A Comprehensive Guide for Cost to Open a Ghost Kitchen

“Quick summary”If you've ever wanted to own a restaurant but haven't been able to do so, think about the difficulties it presents. No, with the emergence of ghost kitchens, you might be nearer than ever to making that dream a reality.

Simply put, ghost kitchens are virtual restaurants that do not have any dining area for customers and only accept delivery and drive-thru orders. Clients can place orders through phone calls, websites, or meal delivery applications.

Let's discuss numbers. According to recent studies, by 2030, ghost kitchens will account for 50% of the takeout market.

As of August 2022, the ghost kitchen restaurant chain MrBeast Burger, with yearly sales of $100 million US, was one of the top creator-owned businesses in the world.

However, the cost of starting a ghost kitchen is less, but you still need to bear some.

You might be wondering: How much does it cost to open a ghost kitchen?

Well, don't worry!

We will be adding a comprehensive guide on how much it costs to start a ghost kitchen and the factors affecting the costs.

Let's get started.

What Is Ghost Kitchen, and Why Is It Trending Right Now

In current times, where the customer seeks good food from the convenience of their home - it offers a much-needed boost to the ghost kitchen industry.

Imagine you're craving your favorite restaurant's mouthwatering burgers or delectable sushi rolls. But, rather than going to the restaurant, you need to eat in your PJs while being in front of the TV. Initially, you need to get your order from the restaurant, but now you can order from your mobile phone in a few clicks.

That's where the ghost kitchen comes in! A ghost kitchen, also known as a virtual kitchen, without a traditional dining area where talented chefs work their magic to prepare delicious meals exclusively and deliver them to their customers.

So why are ghost kitchens trending right now?

• In our busy lives, ghost kitchens provide a convenient solution to enjoy restaurant-quality meals from the comfort of our own homes or offices.
• Second, the rise of online food delivery platforms and apps has made it easier than ever to order food with just a few taps on our smartphones.
• Starting a traditional restaurant can be a costly and risky venture, but setting up a ghost kitchen requires less upfront investment.
• Ghost kitchens tap into the ever-evolving food trends and diverse culinary experiences that people crave.

Start-up Costs to Open a Ghost Kitchen

Starting a ghost kitchen differs slightly from starting a conventional restaurant. Ghost kitchens and other delivery-only business models interact with clients only online.

It implies that initial costs frequently do not cover the expenditures of decorating a front-of-house space, which includes a lovely ambiance, furniture, employees, crockery, and other things. But when you want to create a ghost kitchen, you may anticipate additional charges for marketing, PR, and third-party delivery.

But to give you a rough picture, we may calculate that the lump-sum cost of creating a cloud kitchen is between $50,000 and $200,000, depending on the market and other overhead expenses. However, the actual beginning cost to start a ghost kitchen varies on many different elements.

Keep reading to know more about the costs.

The Costs to Start Ghost Kitchen by Square Foot

The area required to operate a ghost kitchen is much less than the traditional restaurant, as you don't need to accommodate your customers - you are just offering takeaway and delivery orders.

When it comes to ghost kitchens, you will need a highly-equipped commercial kitchen with a small reception and waiting area for delivery partners and your customers as well.

The per square foot cost will vary from location to location, but to give the basic figures of how much per square foot cost for your ghost kitchen is around 300 - 800 USD. If you are looking to start up in a highly populated area, then the rent and maintenance are higher compared to the area with lesser customer footfall. But, the areas with high customer footfall generate greater revenue and vice versa.

Keep reading to know more about the factors affecting ghost kitchen start-up costs.

What are all the Start-up Costs to Open Ghost Kitchen

Here's the entire ghost kitchen checklist with all the costs associated:

Equipment Costs

• Cooking equipment: $2,000 to $5000
• Food preparation equipment: $2,000 to $5,000+
• Refrigeration and freezer units: $3,000 to $15,000+
• Operating equipment - $1000 to $5000

Technology Costs

• Point of Sale (POS) System: $1,000 to $10,000.
• Kitchen Display System (KDS): $500 to $2,000
• Online Ordering and Delivery Platforms: $100 to $500
• Inventory Management Software: $100 to $500
• Website development and maintenance: $1,000 to $5,000+

Utilities

• Electricity ($200 to $500)
• Gas ($100 to $300)
• Water ($50 to $150)
• Internet service ($50 to $100)

Premises Costs:

• Rent or lease payments: $1,000 to $10,000+/month
• Security deposits and advance payments: Varies based on the agreement

Licenses

• Licenses and permits: $500 to $2,000+

Inventory Costs

• Food ingredients and supplies: $2,000 to $10,000+
• Packaging materials: $500 to $2,000+
• Cleaning and sanitation supplies: $100 to $500/month

Marketing and Advertising Costs

• Online marketing campaigns: $500 to $5,000+
• Social media advertising: $200 to $1,000+/month
• Print materials and signage: $500 to $2,000

Staffing Costs

• Cook salaries
• Manager salaries
• Delivery partner salaries

Insurance Costs

• Worker liability insurance: $500 to $3,000 per year,
• Property insurance: $500 to $5,000
• Workers' compensation insurance: $0.75 to $2.50 per $100 of payroll
• Foodborne customer illness: The cost can vary depending on the coverage limits and the nature of the business.

Miscellaneous Costs

• Contingency funds: 10% to 20% of total start-up costs

Factors That Directly Impact the Cost to Start a Ghost Kitchen

When it comes to the cost of a ghost kitchen, or any business, for that matter, there is not any specific amount required that you need to start a business. There are so many different and unique factors that come into play - when you decide to open a new business.

The license requirements in every city are different, the rent varies from location to location, and staff demand and salaries also vary. So, we will be adding 15 factors that highly impact the cost of opening a ghost kitchen to help you better predict the cost and get started.

Let's find out!

1. Utilities

Utilities, which include charges for power, water, gas, and other utilities, are one of the inevitable expenditures connected with starting and running a ghost kitchen. These charges can account for a sizable amount of a ghost kitchen's operating expenses.

You will pay between $1,000 and $2,000 a month for the utilities for the ghost kitchen, which involves gas, water, electricity, and internet. Considering the numbers, electricity ($200 to $500), gas ($100 to $300), water ($50 to $150), and internet service ($50 to $100).

However, the precise cost of utilities for a ghost kitchen will vary depending on a number of variables, including the size of the facility, the quantity of equipment utilized, the number of employees, and the precise location of the kitchen.

To cut utility expenses, many ghost kitchens have shifted to environmentally friendly fixtures and appliances, as well as other energy-saving methods.

Quick Tip: For ghost kitchen owners, it is more crucial than ever to be aware of the latest information regarding these costs and make a budget accordingly.

2. Location

The location you are choosing for your ghost kitchen business has a significant impact on your overall cost to open a ghost kitchen.

Area:If you are choosing an area with higher customer footfall near a busy mall or street, you might have to pay a premium price for the same. And, if you are renting a space somewhere outskirts of the city or an area with the lesser customers, you can expect to pay lesser.

But, surely paying a premium price for a location where customers can easily find you will surely be worth the investment, rather than being in a quiet area where it is difficult for your customers to find and will probably jump to your competitor.

However, it is always your choice to decide what is best for your business.

Size: Another thing is the size of the ghost kitchen also affects the total cost of the ghost kitchen. As written above, you can ghost expect to pay around $300 - $800/ sq ft for the location.

3. Equipment

Whether you are operating a cloud kitchen or a traditional restaurant, you need to bear the cost of kitchen equipment. Renting a restaurant space with pre-fitted equipment is more cost-effective than filling an empty area.

You might be needing following equipment for your ghost kitchen:

• Kitchen equipment:Ovens, stoves, ranges and ventilation, refrigerators and freezers, dishwashers, and other kitchen appliances.
• Cooking appliances:Cooking utensils include pots, pans, a gas and an electric grill, cutting boards, knives, pasta cookers, filters, spoons, and other items.
• Operating equipment:Countertops, prep tables, washing equipment, steam tables, cold food tables, etc.
• Others - You also need other required equipment based on your servings, such as mixers, shakers, ice makers, etc.

Quick Tip:Make sure you spend money on multi-functional kitchen appliances while searching for the best ones to save money and space.

Equipment for your ghost kitchen is among the most crucial investments while starting your ghost kitchen, so don't compromise on quality and get the best and high-quality equipment for your start-up business.

4. Marketing and Branding

You have everything on board to get started with your ghost kitchen. But if you are not putting in consistent efforts for marketing and branding, then your business won't be getting the required visibility and awareness - leading to lesser customers and revenue.

So, make you put in the hard work for creative marketing and branding for your ghost kitchen business. While some conventional dining establishments can get away with little marketing, ghost kitchens, and other delivery-only businesses will need to invest in getting known online, on social media, and on third-party delivery app markets.

Potential marketing expenses consist of the following:

• Email marketing and public relations
• Branded merchandise
• Paid digital advertisements and promotions
• A sophisticated website
• An aggressive social media presence

Marketing costs typically range between 3% and 6% of a restaurant's sales, and it's critical to maintain track of spending so that loyalty schemes and competition for likes and retweets don't eat up all of your revenues.

5. Start-up Capital and Contingency Funds

Estimating the cost of start-up capital and contingency funds is crucial when starting a ghost kitchen business.

Start-up costs: Start-up costs typically include the funds that you need to cover various expenses and ensure the business becomes profitable. It includes savings, personal loans, or lines of credit that provide the necessary capital for initial investment and ongoing operations for your ghost kitchen business.

The specific amount required for start-up capital can vary widely depending on factors such as the size of the ghost kitchen, location, equipment needs, marketing expenses, and other staffing requirements. A ghost kitchen's average staffing cost is around $5000 to $10000.

Contingency Fund: In addition to start-up capital, having contingency funds is equally important. These funds can conveniently handle unforeseen circumstances, emergencies, or unexpected expenses that may arise during the early stages of the ghost kitchen's operations.

While there is no one-size-fits-all answer, a common recommendation is to allocate around 10% to 20% of the total start-up capital as a contingency fund

You can use these contingency funds to cover any unexpected cost overruns, equipment repairs or replacements, marketing adjustments, or fluctuations in demand.

6. Technology

In this tech-driven world, where streamlining digitally is more important than ever - you need to get your hands on the best technology for your ghost kitchen business. It can help you streamline your operations and offers you a competitive edge while offering a satisfied user experience and higher revenues.

But you need a considerable amount of money to install and operate with all these technologies for your ghost kitchen business.

Here's everything you will need for your ghost kitchen and the associated costs to start a ghost kitchen:

• Point of Sale (POS) System:You will surely need a best-in-class POS system for order management, tracking sales, and generating reports, and it costs around $1,000 to $10,000.
• Kitchen Display System (KDS): A KDS helps manage and display incoming orders in the kitchen, improving order accuracy and efficiency. The cost can range from $500 to $2,000 or more.
• Online Ordering and Delivery Platforms: Utilizing online ordering platforms and delivery aggregator services is also important, and the costs include transaction fees, commissions, and subscription fees and will cost you around $100 to $500 or more.
• Inventory Management Software:For effective inventory management software, you might also need a top-notch inventory management system that helps track and manage inventory levels, ingredient usage, and reordering. It will cost you around $100 to $500 per month.

7. Food Costs

Apart from getting the best utilities, equipment, and tech for your ghost kitchen business, you also need to spare costs for food supplies as well. To calculate food cost percentage for a restaurant, you can follow these steps:

Start by determining the total cost of all the food supplies purchased during a specific period, such as a week or a month.

Next, calculate the total sales generated by your restaurant during the same period.

Divide the total cost of food supplies by the total sales and multiply the result by 100 to calculate the food cost percentage.

To put in basic numbers, most restaurants expect to spend around 28% to 35% of their total sales on food, based on prime expenses. But, make sure to always keep the balance between labor, food cost, equipment, and delivery. The majority of ghost kitchens offer simple and focused menus to reduce their main costs.

Also, you should maintain the best relationship with your suppliers and find suitable backup plans for those who will handle your supplies in case your existing supplier can't deliver for some reason or the other.

And to properly manage your inventory through the best possible POS system - which offers real-time alerts and keeps you updated throughout.

The guide to calculate food cost percentage for a restaurant

8. Organizational Costs

Organizational costs in the ghost kitchen business come with so many different things which lead to a successful operation. These costs include management expenses, management costs, and all the logistics involved in producing and delivering the orders. You need to keep around 30% of your total restaurant revenue for organizational costs.

To ensure the best possible results for your ghost kitchen business, you need to hire experienced kitchen managers and marketing experts who can align with your vision and tackle the unique challenges the delivery-only sector poses while ensuring seamless operations.

Also, you need to cope with other miscellaneous organizational expenses- such as equipment maintenance and repairing, returning orders, wastage of food or other materials, etc. Not much, but these also take up costs from your total revenue, so keep that in mind.

9. Franchise Fees

There are different business models when you are looking to start a ghost kitchen. You can even go for an individual one, but franchises are also good options to choose from, as they are already popular, and you don't have to put much effort into marketing. But, as you might know - good things come at a price, and so does franchise ghost kitchen.

If you are looking to start a franchise ghost kitchen, you need to pay the franchise fees and royalty to the parent brand.

Franchise costs in the ghost kitchen industry vary widely depending on the brand, market demand, and geographic location. Franchise fees of different companies vary based on their customers and popularity in the market.

And ongoing royalties are usually calculated as a percentage of sales, typically ranging from 4% to 8%. In a franchise model, you also need to consider other expenses, such as marketing or technology fees.

Quick Tip:Before getting started, we advise you to consider all the available options, thoroughly review the franchise agreement, and assess the potential return on investment before committing.

10. Premise Cost

When you are just starting up your ghost kitchen business, you also need to consider the premise costs - which include whether you are renting a space or buying one. While starting up, renting a location is often the preferred option for restaurant owners due to the flexibility it offers, especially when operating within a predefined budget. Plus, we also recommend the same - as you can invest those extra dollars on other crucial things for your business.

• Renting Premises: The monthly rental cost of ghost kitchen premises can vary depending on factors such as location, size, and demand. On average, rental costs can range from $1,000 to $5,000 or more monthly. However, specific prices will depend on the local market conditions, area, and space allocated. It is important to carefully review the lease documents and understand the terms and conditions when setting up a ghost kitchen.
• Buying Premises: The same goes for the cost of buying the premises, and you can expect to pay thousands or millions of dollars to buy the premises to set up your ghost kitchen, depending on the space, area, and market conditions. It's important to conduct thorough market research and seek professional guidance to determine the specific costs associated with buying a property for your ghost kitchen.

11. Packaging costs

While starting up a ghost kitchen, you also need to decide on the packaging costs as customers nowadays are quite concerned about the packaging as well. Make sure to keep the packaging unique, eco-friendly, and convenient for the customers.

But packaging also affects the total cost while starting up. Here are some common packaging materials and their estimated costs:

• Food Containers: The cost of food containers depends on the material, size, and quality. Plastic cups will cost you around $0.10 to $0.50 per unit, while eco-friendly or specialty containers are more expensive and could range from $1 to $4 per unit.
• Beverage Cups and Lids: The cost of disposable paper cups may cost around $0.15 to $0.30 per unit, while reusable or branded cups will cost you around $0.50 to $2.
• Utensils and Cutlery: A basic set of disposable plastic utensils may cost around $0.05 to $0.20 per set, while compostable or premium utensils will come at a price range of around $0.50 to $1 per set.
• Packaging Wraps and Films:While choosing packaging wraps and other packaging materials, it's essential to consider food safety, insulation, and presentation when selecting packaging wraps and films. Basic plastic wrap may cost around $0.02 to $0.10 per square foot, while specialized insulated films for hot or cold food items may range from $0.10 to $1 or more per square foot.
• Delivery Bags and Carriers:The cost of delivery bags and carriers can range from $10 to $50 or more per unit, depending on the size, insulation, and features. Thermal bags are designed to maintain food temperature during delivery and generally come at a higher price point than regular delivery bags.

To get high-quality materials at the best rates, you must research various suppliers, compare prices, and consider the right ones that align with your budget and brand's standards.

12. Staffing Cost

Wages and payroll taxes account for a sizable chunk of the whole cost. According to recent studies, the typical hourly wage for cooking staff in ghost kitchens is roughly $12 to $15, with managers and supervisors earning $25 per year.

Furthermore, the legislation mandates that companies pay a payroll tax, which covers Social Security, Medicare, and unemployment insurance, at a rate of roughly 7.65% of their employees' income.

The cost of employee salaries and payroll taxes varies depending on the size and nature of the ghost kitchen. For instance, a small kitchen that employs part-time workers can have cheaper labor costs than a large kitchen that employs full-time workers and runs around the clock.

Similarly, the cost of payroll taxes may vary depending on state and municipal tax rates. In addition to paying payroll and staff taxes, you also need to spend money on providing benefits like health insurance, paid time off, and bonuses to the staff as incentives and extras.

13. Inventory Costs

When calculating the total costs of a ghost kitchen, it is crucial to include inventory costs. Managing inventory efficiently can significantly impact the bottom line.

Proper inventory management involves:

• Estimating ingredient costs.
• Considering shelf life and perishability.
• Accounting for seasonal variations.
• Optimizing packaging expenses.

On average, getting the high-quality inventory, along with its proper storage and management - will take up around $500 to $2000 from your total start-up ghost kitchen expenses.

If you are looking to streamline inventory management further and save up on the costs of a ghost kitchen, make sure to choose the best Point of Sale system. A suitable POS system can help you track ingredient usage, evaluate real-time stock levels, generate precise sales reports, forecast demand, and automate the reordering process.

By leveraging the data and insights a POS system provides, ghost kitchens can make informed decisions, prevent stockouts and overstocking, minimize waste, and ultimately reduce inventory costs.

14. Insurance Cost

Another crucial consideration while starting a ghost kitchen is the insurance cost. When starting a ghost kitchen, you'll need to be safeguarded against legal claims and damages, just like any other business.

Employee injuries, workplace violence, and even consumer claims of food poisoning are included in the general legal claims and damages.

Since you aren't directly serving customers, your insurance expenses will be lower than those of a traditional brick-and-mortar restaurant. However, your staff will still be working around the fire, sharp objects, and slick surfaces - so you will need some insurance for your business. When establishing kitchen procedures and rules and training staff, keep accident prevention in mind.

Here are some of the insurance you will require for your ghost kitchen business:

• Worker liability insurance
• Property insurance
• Workers compensation insurance
• Food borne Customer illness
• Others

Work with an insurance agent who is experienced to determine the types of insurance you require and its costs as well.

15. License & Permit Cost

Every restaurant business needs licenses and permissions to get started and ensure smooth operations, regardless of whether you are running a physical or ghost restaurant.

These legal standards differ from one location to the next, so restaurant operators should check with their local regulatory authorities. A typical restaurant must have the appropriate permits, including a food service license, liquor permit, food handler permit, certificate of occupancy, architectural health permit, live entertainment license, music license, and more.

Owners of ghost kitchens have an advantage over other restaurant enterprises in this situation. As ghost kitchen owners typically require lesser licenses as you are not offering dining facilities to your customers.

However, to avail the required ones for your ghost kitchen and to ensure no problems later on, it is recommended to consult a professional to look after it and get it done within no time.

Conclusion

So, here's a wrap on a comprehensive ghost kitchen checklist for costs - a deep dive into the world of ghost kitchens and all the costs involved in starting one.

Starting a ghost kitchen can be an exciting and lucrative venture, but (being a budding entrepreneur), it's crucial to know what it takes to get started.

We've explored everything - right from how much it costs to start it (with estimated numbers) followed by operational costs and even the cost for a location (basis on per sq ft). On top of it, we even managed to add up to 15 top factors affecting the cost while starting a ghost kitchen business.

Whether you're a seasoned restaurateur exploring new avenues or a passionate food entrepreneur venturing into the industry for the first time, a ghost kitchen can be a game-changer.

With lower overhead costs, increased efficiency, the ability to reach a wider customer base, and the best POS system - the potential for success in this industry is limitless.

So, order your favorite meal, research well and bring your culinary vision to life in the world of ghost kitchens. With that new unique concept, your high entrepreneurial spirit, and that image of a financial expert, you'll be well on your way to serving up delicious meals and satisfying the cravings of customers in the comfort of their own homes.