Opening a frozen yogurt shop can be a fun and rewarding small business opportunity. Although the initial frozen yogurt craze has cooled down from its peak, frozen yogurt continues to grow in popularity as a healthier alternative to ice cream.
Starting a frozen yogurt business can be a sweet business opportunity. However, starting a successful frozen yogurt business requires more than just a love for this delicious treat. It involves careful planning, understanding the market, and equipping yourself with essential entrepreneurial skills.
In this guide, we are here to walk you through the important parts of setting up your own frozen yogurt shop.
The frozen yogurt industry consists of shops, kiosks, and other outlets that primarily sell frozen yogurt and frozen yogurt-based treats like smoothies, parfaits, and frozen yogurt pies and cakes. Most frozen yogurt stores utilize a self-serve model, where customers can customize their order by choosing flavors and toppings. The self-serve format has become predominant in recent years, requiring less staffing and enabling consumers to control portions. Full-service shops with employees serving customers over the counter still persist but are less common today.
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Frozen Yogurt Industry Summary
The frozen yogurt craze started in the 1980s and quickly became a favorite for those looking for a healthier option to ice cream. The popularity of froyo has come from the fact that this treat is lower in fat and higher in protein than ice cream.
Over the past five years, the frozen yogurt industry has experienced a market correction after a period of rapid expansion. The number of shops grew quickly as the trend caught on, resulting in oversaturation in some markets. As the initial craze subsided, underperforming locations started to close down. Industry revenue has declined an average of 8.7% annually for the past five years to $654 million in 2022. The market is expected to stabilize over the next five years as the number of shops reaches a sustainable level. Projected annual revenue declines will slow to around 3% over the next five years.
Several trends are shaping the frozen yogurt industry. Self-serve models, where customers can customize their yogurt with different flavors and toppings, have become increasingly popular. There’s also a growing demand for vegan and dairy-free options, catering to health-conscious consumers and those with dietary restrictions. Additionally, people are increasingly looking for options that come from plants, like almond and coconut. They are also enjoying flavors that change with the seasons, giving them something new to look forward to throughout the year.
The industry faces competition from frozen yogurt franchises such as TCBY, PinkBerry, Yogurtland, and Red Mango, making it difficult for independent shops to compete.
Steps To Start A Frozen Yogurt Shop
Ready to get started? Check out the following steps, from market research to funding, and more, simplifying the start-up process for you. Let’s turn that dream into reality!
Step 1: Research the Market
It’s tempting to just get started, but before you jump in headfirst, it’s important to do some research and check out if people in your area are eager to buy what you plan to sell. We’ll look at some important elements, such as customer demographics, assessing local market demand, and identifying competitors in the area. With these strategies in place, you can make sure that your business will have the best chance of success. So let’s get started!
Analyzing target customer demographics
The first item we want to look at is whether a frozen yogurt business will meet the needs of customers in your area. Identifying the right demographic for your yogurt business is a core part of understanding the local market, which helps with other tasks like determining pricing levels and promotional strategies that will attract customers.
To get started, identify the age, gender, location, or income of your target demographic. This will help you understand who is likely to purchase your yogurt and tailor marketing campaigns accordingly. When it comes to a yogurt shop, you want to find out what age groups would typically eat this type of food. Are there any college campuses or gyms nearby that may attract a particular demographic?
Additionally, researching consumer preferences within this demographic can help you determine what kind of menu items they may be interested in so that you can create products specifically for them. Census Bureau data or resources from your local economic development office can help.
Assessing local market demand
Next, we want to look into the potential market demand for this new yogurt business. To gain insights, entrepreneurs should consider asking people what they think. this can be done by distributing surveys online, through social media, or directly in areas where you plan to set up shop. Find out how often they visit yogurt shops, what their favorite flavor is, and what prices they prefer. This step will give you an idea of the price range for your menu and, thereby, concoct a formula for arriving at a profitable pricing range.
Also, depending on the size of your area, tools like Google Trends can also be used to gauge the general interest in frozen yogurt in your area.
By taking these steps, you can assess whether there is sufficient need for a new frozen yogurt business in the local market before investing in launching it.
Identifying competitors in the area
Last, it is important to understand the competition in your area. Knowing who you’re up against will help inform your marketing strategy and give you an edge in a crowded market. Here are some tips for assessing the competition.
Begin by researching local competitors through online directories and business registration records. When considering competitors, you aren’t looking at just other frozen yogurt businesses. You should also be looking at other related businesses like ice cream shops and other dessert-related businesses. This research can provide detailed information on what type of yogurt businesses and other indirect competitors already exist in your area, including the size of their operations, products offered, pricing structures, customer service offerings, and other details that will help you better understand who you’ll be competing with.
Compare product offerings between your competitors to identify weaknesses or strengths that could set your business apart from the rest. Look at pricing levels and promotional strategies to determine how competitive they are in terms of cost savings or discounts; this can also give you an idea of how much margin exists within the market. Additionally, assess customer service levels among competitors; if their customer service is lacking in any way or if customers have had negative experiences with them in the past, this could be an opportunity for you to differentiate yourself from them by offering superior customer service.
Analyzing competitors’ marketing strategies can provide valuable insight into how much market share they have and what tactics they use to reach their target audience. Additionally, look at their loyalty programs; if customers are more likely to return due to rewards or discounts offered by a competitor’s loyalty program, then yours should match or exceed these perks in order to remain competitive.
By performing research on local competitors and comparing product offerings, pricing levels, customer service standards, marketing strategies, and loyalty programs, you can learn how to stand out from the competition.
Step 2: Write a Business Plan
After tackling market research, the next step in starting your frozen yogurt business should be to write a business plan. The business plan will make you focus on some important aspects of the business, such as who your customers are, how you plan to reach them, competitors, projecting sales and expenses, and more.
Not only will a bank require you to have a business plan if you need financing, but multiple studies have shown that having a good business plan increases the odds of starting a successful business. Writing the plan helps you to think through all the aspects of the business and then serves as a guide as you begin.
If bank funding is needed, there are a few areas of the business plan to pay particular attention to. These include:
Market analysis: This section should highlight why your frozen yogurt business will succeed. Include information about your target audience, market size, trends, and competition. Show how your business stands out from the competition and addresses a distinct customer need or preference. Lenders want to see that you understand your market and have a strategy to capture it.
Management team: The success of any business often hinges on the people behind it. In this section, introduce your management team, including the owners, and highlight their skills, experiences, and roles in the business. Lenders look favorably on a competent, committed, and experienced team, as it increases the likelihood of business success.
Location: The location of your frozen yogurt business can significantly impact its success. Discuss why your chosen location is ideal, considering factors like foot traffic, proximity to schools or parks, local demographics, and competition. Lenders want to see that your location enhances your business’s visibility and accessibility to your target customers.
Financial projections: Lenders pay close attention to the financial projections section. Here, you should provide details about your revenue streams, cost structure, profitability, and cash flow. Use conservative estimates and be ready to justify them. Lenders want to see that your business can generate enough profits to repay the loan.
Related: How to write a business plan
Step 3: Source Funding
One of the most significant steps in starting a frozen yogurt business, as it is for most businesses, is ensuring you have the necessary funds. Having your finances in order before proceeding with other steps is a good idea in order to avoid unnecessary hiccups along the way.
Let’s talk about where you can get the money to kickstart your frozen yogurt business:
Personal savings: Personal savings are the first source of funding for most small businesses. It’s a straightforward way, but sometimes, your savings alone might not cover everything. If that’s the case, don’t worry. There are other ways to secure the funds you need.
Bank loans: A very common source of funding for a new business is by taking out a loan from a bank. Generally, banks want to see that you are serious about your business. This means you should be prepared to typically invest between 15% to 25% of your own money into your business idea. They’ll also look at your credit score and what you can offer as collateral (like a house or a car).
If a bank considers the loan too risky, they may use a Small Business Administration (SBA) loan guarantee to offset this risk.
Friends and family: Friends and family can be a source of funding, especially if they believe in your vision. It’s important to treat these transactions professionally and put all agreements in writing to avoid misunderstandings down the line.
Microloans: If you find that banks are not an option and you only need a small amount of money to get started, microloans could be your answer. A nice benefit to some microloan organizations is that they also offer business training to help you succeed.
Local investors: In some cases, there are individuals in your local area who are interested in helping out new businesses. However, keep in mind that finding such investors can be tough, as they usually look for businesses that have the potential to grow quickly.
Step 4: Acquire the Location & Purchase Equipment
After a whole lot of planning and securing the financing, it’s time to turn your frozen yogurt shop dream into a reality. Acquiring the right property and setting up your shop properly are critical next steps.
Once you have nailed down your funding, it’s time to find the perfect spot for your frozen yogurt shop. When looking for a retail space, finding a location that is convenient to your target customer is important. Ensure the property is zoned for food service businesses before signing a lease, as rezoning can cause delays.
Once you’ve secured the ideal space, you’ll want to sketch out the layout and design of your shop to make it efficient and customer friendly. Consider the flow of traffic from the entrance to the counter, topping bar, seating area, and exit. The kitchen space should allow for easy movement and efficient preparation of your products. Serving areas should be designed for quick service and cleanliness, while seating areas should be comfortable and inviting.
With the layout taken care of, it’s time to purchase all the necessary equipment like frozen yogurt machines, freezers, refrigerators, blenders, topping bars, seating areas, etc. Depending on the condition of your property, you may need to bring in commercial electricians, plumbers, and contractors for buildout and renovations. These professionals can help ensure your space meets all health and safety regulations, is properly wired for your equipment, and has the necessary plumbing for cleaning and sanitation.
Related: Choosing a business location
Step 5: Register the Business
Starting a frozen yogurt business involves several legal steps. By choosing the right business structure, registering your business name, and obtaining the necessary licenses and permits, you can ensure that your business is set up correctly from the beginning.
The requirements will vary by state, but here is a general overview.
Business structure: When starting a frozen yogurt shop, the first thing you’ll need to do is choose from and form a business structure to register your company. The four main options are:
- Sole proprietorship: You operate as an individual with no formal business structure. This is the simplest and cheapest option, but you have unlimited personal liability.
- General partnership: Two or more owners share management responsibilities. Like a sole proprietorship, partners have unlimited personal liability.
- Corporation: A separate legal entity from owners. Corporations limit owners’ personal liability but have more complex regulations.
- Limited Liability Company: An LLC is a hybrid legal structure that combines aspects of the first three. LLCs are popular because they provide personal liability protection without the complexities of a corporation.
Related: Comparison of business structures
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
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Business name registration: After registering the business structure, you may need to register your business name. This process will vary depending on what business structure you pick. Sole proprietors and partnerships will often be required to register a “Doing Business As” (DBA), while corporations and LLCs register with the state during the formation process.
During this time, it’s also a good idea to check if the name you want is available as a web domain, even if you’re not ready to set up a website yet.
Obtain business licenses and permits: Depending on your location, there will likely be a variety of general licenses or permits needed before opening. This could include a business license, seller’s permit, retailer’s permit, and Employer Identification Number (EIN).
Related: State guides for general business licensing
Health department permits: Dealing with food will typically require taking a class on food safety and licensing to handle food, which is typically administered by the local health department. In addition, the health department will randomly inspect your business to make sure everything is up to code.
Step 6: Source Suppliers
It’s not uncommon to have already informally begun to research suppliers by this stage, but the next step is to make it official and finalize the suppliers for ingredients and packaging.
Before you begin approaching suppliers, make sure your business is fully registered. Why? Suppliers generally won’t discuss pricing or set up accounts with you until they know you’re a legitimate business.
There are a number of ways to find suppliers. The International Frozen Yogurt Association has a list of suppliers, you can also attend trade shows, or even talk to owners of shops outside of your area for recommendations.
When evaluating suppliers, look for those that seem interested in your success. The good suppliers can give you advice, help solve problems, and support your business’s startup and growth.
Step 7: Hire Employees
A good yogurt shop likely isn’t going to be able to operate with just the owners, so in this next step, we want to look at hiring staff. When it comes to hiring employees for your frozen yogurt business, preparation is key. You’ll commonly need staff for roles like cashier or shift manager. But before you put up that “Now Hiring” sign, there are some legal steps you need to take as an employer.
EIN: Get an Employer Identification Number (EIN) from the IRS. It’s like a social security number but for your business. You’ll need it for tax reporting.
Employment eligibility: Make sure anyone you hire is legally allowed to work in the U.S. You’ll usually verify this with documents like a social security card or a work permit.
State reporting: You’ll need to report your new hires to your state’s directory within a certain timeframe. Each state has different requirements, so be sure to check your state’s regulations.
Worker’s compensation: Most states require you to have this in place. It provides benefits to employees who get hurt on the job.
Labor laws: Be aware of minimum wage, overtime, and other labor laws. This keeps you out of legal trouble and ensures fair treatment for your workers.
Related: Hiring your first employee
Step 8: Create a Marketing Strategy
Thinking “If you build it, they will come,” could set you up for failure. It’s important to have a plan in place to promote your business before you open and continue to do so after.
There are several strategies that have proven effective in the yogurt industry. One of the most popular ways to kickstart a new shop is by holding a grand opening, where you can offer samples of the different types of frozen yogurt you sell. This not only attracts customers but also gives them a taste of what they can expect from your shop. Don’t forget to contact your local newspapers, radio stations, and television stations, as they often are looking for local events to talk about.
Taking advantage of social media platforms like Facebook and Instagram is a great way to market your business. Social media allows you to reach a large audience, engage with your customers, post daily specials, share behind-the-scenes looks, or even create interactive polls to engage your audience.
Another strategy is implementing a loyalty program. By offering a reward card to each person who purchases from your shop, you encourage repeat business and build a loyal customer base.
Claiming your business on relevant online business directories, like Google Business Profile, can enhance your online presence. This helps potential customers find information about your shop easily, such as its location, hours, and reviews.
Finally, joining your local chamber of commerce can provide networking opportunities and resources to help your business grow.
Step 9: Prepare to Open!
So, you’ve done your research, secured funding, found a location, and hired a team. Before you can open your doors, there are still some final steps to consider. This list isn’t exhaustive, as every business will have different needs, but it covers many of the final touches you’ll need to put on your frozen yogurt business before you can welcome your first customers.
Business insurance: This is a must-have to protect against risks. This coverage might include property insurance, general liability insurance, and worker’s compensation insurance.
Bank account: Opening a separate bank account for your business helps keep your personal and business finances separate, making bookkeeping and tax preparation easier.
Setting pricing: Set competitive pricing for your products by researching what other local frozen yogurt shops charge and considering your costs.
Credit card processing: If you aren’t using a POS, you should still be set up to accept credit cards. This typically involves choosing a credit card processor and purchasing the necessary equipment. Popular services include Square or Stripe.
Industry associations: Join groups like the National Frozen & Refrigerated Foods Association, the International Dairy Foods Association, or your local Restaurant Association for networking and industry insights.
Grand opening: This is the time to make a big splash. Consider special deals, fun activities, or anything else that will draw a crowd and introduce people to your shop.
Common Questions When Starting A Yogurt Shop
How much does it cost to start a frozen yogurt shop?
The total cost to start a frozen yogurt shop often ranges from $200,000 to $400,000. This includes:
Location: Leasing a retail space will require the first and last month’s rent plus a security deposit. For a storefront, that could total $5,000 to $10,000, while a frozen yogurt kiosk would be much less. Purchasing a space will, of course, increase your startup budget.
Equipment: Essential equipment like freezers, toppers, blenders, and POS systems will cost approximately $15,000 to $50,000.
Build out and renovations: Getting the space ready can cost another $20,000 to $50,000. This includes any remodeling work, electrical setup, plumbing, and design elements to make the place feel inviting.
Initial inventory: Produce, dairy, toppings, cups, spoons, napkins, etc. could be around $2,000 – $4,000.
Licensing and permits: Expect to pay around $500 to $1,500 for various local and state licenses. This doesn’t include any specialized health permits, which can add to the cost.
Marketing: Plan to spend at least $2,000 to $5,000 on initial marketing efforts. This includes a website, promotions, ads, and maybe even a grand opening event to attract your first customers.
Insurance: General liability and other policies for the first year are often around $2,000.
Another cost that isn’t included is three to six months of operating expenses. Having this extra cash on hand serves as a safety net for unexpected costs or slow business months.
How profitable is a frozen yogurt shop?
The profitability of a frozen yogurt business can vary greatly based on numerous factors, such as location, competition, and customer demand. However, to provide an estimate, we’ll use some industry statistics and common formulas used in the frozen yogurt business.
Let’s consider a small frozen yogurt shop serving approximately 100 customers per day. If the average spend per customer is $6, then daily revenue would be $600. Over a year (considering the shop operates all 365 days), this equates to an annual revenue of $219,000.
However, revenue isn’t profit. We need to account for various costs. Expenses for a frozen yogurt business can include cost of goods sold (COGS), labor, rent, utilities, insurance, and marketing. According to industry data, COGS typically represents about 40% of revenue, labor another 20%, and other operating expenses at about 15%. This means that 75% of your revenue might go towards overhead. For our example, that would be $164,250 ($219,000 * 75%).
This leaves us with $54,750.
Keep in mind that this is a simplified example, and when looking at profitability, be sure to consider seasonal fluctuations, as yogurt sales tend to be higher in the summer months and lower in winter.
What skills are helpful in running a frozen yogurt shop?
Running a frozen yogurt shop requires a mix of skills, including both technical abilities and soft skills. Here are some that can be particularly helpful:
Customer service skills: This is crucial as the success of any retail food business depends on how customers are treated. Employees should be able to communicate effectively, handle complaints, and provide a positive experience for customers.
Food preparation skills: Understanding how to prepare the yogurt and toppings, maintain hygiene standards, and manage food storage is essential.
Attention to detail: Quality checks and attention to detail are important for maintaining the consistency and quality of your products.
Business management skills: These include planning, organizing, and controlling all aspects of the business. From managing inventory to scheduling staff and maintaining the facility.
Financial acumen: Basic understanding of financial matters like budgeting, financial planning, and cash flow management can help ensure the business remains profitable.
Marketing skills: Knowing how to promote your business, attract customers, and build a strong brand can make a significant difference in the competitive frozen yogurt market.
Knowledge of health and safety regulations: It’s important to understand and comply with all relevant health and safety regulations to ensure the safety of both employees and customers.
Troubleshooting skills: The ability to diagnose and fix problems with the equipment can reduce downtime and maintain smooth operations.
What is the NAICS code for a frozen yogurt shop?
The NAICS code for a frozen yogurt shop is 722213, which is classified under Snack and Nonalcoholic Beverage Bars.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.
International Frozen Yogurt Association