Kiosk Expansion: Break-Even and Lease Risk at Cedar & Sage
Priya owns Cedar & Sage, a 40-seat café whose commissary kitchen has unused prep capacity on weekday mornings. A medical office building two miles away has offered a 12-month kiosk lease: rent $2,200 per month, equipment lease $380, insurance and permits $170, and a part-time manager at $3,150. Supplying the kiosk from the commissary adds $450 per month in prep labor and transport. The kiosk would operate 22 weekdays per month, when the building's 900 employees and patients are present, and would be closed on weekends. Priya's average ticket is $7.50, and food and beverage cost runs 32% of sales. Her traffic study, based on two weeks of door counts and a comparable kiosk in a nearby hospital, projects 55 tickets per operating day. She can exit the space lease with 60 days' notice, but the equipment lease is non-cancelable for the full year. Her current café generates enough profit to fund a modest loss for a few months, but not a large one.
1. Compute the monthly break-even volume in tickets and the break-even tickets per operating day. Based on the traffic projection, should Priya sign the lease? Show your reasoning.
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Step 1 - Separate fixed from variable costs. The lease components, the manager, and the commissary transfer cost do not change with the number of tickets sold: 2,200 + 380 + 170 + 3,150 + 450 = $6,350 per month.
Step 2 - Contribution margin per ticket. Variable cost = 32% × $7.50 = $2.40, so contribution margin = 7.50 − 2.40 = $5.10, or 68% of each sale.
Step 3 - Break-even. $6,350 ÷ $5.10 = 1,245.1, so she must sell 1,246 tickets per month (always round up, since a partial ticket does not pay a bill). Per operating day: 1,246 ÷ 22 = 56.6, or 57 tickets per day.
Step 4 - Compare to the projection. At 55 tickets per day she sells 1,210 tickets, contributing 1,210 × $5.10 = $6,171 - about $179 short of fixed costs each month.
Judgment. On the numbers as given, she should not sign, or should sign only with renegotiated terms. The projection must be beat by roughly 4% just to break even, and her evidence is two weeks of door counts plus an analogy to a hospital kiosk - thin support for a site-specific decision. The key asymmetry is contract risk: the 60-day space exit is useless if she is locked into a 12-month equipment lease, which is $4,560 of unavoidable obligation. A defensible answer either declines or counters with a 90-day trial, a cancellable equipment lease, and a rent structure tied to a percentage of sales.
2. Priya wants $1,000 per month in profit from the kiosk. What daily volume does that require? Alternatively, what average ticket would produce that profit at the projected 55 tickets per day, holding food cost at 32%?
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Volume route. Required contribution = fixed costs + target profit = $6,350 + $1,000 = $7,350. Tickets = 7,350 ÷ 5.10 = 1,441.2, so 1,442 tickets per month, or 1,442 ÷ 22 = 65.5, i.e. 66 tickets per day. That is 20% above the 55-ticket projection - a large gap to close on hope.
Price route. At 1,210 tickets, required contribution margin per ticket = 7,350 ÷ 1,210 = $6.074. With variable cost still at 32% of price, price = 6.074 ÷ 0.68 = $8.93, roughly an $8.95 average ticket. That is a 19% jump in a medical-building kiosk where customers are price-sensitive and have cafeteria alternatives; raising every price 19% would likely reduce traffic, so the math overstates what price alone can deliver.
Better synthesis. Mix moves beat price moves. If 40% of customers add a $2.50 pastry with 30% food cost, the added contribution is $2.50 × 0.70 × 0.40 = $0.70 per ticket, lifting contribution margin to $5.80. Profit at 1,210 tickets becomes (1,210 × 5.80) − 6,350 = 7,018 − 6,350 = $668 per month. That is still below the $1,000 goal, which is the real answer to the question: the target requires both an attach-rate program and a lower fixed-cost structure, not a price increase alone.
3. Identify two operating or contract changes other than raising menu prices, and quantify the effect of one on break-even.
Read the worked answer
1. Cut variable cost by shifting more prep to the commissary. If centralizing prep drops food and beverage cost from 32% to 28%, contribution margin rises to 7.50 × 0.72 = $5.40. Break-even becomes 6,350 ÷ 5.40 = 1,176 tickets, or 53.5 - 54 tickets per day - below the 55-ticket projection. Profit at projection becomes (1,210 × 5.40) − 6,350 = 6,534 − 6,350 = $184 per month. The project moves from a loss to a thin but positive result, and the cushion improves further if the manager's hours are shared with existing staff rather than added.
2. Restructure the contract to match the risk. Ask for a 90-day trial with a percentage-of-sales rent floor, and either a cancellable equipment lease or refurbished equipment bought outright. Locking $4,560 of equipment obligation against a $179 monthly shortfall is the single largest danger here; the fixed-cost commitment outlives the demand evidence.
Reasoning to state explicitly. Break-even analysis is only as good as the fixed/variable split. The commissary transfer and manager are fixed within the relevant range of roughly 1,000–1,500 tickets; if volume grew enough to need a second kiosk worker, that cost would step up and the break-even line would move.