Ghost kitchens run at lower overhead restaurant costs than most types of food establishments. The nature of the business eliminates the need for front-of-house staff, prime locations, decor, and dining furniture. It also cuts spending on utilities and maintenance.

Starting a ghost kitchen can run you anywhere from $20,000 to $60,000. This amount covers the costs of your initial investments, such as kitchen equipment, initial inventory, licenses, and marketing and branding services.

After your initial investments, you’ll need to pay the ongoing costs of rent, utilities, inventory, labor, delivery services, insurance, and marketing. This amounts to about $11,000 to $42,000 per month.

 

Factors that affect ghost kitchen profits

While ghost kitchens have strong potential to become profitable, you still need the right combination of variables to ensure success. Here are the main factors to consider when evaluating ghost kitchen profitability.

Business model

Your chosen ghost kitchen business model determines how much brand recognition you start out with and how much you spend on rent, fees, and marketing.

• Ghost kitchen franchise: Running a ghost kitchen branch of an existing franchise lets you start out with automatic brand recognition. However, franchise fees will eat into your profits.
• Restaurant-owned ghost kitchens: If you can manage multiple restaurant locations, you can also run a ghost kitchen branch of your own restaurant. This is a cost-effective way of expanding your reach and adding more revenue streams. However, if your branches are too close together, you might cannibalize your own market share.
• Independent ghost kitchen: Delivery-only ghost kitchens with no physical branches have the lowest overhead. However, because they have no existing brand recognition or physical presence to ride on for visibility, they need increased investments in marketing for success.

Location

Compared to other types of food establishments, ghost kitchens are less reliant on good locations for profitability. Because foot traffic plays no role in revenue potential, ghost kitchen entrepreneurs are free to prioritize affordability over visibility and accessibility.

However, just because the role of location in profitability is smaller doesn’t mean it plays no role at all. You should still pick a location that delivery service vehicles can easily access. Customers can view the distance on their delivery apps and might not want to buy products from a kitchen that is too far away.

Population and culture

Although ghost kitchens offer convenience, they often offer it at a higher price point than fast food restaurants, kiosks, and food trucks. Many customers prefer to spend their disposable income on in-person dining experiences, which offer additional selling points, such as hospitality, ambiance, and socialization opportunities.

While there is still a demand for delivery, not everybody has the income to splurge on it. Ghost kitchens thrive best in areas where people are economically advantaged and willing to pay extra for the luxury of delivery.

Delivery service efficiency

Much of a ghost kitchen’s success hinges on the efficiency of its chosen delivery service operator. Delivery speed has a strong impact on food quality and, therefore, customer satisfaction and retention. Delivery services also charge commission fees amounting to about 15% to 30% of each order, which can eat away at your sales revenue.

Check reviews for your delivery service provider to determine the efficiency of their services. If you cultivate a relationship with your provider, you can arrange a pricing agreement that benefits you both.

Another alternative is to provide delivery services yourself. Although it requires you to spend extra money on staffing, vehicles, gas, and vehicle maintenance, the investment earns you more control over the efficiency of your delivery services. If you play your cards right, doing deliveries yourself might offset the fees charged by third-party services.

Menu choices

Choosing food that travels well for delivery is a crucial part of running a ghost kitchen. Even if customers enjoy the convenience of having food transported to them, many still have a general understanding of how the elements affect food quality. They prefer menu items that can maintain their freshness through a single delivery trip.

Ghost kitchens with well-selected menu items are more likely to be profitable. The factors to think about when engineering a menu for ghost kitchens include:

• Quality: Can the item maintain its freshness within the time it takes to travel from the kitchen to the customer’s location?
• Ease of preparation: How easy is it to prepare the item, and how long does preparation typically take?
• Competitiveness: Do similar products already exist in the market for the same or lower price points?
• Popularity: How big is the demand for the product?
• COGS: How much money does the product cost to make in relation to its demand and selling price?

Additionally, ghost kitchen customers prioritize convenience. The faster a kitchen is at preparing food, the more likely they are to generate sales. Selecting menu items that are easy to prepare is imperative to success.

Marketing and branding

Ghost kitchens are more reliant on restaurant marketing and branding than other types of food establishments. Because the nature of ghost kitchens prevents customers from interacting with the business as a physical space, they have difficulty cultivating customer connections, lowering retention.

Profitability hinges on the business’s ability to promote itself effectively. Ghost kitchens that are extensions of existing restaurants can ride on brand awareness, but delivery-only ghost kitchens need to invest more effort into marketing campaigns, advertising, and event attendance. Without a proactive approach to marketing and branding, attracting customers is difficult.

When can I expect ROI on my ghost kitchen?

A successful ghost kitchen takes about six months to break even. Because of their lower overhead costs, ghost kitchens can recuperate their initial investments faster than other types of food establishments. However, third-party delivery fees can eat away at the revenue.

How to maximize ghost kitchen sales

Maximizing ghost kitchen sales is a matter of aggressively increasing brand awareness through restaurant branding, marketing campaigns, and events. It also helps to improve your menu choices, packaging, and technology investments for increased efficiency.

Identify a target market

Ghost kitchens fulfill a specific need: access to food without the inconvenience of transportation. The customers they attract also fall into specific profiles.

Here are a few examples:

• Working professionals with little free time to eat out or cook
• University students with a limited budget to eat out
• Parents who are too busy to cook for their families
• Customers with social or physical disabilities
• Customers looking for late-night food

Identifying which customers you want to serve can help you customize pricing, menu items, and marketing campaigns. By catering to their needs and preferences, you increase the likelihood of customer retention.

For example, parents are likely to use delivery to feed their children. This means they would benefit from combo deals and discounts on group orders. You can also feature families eating meals together in your marketing materials, which subconsciously sends them the message that the product aligns with their values.

Meanwhile, working professionals want food that can support their productivity. They might look for healthy meals, coffee, or other energy-boosting menu items. They might also have more money to shell out for food, so you can afford to increase your markups.

Build an effective marketing strategy

As mentioned above, much of a ghost kitchen’s success relies on effective marketing ideas. If you are a delivery-exclusive ghost kitchen with no physical branches, marketing is your only shot at cultivating brand recognition among your target audience. Otherwise, they will have little incentive to choose your brand among other options on their delivery apps.

Here are a few examples of common ghost kitchen marketing strategies:

• Influencer or business partnerships: The ghost kitchen craze in the pandemic era relied on influencer marketing to gain traction. The famous YouTube user MrBeast, for example, leveraged his following to promote his virtual restaurant brand, BeastBurger. Influencers and other types of content creators are experts at building audience trust, so tapping into their network can help you gain automatic visibility.
• Targeted ads: Platforms like Facebook, Google, YouTube, TikTok, and Instagram offer targeted ad programs, which let you bring your ads directly to target audience segments for a fee. Targeted advertising uses algorithms to find users who like content similar to yours, which increases your chances of resonating.
• Social media marketing: The most affordable marketing strategy is social media marketing. Make profiles on Instagram and Facebook to share information, such as your menu, operating hours, and contact details, with your potential customers. Then, post content to promote your products.

Aligning your marketing strategy with your target market will increase your chances of success. For example, if your target customers are college students, you are more likely to reach them through social media platforms like TikTok. Meanwhile, older customers might be more active on Facebook and Instagram.

Attend events

One of the biggest issues with ghost kitchens is the lack of opportunities for brand recognition. Unless your ghost kitchen has a physical presence, customers are unlikely to be familiar with your offerings. You need to take a proactive approach to marketing and sample your offerings to customers through events.

Attending events may require extra investment in equipment and transportation, but the opportunity to build relationships with customers in person makes it worthwhile. Unlike traditional marketing, events allow potential customers to fully experience your menu—seeing, smelling, and tasting it firsthand. This gives them a stronger impression of your product, potentially attracting them as delivery customers.

Here are a few types of events ghost kitchens can participate in.

• Food festivals: If you have faith in the quality of your product, you can attend food festivals to promote your business to foodies, influencers, and critics. The people attending these events are typically interested in promoting businesses that meet their standards of quality, so making a strong impression can lead to increased visibility.
• Farmer’s markets: Ghost kitchens centered on typical farmer’s market values, such as sustainability, food quality, health, and ethical business, have the potential to do well in farmer’s markets. Customers attending farmer’s markets typically enjoy supporting local businesses, so these events are good opportunities to network.
• Community events: Community events are another great opportunity to find customers who want to support local businesses. Events like local festivals, film screenings, charity concerts, and donation drives are great ways to connect with members of the community and promote your business.

Offer group packages and catering services

Providing catering services can increase your revenue streams with minimal investment. For example, with events, you might need to spend extra on equipment and labor costs, but in turn, you will gain more opportunities to cultivate relationships with clients.

A market always exists for weddings, corporate parties, and private events. By capitalizing on the demand for catering services, you can build trust with key customers and attract ongoing opportunities. These opportunities also let you tap into your customers’ network, increasing your brand visibility.

An alternative to catering services is group packages. You can sell your products at a lower price point to close deals with customers hosting big group events. This way, you can capitalize on private events without needing extra investments in equipment and staffing.

Study the competition

Ghost kitchens face stiff competition. Food trucks, fast food chains, and kiosks offer faster services, while traditional restaurants provide atmosphere, hospitality, and opportunities for socialization. Plus, all types of restaurants can provide delivery services. The brand recognition that their physical spaces provide makes them more effective at attracting delivery customers.

To stay competitive, you need to analyze what your competitors offer and provide something unique or better. Stand out by identifying a niche that no other competitor offers. For example, if there are no Korean food establishments in the area, you can start one to fill the gap.

Studying reviews of competitor establishments also helps. Look at Google, Facebook, or Yelp reviews to see what customers liked and disliked about other establishments. Learn their weaknesses so you can provide what customers are looking for.

Because your overhead costs are lower than those of other types of food establishments, one of the most effective things you can do to stay competitive is to offer your products at a lower price point. If you can price your products in a way that can accommodate both your delivery service commission and your profit, you stand a better chance of attracting customers and driving sales.

Streamline your menu

A ghost kitchen customer’s main priority is convenience, and the second is quality. You should design your menu according to these values, choosing menu items that make for good delivery products. Your dishes should be easy to prepare, leave the kitchen fast, and maintain quality through the length of an average delivery trip.

To save time, choose menu items with components that are easy to prepare beforehand, such as sauces, toppings, batters, and marinades. You can also make your cooks’ jobs easier by choosing dishes that are easy to customize, like pizzas, burgers, and hot dogs. This way, you don’t overload them with the strain of learning new preparation techniques but can still cater to a diverse range of tastes.

Invest in packaging

The main weakness of ghost kitchens is the time it takes to bring a product from the kitchen to the customer. Outside elements, such as heat and steam, impact the quality of the food, leading to poor eating experiences. Failing to meet expectations of quality lowers customer retention.

Aside from choosing food that can stay fresh through delivery trips, it’s important to invest in good packaging. The right packaging will protect your products from the elements, preventing the deterioration of food quality. With the right packaging, you can get the delivery product as close to the quality of a fresh order as possible, ensuring customer satisfaction.

Leverage technology

Operational efficiency has a strong impact on customer satisfaction. If you want to maximize sales, technology helps streamline key restaurant processes. Here are a few examples of restaurant processes that benefit from technological solutions:

• Point-of-sale (POS): Expand your customer base by choosing a POS solution that accepts a diverse range of payment methods, including cash, credit cards, debit cards, mobile payments, and gift cards. POS systems also automate sales and inventory tracking.
• Customer relationship management (CRM): CRM solutions help you track customer data, including their demographic information, interests, and buying habits. These details help you craft personalized marketing campaigns, offers, and loyalty programs, increasing customer retention.
• Employee management: Restaurant employee management software puts scheduling, time clocking, attendance tracking, payroll, and employee engagement in one place. With 7shifts, food establishments can have employees view schedules and clock in, then automatically calculate their pay based on logged attendance.

Bring your ghost kitchen to life with 7shifts

Ghost kitchens promise low overhead costs and high profit margins—if you strategize correctly. By taking the time to understand the factors affecting revenue and expenses, you can easily navigate the common challenges of running a ghost kitchen. Effective marketing strategies, menu engineering, and negotiations with delivery service providers are some ways you can maximize ghost kitchen sales and stay sustainable.

One of the most crucial parts of running a profitable ghost kitchen is proper employee management. Use 7shifts for streamlined shift scheduling, team engagement, and payroll. Our all-in-one restaurant management app lets employees clock in, request pay, and view their schedules and pay stubs. View our pricing page for more information.

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