Is Starting a Virtual Kitchen Feasible in a Ghost Kitchen?

Running a Virtual Kitchen in a Ghost Kitchen: The Numbers You Need to Know

The rise of cloud kitchens, also known as ghost kitchens or dark kitchens, has transformed the food delivery industry. Running a virtual kitchen within a cloud kitchen can be a lucrative business. However, success depends heavily on understanding the numbers involved. It's essential to ensure that there is enough density in your area to support this model. Here’s a breakdown of key financial considerations and performance metrics to keep in mind when operating a virtual kitchen.

1. Startup Costs

Setting up a virtual kitchen within a cloud kitchen model significantly reduces capital expenditure compared to a traditional restaurant. Here are the key expenses:

• Initial Deposit & Lease Fees: $3,000 - $10,000 (varies by location, layout, and provider)

• Kitchen Equipment & Setup: $10,000 - $50,000 (depending on menu complexity)

• Licenses & Permits: $1,000 - $5,000 (business license, health permits, etc.)

• Technology & Software: $2,000 - $5,000 (POS system, online ordering platforms, and marketing tools)

• Branding & Marketing: $5,000 - $15,000 (logo, packaging, digital marketing, and social media ads)

  
  

2. Recurring Expenses

Once operational, there are key ongoing costs to consider:

• Rent & Utilities: $2,000 - $6,000 per month

• Labor Costs: $3,000 - $10,000 per month (depending on staff size)

• Ingredients & Food Costs: 30-35% of revenue

• Delivery Commissions: 15-30% per order (for third-party platforms like UberEats, DoorDash, and Grubhub)

• Marketing & Promotions: 5-10% of revenue

• Software Subscriptions: $300 - $1,500 per month (order management, analytics, CRM, etc.)

  
  

3. Revenue & Profit Margins

A virtual kitchen’s revenue depends on multiple factors, including menu pricing, order volume, and marketing efficiency. Consider these metrics:

• Average Order Value (AOV): $15 - $30 per order

• Daily Orders: 50 - 300+ (depends on demand and location)

• Monthly Revenue: $30,000 - $200,000+

• Gross Profit Margin: 60-70% (before rent, labor, and marketing)

• Net Profit Margin: 10-25%

  
  

4. Break-even Analysis

To calculate the break-even point, use this formula:

• If fixed costs are $15,000 per month

• If AOV is $20 and food cost is 35% ($7 per order)

• Contribution margin per order = $20 - $7 = $13

• Break-even point = $15,000 / $13 ≈ 1,154 orders per month (~39 orders per day)

  
  

Achieving this break-even point is crucial for sustainability.

5. Key Performance Indicators (KPIs)

Monitoring KPIs helps track efficiency and profitability. Important KPIs include:

• Customer Acquisition Cost (CAC): How much you spend to acquire a new customer

• Customer Lifetime Value (CLV): Total revenue expected from one customer over time

• Order Fulfillment Time: Speed of preparing and delivering food

• Food Waste Percentage: Keeping food waste below 5% helps control costs

• Repeat Customer Rate: Ideally above 30% to build a loyal customer base

  
  

6. Understanding the Market

Having insight into your market can significantly impact your success. Research your competition. Are there many similar concepts in your area? The success of virtual kitchens often depends on your unique offerings, customer engagement, and marketing strategies.

Conclusion

Wingman Kitchens has been advising potential clients against starting this type of concept for years. The trend began back in 2020, when everyone was forced to stay at home. Running a virtual kitchen within a cloud kitchen is indeed a numbers game. While the initial investment is lower than a traditional restaurant, strict control over food costs, delivery fees, and marketing spend is critical for profitability.

In hyper-dense cities, this model can work, but only in select areas. Competing against established food brands on delivery apps is challenging. An average of 40 orders per day may seem like a manageable goal. However, you're facing thousands of other concepts on these platforms. This order volume is just enough to break even, which is not your ultimate goal—you want to make a profit.

Be sure to understand your numbers fully. If you find yourself considering the various routes to success, think about adding catering services to your offerings. It is our opinion that virtual concepts can thrive in more spread-out cities, such as Austin and Houston. This is especially true if you already operate a brick-and-mortar location utilizing existing staff and resources. Running multiple known virtual brands simultaneously can also provide a competitive edge.

If you're hesitant to take a big leap and incur all of these fixed expenses, then a shared kitchen space like Wingman Kitchens might be a suitable fit for you.