From: alexhormozi
Frozen yogurt stores, on average, generate between 800,000 in annual revenue [00:00:41]. Despite high top-line revenue, these businesses often operate on slim margins, typically between 10% and 15% [00:00:56].
Revenue and Profitability Calculations
A typical frozen yogurt store sells approximately 500 cups a day, each about eight ounces, generating around 2,000 a day, the owner’s take-home pay might be around 93,000 annually [00:00:59]. This demonstrates the nuanced nature of revenue and profit calculations in the industry.
Cost Structure and Margin Management
Running a frozen yogurt store involves significant hard costs:
- Perishable goods: Strawberries going bad, fruit costs [00:01:04] [00:07:02].
- Equipment: Machines breaking down [00:01:06].
- Ingredients: Hard cost of yogurt [00:01:09].
- Real estate: A prominently located retail lease with good signage, foot traffic, and ample parking is essential [00:01:10].
Yogurt costs stores approximately eight cents per ounce, while they typically charge customers between 50 and 60 cents per ounce [00:03:38]. This is where the primary margin of the business exists, with margins sometimes reaching 70% on yogurt [00:03:45].
Toppings, however, cost between 10 and 40 cents per ounce and are often sold for 25 to 60 cents per ounce [00:03:26]. Stores can even break even or lose money on certain toppings, especially fresh fruit [00:03:34]. The ideal scenario for the store owner is for customers to maximize yogurt in their cup, as toppings are more expensive [00:03:21]. On average, 25% of a customer’s cup weight is toppings, and 75% is yogurt [00:03:16].
Franchise Model and its Impact
Franchises typically charge around 6% of the top-line revenue [00:01:21]. If a store runs on a 10% margin, this means 60% of the franchisee’s take-home profit goes directly to the franchisor [00:01:27]. Franchisors often structure fees to ensure franchisees make just enough to continue operating, and perhaps open another location, but not enough to get rich [00:01:37]. This strategy allows franchisors to optimize for a return on capital significantly higher than the stock market [00:01:47]. This highlights the franchise model and its impact on franchisee profits.
While franchises promise savings on bulk purchasing for items like yogurt, fruit, spoons, cups, and machines [00:02:04], they often upcharge franchisees on these same items when starting the franchise [00:02:17].
Reducing Startup Costs
A key strategy for maximizing business profits and reducing initial investment is to purchase equipment from business foreclosure sites like rasmus.com [00:02:26]. Equipment from failed frozen yogurt franchises can be acquired for as little as $20,000, which is significantly cheaper than buying new [00:02:51]. However, franchises typically restrict this practice, as selling new equipment is a profit stream for them [00:02:40].
Psychology and Consumer Behavior in Self-Serve Frozen Yogurt
The frozen yogurt industry has implemented clever psychology and consumer behavior tactics:
- Pricing by Weight: Shifting from pricing by cup size (small, medium, large) to pricing by weight allows the consumer to “pick how much they spend” [00:05:05]. This makes customers attribute overspending to their own choices rather than the store’s pricing [00:05:27]. This is a crucial element of optimizing pricing and compensation strategies and profit maximization.
- Default Option (Cup Size): Initially, Yogurtland and similar stores offered various cup sizes. When small cups were removed, customers defaulted to medium and large cups, leading to increased sales by 20-30% [00:05:36]. Consumers tend to fill larger cups because a small amount of yogurt in a bucket-sized cup looks “weird” [00:06:19].
- Order of Item Presentation: Stores arrange items in reverse order of cost to them [00:06:37]. Customers encounter the highest-margin item (yogurt) first, followed by dry toppings (e.g., Oreos), and finally fresh fruit (most expensive, perishable) [00:06:55]. This encourages customers to fill up on higher-margin items before getting to the lower-margin, more expensive ones [00:07:06].
- Nozzle Design: A potential strategy is to make nozzles “clunky” so too much yogurt falls out, subtly increasing the amount purchased [00:08:20].
- More Selection: Offering more options generally leads to customers buying and consuming more [00:02:27].
Challenges and Strategies of Running a Frozen Yogurt Store
The frozen yogurt market is largely commoditized, with little differentiation between major brands like Menchie’s, Yogurtland, and Golden Spoon [00:04:09]. This is due to franchisors focusing on selling locations rather than building strong brands [00:04:19].
To challenges and strategies of running a frozen yogurt store and outperform competitors, key factors include:
- Customer Service: Better service and cleaner stores [00:07:31].
- Selection: A wider variety of options [00:07:32].
- Experience: Creating an “overwhelming” experience, such as floor-to-ceiling candy displays [00:08:11].
Customer Acquisition
For low-average-ticket businesses like frozen yogurt, profitable customer acquisition is difficult through paid advertising [00:07:40] [00:10:40]. The most profitable strategies are:
- Word of Mouth / Referrals: This is the most important factor for high-performing stores [00:07:34] [00:10:53]. It’s not just having a good product but actively encouraging sharing and reviews [00:10:57].
- Affiliates: Partnering with other businesses that can send customers [00:07:47].
- Community Partnerships: Targeting “buckets of people” like universities, fraternities, and sororities through competitions or promotions [00:08:33] [00:08:58].
- Text List Incentives: Offering a significant discount (e.g., 50%) for joining a text list to acquire leads for future engagement [00:09:04].
Lessons for Any Business
The frozen yogurt industry offers several transferable business lessons:
- Customer-Determined Pricing: Allow customers to control their spending by paying by usage, as they often blame themselves for overspending, not the business [00:09:29].
- Highlight High-Profit Items: Present the products or services that generate the most profit first to maximize customer spending on those items [00:09:44].
- Offer More Options: For products or services with multiple components, providing more choices encourages greater consumption [00:09:53].
- Acquire Used Equipment: For new businesses, seek out failed predecessors and purchase their assets at a deep discount to significantly reduce startup costs [00:10:00].
- Leverage Default Options: Strategically remove smaller or less profitable options to encourage customers to choose larger or more profitable defaults [00:10:24].
- Prioritize Word of Mouth: For low-cost consumer products, profitable customer acquisition relies heavily on word of mouth and referrals, making it crucial to encourage sharing and positive reviews [00:10:38].