Thursday, March 24, 2011

Lemonade Stand: a profitable enterprise?

With the first signs of spring and a T-shirt weather my daughter recollected her dream of placing a lemonade stand on the street. We have never done it before - our weekends are so packed with activities, and I (who grew up in a socialistic environment) am so uncomfortable selling anything to our dear neighbors. But I know that one day or another I have to let her live this simple dream. I am also certain that this could not be a powder-based lemonade that has that distinct chemical taste. We should go for the real thing. The question is: can this whole enterprise be profitable? I doubt that even my super nice neighbors will pay more than a $1.50 for a paper cup with a fresh home-made lemonade.

Here is a simple lemonade recipe I found on the web:

1 cup sugar
1 cup water (for the sugary syrup)
1 cup lemon juice
3 1/2 cups cold water (to dilute)

Assume that the water is free. Lemons are 3 for $1. It looks like we need approximately 5 lemons for 1 cup of lemon juice. Sugar is 2 pounds for $1.50.
9 oz plastic cups are sold 50 for $2.50.

Is it possible to make any profit with this enterprise?

Top image by Conlawprof, distributed under CCL.

Answers accepted all day long on Friday & Saturday, on our Family Puzzle Marathon. They will be hidden until Sunday morning (EST) and everyone who contributed something reasonable will get a puzzle point. Please, explain your answer.


Kim said...

Yes, there are profits to be made!

Cost of one recipe:

1 C sugar = 1/2 pound (I found via Google that there are 2C sugar/pound) so we need only 1/4 of a 2 pound bag. So at $1.50 for 2 pounds, we need only $1.50/4 or $0.375 of sugar

1 C lemon = 5 lemons at 3/$1 --> $1.67 for lemons

Cups are 5 cents each (if they are 50 for $2.50)

The recipe says it serves 6

To serve 6, we spend .375 on sugar, $1.67 and .05x6 on cups = $2.35

If we sell them for $1.50 each, we make $9

Profit per batch = $7.50

SteveGoodman18 said...

I think we can make a profit.

The given recipe is said to serve 6.

Thus, 1 serving needs 1/6 cup of lemon juice, which could be had from 5/6 of a lemon. Since lemons cost $1 for 3, each serving of lemonade costs almost 28 cents in lemons.

Sugar is $1.50 for 2 pounds. Betty Crocker and others say that a pound of sugar is about 2 and 1/8 cups. So 1 cup of sugar costs about 35 cents. And therefore 1/6 of a cup (the amount of sugar in one serving of lemonade) costs just under 6 cents.

Finally, the cup itself will cost 5 cents, so a single serving of lemonade in a cup will average out to just under 40 cents. Any sales price over that will yield a profit if all of the lemonade is sold.

Carrie said...

Yes, is the simple answer.

I made a handful of assumptions:
Sugar must be bought in 2lbs increments
2lbs of Sugar is 4cups and 4Tbsp, but we will assume 4T of waste per 2lbs for our purposes.
Cups must be bought in quanties of 50.
Lemons can be bought in single quantities.
We are selling 12 oz cups of lemonade for $1.50 each.
Recipe makes 3- 12oz cups of lemonade.

The cost of one cup of lemonade is only $0.73, but since we have to buy supplies in larger than one cup increments it is not a straight calculation of $1.50 minus $0.73 to get our profit. If we plan to sell only 3 cups of lemonade and buy resources for that our planned sales are $4.50, but our costs are $5.67, and therefore we make no money. We start make money, although only 17 cents at 6 cups, but at 7 we only break even. As you can see from my table below, as we sell more we make up to $5.83 with 12 cups sold.

Cups Profit Sales Costs
12 $5.83 $18.00 $12.17
11 $4.33 $16.50 $12.17
10 $2.83 $15.00 $12.17
9 $3.00 $13.50 $10.50
8 $1.50 $12.00 $10.50
7 $- $10.50 $10.50
6 $0.17 $9.00 $8.83
5 $(1.33) $7.50 $8.83
4 $(2.83) $6.00 $8.83
3 $(1.17) $4.50 $5.67

To answer the initial question, if the demand for lemonade is greater than 7 cups, it can be a profitable venture.

Carrie said...

Oops, just noticed that our cups are only 9oz and not 12 oz cups...that changes my calculations and my assumption as follows:

Recipe makes 4- 9 oz cups of lemonade
We are selling 9oz cups for $1.50.

Cups Profit Sales Costs
12 $4.33 $18.00 $12.17
11 $2.83 $16.50 $12.17
10 $2.83 $15.00 $12.17
9 $1.33 $13.50 $12.17
8 $3.17 $12.00 $8.83
7 $1.67 $10.50 $8.83
6 $0.17 $9.00 $8.83
5 $(1.33) $7.50 $8.83
4 $0.33 $6.00 $5.67
3 $(1.17) $7.50 $5.67
2 $(2.67) $9.00 $5.67

We could make 33 cents at 4 cups, and then become profitable again at 6 cups...with profits as much as $4.33 at sales of 12 cups. Still not bad for a afternoon of fun for a child.

Donna said...

You don't mention how much lemonade the recipe makes, but estimating based on liquid amounts, I would guess you could get 6 cups of lemonade out of 1 recipe. If you sell for $1.50 each, that would be $9.00 in sales. Given that a 2 lb bag of sugar should cover a few batches of the lemonade, and that you will only purchase the pack of cups once, you could definitely make money selling the lemonade for that much. You would spend $6 for 6 lemons, 1 bag of sugar, and 1 pack of cups.
On a side note, I did this with my kids when my son was in middle school (he is now a senior in high school) and he wanted to make a movie which required material to make costumes. Rather than just buy the fabric for him, I suggested they sell lemonade and use the money they earned to buy the material. I didn't worry so much about the cost of the materials; I looked at it as a lesson in taking initiative and fostering creativity. They did earn enough selling lemonade at $.50 a cup to buy most of the materials they needed, and in exchange for a producer credit on the end product, I chipped in a little money as well. :)

anne-marie said...

This is what I found.
With this recipe, 44ounces of lemonade can be made.
The price of 5 lemons is $5/3.
The price of the cup of sugar is $3/8
The price of a cup is $0.05

To make 44 ounces of lemonade, it will cost 5/3+3/8
to make a cup of 8 ounces, it will cost around 37 cents
We need to add the price of a cup and a cup of lemonade costs 42 cents to make.
If the minimum price per cup is more than 42 cents, the person is making profit as long as this person cleans his/ her own mess and do not take into acoount any gaz prices...

Bean said...

Yes. A batch makes about 5 1/2 cups (I'm not counting any volume from the sugar), so 5 1/2 8 oz. glasses. The big expense is $1.66 for lemons; the cup itself is $.05. To make life easy, I'll estimate 15 cups of sugar in two pounds, so $.10/batch. Even if I'm way off, the sugar is no more than $.20/batch. So a batch costs less than $2.00, but makes 5.5 cups. As long as I charge more then $.40/cup, I'm good.

And in my family, profits are even greater, as my children have a supplier who doesn't charge for materials...

kj said...

We need to calculate the cost per serving. There are two parts to this -- the cost for each cup, and the cost of the ingredients per serving.

Note: many people confuse fluid ounces (measure of volume) and avoirdupois ounces (measure of weight).
8 fluid ounces = 1 cup in volume.
16 avoirdupois ounces = 1 pound in weight.

The cost of the cups is easiest:
2.50 $/50 cups = 0.05 $/cup.

Now for the ingredients. The ingredients that cost money are sugar and lemons.

First, find how many cups of sugar are in a pound of sugar. Looking online, we find several values, ranging from 2 cups sugar/pound to 2.5 cups sugar/pound. Several sources are close to 2.25 cups sugar/pound, so we will go with that.

Find the cost of ingredients per batch of lemonade:

(1.50 $/2 lb sugar)(1 lb sugar/2.25 cups sugar) = 1/3 $/cup sugar

(1 $/3 lemons)(5 lemons/1 cup lemon juice)
= 5/3 $/cup lemon juice

Cost of ingredients in one batch of lemonade
= (1/3 $/cup sugar)(1 cup sugar/batch) + (5/3 $/cup lemon juice)(1 cup lemon juice/batch)
= (1/3 + 5/3) $/batch
= 2 $/batch

Now we need to find out what the volume is of a batch of lemonade. Kitchen science and chemistry tells us that one cup of granulated sugar dissolved in one cup of water does not give two cups of sugar water. There is space between the water molecules that the sugar molecules fill in (and also, there is plenty of space between the granules of the white sugar -- different types of sugars have different densities and dissolve differently, and the temperature of the solution affects things too). (I usually make a simple syrup by boiling one cup of water and one cup granulated sugar when I make lemonade, which helps dissolve the sugar.) At the very least, if we try to dissolve one cup of sugar in one cup of water, the resulting sugar water will be between one and two cups in volume.

Looking online, we find values that range from 1 cup sugar + 1 cup water = 1.15 cup sugar water to 5/3 cup sugar water.

Let's see what these various values for the volume of the sugar water give us for the cost per serving.

Batch size 5.5 cups (1 cup sugar + 1 cup water = 1 cup sugar water):

(2 $/batch)(1 batch/5.5 cups)(1 cup/8 fl.oz.)(9 fl. oz/serving)
= 0.4091 $/serving for ingredients

=> total cost per serving: = $0.4591

Batch size 5.65 cups (1 cup sugar + 1 cup water = 1.15 cup sugar water):

(2 $/batch)(1 batch/5.65 cups)(1 cup/8 fl.oz.)(9 fl. oz/serving)
= 0.3982 $/serving for ingredients

=> total cost per serving: = $0.4482

Batch size 6.167 cups (1 cup sugar + 1 cup water = 5/3 cup sugar water):

(2 $/batch)(1 batch/6.167 cups)(1 cup/8 fl.oz.)(9 fl. oz/serving)
= 0.3648 $/serving for ingredients

=> total cost per serving: = $0.4148

Batch size 6.5 cups (1 cup sugar + 1 cup water = 2 cup sugar water):

(2 $/batch)(1 batch/6.5 cups)(1 cup/8 fl.oz.)(9 fl. oz/serving)
= 0.3462 $/serving for ingredients

=> total cost per serving: = $0.3962

You would be able to make a small profit even if you sell the lemonade at fifty cents a cup -- but you haven't used up all the ingredients or cups. Most people would be able to use the leftover sugar, lemons, and cups, so we don't calculate a cost for the leftover supplies (you can always make more lemonade). We also don't allow for the kids to have a few samples...The cost per serving is much different if we view the cost of the batch as the cost of the ingredients we have to buy, and the cost varies depending on how many batches we make and sell.

Hmm...I just realized we may want to chill the lemonade -- either serve it over ice, or keep it chilled before serving it. If we serve it over ice in a 9 oz. cup, the serving size would be less, and we'd need to determine the cost of the ice cubes per serving.

Note that one batch of lemonade makes somewhere between 5.5 and 6.5 cups --
(5.5 cups/batch)(8 fl oz/cup)(1/9 servings/oz) = 4.89 servings/batch
(6.5 cups/batch)(8 fl oz/cup)(1/9 servings/oz) = 5.78 servings/batch

Pat said...

I fwd'd this to a neighbor who's 10 year old sells not only lemonade in the summer, but hot chocolate in the winter. The kid's an entrepreneur. All she could say was "Don;t get him started!" (She also let on that what we're buying is Crystal Delight, not the fancy stuff here.)

Let's assume that the volume of 1c sugar = 1c water. Then 8 oz sugar + 36 oz. water (1+2.5 cups) plus 8 oz lemon juice = 52 oz, or 5.778 9-oz. cups.

Per Pitcher:
8 oz. sugar = 1/4 bag = 37.5 cents
36 oz. water = free
8 oz. lemon juice = 5/3 lemons = $1.67
1/50th of a bag of cups is $0.002
totals $2.044

Per cup (divide by 5.778) = 35.4 cents per cup.

So the neighbor kid sold me a cup of lemonade. I was expecting it to cost a quarter, but it only cost a dime, so I figured "let's experiment, I'll ask for change" :)

So he runs 2 houses away to where the other kids were, there was a great deal of discussion, and then he came back to tell me he was wrong, "actually it cost a quarter". I tell you, the kid's an entrepreneur.

Maria said...

Hey all. Thank you for sharing your or neighbors' lemonade selling stories. It looks like we mostly agree that the cost of producing 1 cup of home made lemonade (excluding labor) is around 40 cents. So, if you drive around and see anything sold for less - it is powder. Real stuff costs more but it is tastier, healthier and you can make higher profits if you advertise it smarter. I think restaurants easily charge $2 and up for a glass of house made lemonade.
Pat - looks like you should have a talk with your neighbor.

I honestly never suspected that a lemonade stand could not only be a great summer neighborhood game, but also a profitable enterprise. I can't wait to try it with my daughter. Neighbors - beware!

Puzzle point for Kim, SteveGoodman18, Carrie, Donna, anne-marie, kj, Pat.

Maria said...

Carrie - congratulations on your 5th puzzle. You deserve a prize. Please email me your postal address.

tom said...

Sorry I missed it. (Wish I could find lemons here at 3/$1; ours have been 2/$1 for months But I passed on doing the "problem" as soon as I saw that labor and time were being excluded. Not pc.

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