From: alexhormozi
Self-serve frozen yogurt stores typically generate about $2,100 per day by selling approximately 500 cups, each weighing eight ounces [00:00:00]. This business model, which an entrepreneur almost started instead of a gym, offers significant insights into consumer psychology and business strategies [00:00:07].
Business Overview and Profitability
Frozen yogurt stores average between 800,000 in annual revenue [00:00:41]. For a store doing over 328 a day in owner pay [00:00:51]. Margins generally range between 10% and 15% [00:00:56]. For example, the average Menchie’s owner takes home around $93,000 annually [00:00:58].
Running a frozen yogurt store involves various hard costs, including perishable ingredients like strawberries, machine maintenance, yogurt supplies, and prominent retail leases with good signage, foot traffic, and parking [00:01:04].
Franchise Model
Franchises typically collect about 6% of top-line revenue, which can account for 60% of a franchisee’s take-home profit if running on 10% margins [00:01:21]. Franchisors often structure fees to ensure franchisees make just enough to continue operating, possibly opening more locations, but not to become wealthy [00:01:37]. Their goal is to significantly beat the stock market’s return on capital, aiming for 20-25% returns [00:01:48].
While franchises theoretically offer savings through bulk purchasing for items like yogurt, fruit, spoons, and cups across 200+ locations, they often upcharge franchisees on these same items to make a profit [00:02:04].
Cost Structure of Products
The average cup size purchased is eight ounces [00:03:12]. Consumers typically split their cup with 25% toppings and 75% yogurt [00:03:16]. It’s more profitable for store owners to have more yogurt in the cup because toppings are more expensive [00:03:21].
- Toppings: Cost between 10 and 40 cents per ounce [00:03:26]. Stores charge between 25 and 60 cents per ounce [00:03:29]. Some toppings, like fruit, can cause the store to break even or lose money [00:03:34].
- Yogurt: Costs about eight cents per ounce [00:03:38]. Stores charge 50-60 cents per ounce, where the main profit margin lies [00:03:42].
Industry Landscape and Competition
Brands like Golden Spoon, Yogurtland, Menchie’s, and Pinkberry are largely commoditized, with little difference between them [00:04:09]. This has been a poorly competed marketplace, driven by franchisors focused on selling locations rather than building strong brands [00:04:17]. There is no “Chick-fil-A” of the yogurt world, indicating an opportunity for a dominant brand [00:04:25].
Despite the commoditized nature, significant potential exists for businesses to excel by simply out-competing the status quo [00:04:31]. Observations of typical frozen yogurt stores show issues like sticky floors, messy chairs, strewn sample cups, inattentive staff, and out-of-order machines [00:04:40]. Being better than the bottom 25% often suffices to be profitable [00:04:57].
Psychological Strategies in Self-Serve Frozen Yogurt
Frozen yogurt stores, particularly self-serve models, employ subtle behavioral psychology tactics to influence consumer spending.
1. Pricing by Weight: Consumer Accountability
Unlike traditional ice cream, which is sold by cup size, frozen yogurt is priced by weight [00:05:05]. This strategy shifts accountability to the consumer; if a cup costs $7, the customer is more likely to blame themselves for filling it up than to perceive the store as expensive [00:05:11]. This element of control makes consumers bear some responsibility for their final cost [00:05:28].
2. The Power of the Default Option: Cup Size
Frozen yogurt stores often remove or de-emphasize small cup options, leaving only medium and large sizes [00:05:36]. When given a larger cup, people tend to fill more of it, perceiving the larger size as the standard [00:05:54]. This leverages the “power of the default option,” where customers are encouraged to choose a higher-value option simply because smaller alternatives are not readily available or visually appealing (e.g., a small amount of yogurt in a large cup looks odd) [00:05:58]. This strategy increases the amount of yogurt purchased without the store directly taking blame [00:06:23].
3. Strategic Item Placement: Maximizing Profit
The layout of self-serve lines follows a principle similar to buffets, presenting items in reverse order of cost to the store [00:06:36].
- Yogurt First: Customers first encounter the yogurt, which has the highest profit margin for the store [00:06:55].
- Dry Toppings Next: Mid-cost dry toppings like crumbled Oreos follow [00:06:58].
- Fresh Fruit Last: The most expensive and perishable items, like fresh fruit, are placed at the end of the line [00:07:02].
This order encourages customers to fill their cups with high-margin yogurt first, leaving less room for the more expensive toppings and ultimately maximizing the store’s profit on each sale [00:07:06].
Customer Acquisition and Marketing
For low average ticket items like yogurt, profitable customer acquisition often relies on word-of-mouth or affiliate partnerships [00:07:37]. While Google search ads were once cost-effective, they are now too expensive for most frozen yogurt businesses [00:07:53]. Success hinges on product quality and customer experience [00:08:04].
Strategies for Customer Acquisition
- Exceptional Experience: Creating an overwhelming, immersive experience with abundant options (e.g., floor-to-ceiling candy, a wide selection of flavors) encourages customers to fill more [00:08:07].
- Community Partnerships: Collaborating with local universities, fraternities, and sororities for competitions can drive significant foot traffic [00:08:33]. This can be replicated with companies and affiliations [00:08:52].
- Incentivized Data Capture: Offering discounts (e.g., 50% off) for joining a text list allows for cost-effective lead acquisition and ongoing customer engagement for repeat business [00:09:04].
- Word-of-Mouth Promotion: Beyond having a good product, actively asking and encouraging customers to leave reviews and share their experience can dramatically increase referrals and growth [00:10:55].
Lessons for Business Owners
Insights from the frozen yogurt business offer broader applicability:
- Customer-Controlled Pricing: When possible, allow customers to pick their own pricing by usage. They are more likely to blame themselves for overspending than the business [00:09:30].
- Highlight Profit Centers First: Present the most profitable items or services first to maximize initial spending [00:09:44].
- Offer More Options: For products or services with sampling, a greater variety encourages more consumption and purchases [00:09:53].
- Leverage Foreclosures: For new businesses, consider buying equipment from failed ventures via foreclosure sites (e.g., rasmus.com) to significantly reduce startup costs [00:10:00].
- The Power of Default: Strategically setting default options (e.g., larger serving sizes) can subtly increase customer spending [00:10:24].
- Prioritize Organic Customer Acquisition: For low-cost consumer products, paid advertising is often unprofitable. Focus on word-of-mouth (referrals) and affiliate marketing [00:10:38]. This involves both having a great product and actively prompting customers to share it [00:10:55].
NOTE
When launching a new business, if it’s not radically new, there’s a high chance a similar business has failed. Their equipment can often be acquired for a fraction of the cost from foreclosure sites, drastically cutting startup expenses [00:10:00]. For example, three frozen yogurt franchises that went under had their entire store contents available for as little as $20,000 [00:02:46].