Ever since the Chile Pepper magazine was founded in 1990, the hot sauce niche has enjoyed a loyal and growing following. Hot sauce businesses make hot sauces for people who like their food with extra heat.
Since 2000, the hot sauce industry has grown by 150 percent. In 2017, the industry is forecast to bring in $1.3 billion. With the major players (i.e. Tabasco, Frank’s Red Hot and Huy Fong’s Sriracha) only accounting for one-third of the industry, there’s plenty of opportunity for smaller hot sauce businesses.
Learn how to start your own Hot Sauce Business and whether it is the right fit for you.
Ready to form your LLC? Check out the Top LLC Formation Services.
Start a hot sauce business by following these 10 steps:
- Plan your Hot Sauce Business
- Form your Hot Sauce Business into a Legal Entity
- Register your Hot Sauce Business for Taxes
- Open a Business Bank Account & Credit Card
- Set up Accounting for your Hot Sauce Business
- Get the Necessary Permits & Licenses for your Hot Sauce Business
- Get Hot Sauce Business Insurance
- Define your Hot Sauce Business Brand
- Create your Hot Sauce Business Website
- Set up your Business Phone System
We have put together this simple guide to starting your hot sauce business. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
Exploring your options? Check out other small business ideas.
STEP 1: Plan your business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What will you name your business?
- What are the startup and ongoing costs?
- Who is your target market?
- How much can you charge customers?
Luckily we have done a lot of this research for you.
What will you name your business?
Choosing the right name is important and challenging. If you don’t already have a name in mind, visit our How to Name a Business guide or get help brainstorming a name with our Hot Sauce Business Name Generator
When registering a business name, we recommend researching your business name by checking:
- Your state's business records
- Federal and state trademark records
- Social media platforms
- Web domain availability.
It's very important to secure your domain name before someone else does.
What are the costs involved in opening a hot sauce business?
A hot sauce business can be started for relatively little. Business owners need a place to make and bottle their sauce.
They can keep this expense low, however, by using their own kitchen or finding a commercial kitchen that doesn’t cost much to rent. (Owners should check with their health department to find out what the requirements for preparing sauces at home are.)
Other startup expenses include packaging and ingredient costs. These are generally low, but business owners should keep them in mind when designing their sauces. Custom packaging usually isn’t an option for owners who have limited funds. When selecting ingredients to use in a recipe, owners need to remember that fresh ingredients may taste great but can be expensive. (Also, they may not be available year-round.)
What are the ongoing expenses for a hot sauce business?
The ongoing expenses for a hot sauce business include the cost of a commercial kitchen, ingredients, and supplies.
Once a business grows, it may choose to have bottles prepared by a co-packer. This costs more than bottling yourself. Most businesses only make this transition once their volume supports co-packing, though.
Who is the target market?
A hot sauce business’ ideal customer is someone who likes hot sauces and has some discretionary income. Such a customer might be interested in trying a new hot sauce, and they’ll have enough money to pay for a premium sauce.
How does a hot sauce business make money?
A hot sauce business makes money by selling bottled hot sauce. Bottles may be sold individually to customers or wholesale to retailers. Some businesses also offer larger bottles for food service businesses.
How much can you charge customers?
Many hot sauces sell for around $5 per bottle. Some specialty ones command higher prices. They usually remain less than $10 per bottle, though.
How much profit can a hot sauce business make?
Some hot sauces businesses are extremely profitable. Businesses that get their sauce into national retailers can bring in six- and seven-figure revenues each year.
How can you make your business more profitable?
A hot sauce business can increase its revenue by offering other types of sauces and products. Many businesses also make barbecue sauces. Some sell t-shirts, hats, and other company branded items. The hot sauce niche has an almost cultish following, so these types of products can sell fairly well.
Want a more guided approach? Access TRUiC's free Small Business Startup Guide - a step-by-step course for turning your business idea into reality. Get started today!
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your hot sauce business is sued.
Form Your LLC
Read our Guide to Form Your Own LLC
Recommended: You will need to elect a registered agent for your LLC. LLC formation packages usually include a free year of registered agent services. You can choose to hire a registered agent or act as your own.
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
There are specific state taxes that might apply to your business. Learn more about state sales tax and franchise taxes in our state sales tax guides.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Open a business bank account
Besides being a requirement when applying for business loans, opening a business bank account:
- Separates your personal assets from your company's assets, which is necessary for personal asset protection.
- Makes accounting and tax filing easier.
Recommended: Read our Best Banks for Small Business review to find the best national bank or credit union.
Get a business credit card
Getting a business credit card helps you:
- Separate personal and business expenses by putting your business' expenses all in one place.
- Build your company's credit history, which can be useful to raise money later on.
Recommended: Apply for an easy approval business credit card from BILL and build your business credit quickly.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
Make LLC accounting easy with our LLC Expenses Cheat Sheet.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
Federal Business Licensing Requirements
There are federal regulations regarding what can and cannot be added to, sold as, and processed with food. Attached is a resource from the Food and Drug Administration detailing the process of starting a food business: How to Start a Food Business
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a hot sauce business. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
Certificate of Occupancy
A hot sauce business is generally run out of a storefront. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.
- If you plan to lease a location:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a hot sauce business.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
- If you plan to purchase or build a location:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for your business’ location to ensure your hot sauce business will be in compliance and able to obtain a CO.
When selling food, you will need licensing from a local health department; all establishments serving food are required to pass a health inspection. Tips for faring well on a health inspection
To avoid liability and potential lawsuits, hot sauce businesses with extremely hot sauces such as the “Flashbang” sauce at Pepper Palace should have their clients sign waivers.
STEP 7: Get business insurance
Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.
There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.
Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.
FInd out what types of insurance your Hot Sauce Business needs and how much it will cost you by reading our guide Business Insurance for Hot Sauce Business.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
If you aren't feeling confident about designing your small business logo, then check out our Design Guides for Beginners, we'll give you helpful tips and advice for creating the best unique logo for your business.
If you already have a logo, you can also add it to a QR code with our Free QR Code Generator. Choose from 13 QR code types to create a code for your business cards and publications, or to help spread awareness for your new website.
How to promote & market a hot sauce business
How a hot sauce looks will determine whether customers pick it up off a retailer’s shelf. Therefore, it’s important to think about all aspects of a hot sauce’s appearance. Everything from the color of the sauce to the size and shape of the bottle should be considered. The label’s design is also important.
How to keep customers coming back
A hot sauce business can distinguish itself by specializing in a particular type of hot sauce. For instance, a business might offer a hot sauce that’s:
- made from regional ingredients
- all-natural or organic
- ethnically inspired
STEP 9: Create your business website
After defining your brand and creating your logo the next step is to create a website for your business.
While creating a website is an essential step, some may fear that it’s out of their reach because they don’t have any website-building experience. While this may have been a reasonable fear back in 2015, web technology has seen huge advancements in the past few years that makes the lives of small business owners much simpler.
Here are the main reasons why you shouldn’t delay building your website:
- All legitimate businesses have websites - full stop. The size or industry of your business does not matter when it comes to getting your business online.
- Social media accounts like Facebook pages or LinkedIn business profiles are not a replacement for a business website that you own.
- Website builder tools like the GoDaddy Website Builder have made creating a basic website extremely simple. You don’t need to hire a web developer or designer to create a website that you can be proud of.
STEP 10: Set up your business phone system
Getting a phone set up for your business is one of the best ways to help keep your personal life and business life separate and private. That’s not the only benefit; it also helps you make your business more automated, gives your business legitimacy, and makes it easier for potential customers to find and contact you.
There are many services available to entrepreneurs who want to set up a business phone system. We’ve reviewed the top companies and rated them based on price, features, and ease of use. Check out our review of the Best Business Phone Systems 2023 to find the best phone service for your small business.
Recommended Business Phone Service: Phone.com
Phone.com is our top choice for small business phone numbers because of all the features it offers for small businesses and it's fair pricing.
Is this Business Right For You?
Anyone who has a great hot sauce recipe may like running a hot sauce business. People who have good recipes usually are passionate about hot sauce, and a recipe that family and friends rave over might have commercial appeal.
Want to know if you are cut out to be an entrepreneur?
Take our Entrepreneurship Quiz to find out!
What happens during a typical day at a hot sauce business?
A hot sauce business owner spends a lot of time making and bottling their hot sauce. When not producing or shipping hot sauce, they may clean, order ingredients and supplies, pay bills, and look for new customers.
What are some skills and experiences that will help you build a successful hot sauce business?
Starting a hot sauce business requires having a good hot sauce recipe.
Business owners usually work themselves into this business. Most have a recipe they make for family and friends that’s popular. They then refine this recipe until it’s perfect.
Business owners who don’t already have a recipe can learn to make hot sauce. CourseHorse offers a class on the subject, Hot Sauce Done Right.
Business owners may be able to find all the information they need online and in books, though. Several sites have good tutorials on making hot sauces:
What is the growth potential for a hot sauce business?
A hot sauce business can be a local, one- or two-person operation. Or, it can grow to become a national or international company. Way Hot Sauce Company in Haslett, Michigan is an example of a regional hot sauce business. Pepper Palace is a larger hot sauce company with outlets throughout the country.
Take the Next Step
Find a business mentor
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
Learn from other business owners
Want to learn more about starting a business from entrepreneurs themselves? Visit Startup Savant’s startup founder series to gain entrepreneurial insights, lessons, and advice from founders themselves.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
What are some insider tips for jump starting a hot sauce business?
Business owners can jumpstart their hot sauce business by partnering with a restaurant to create a hot sauce. Paying a restaurant to use the restaurant’s name may decrease a business’ profits slightly. If a restaurant uses and advertises the sauce, though, their patrons will be an easy potential market to reach.
If a restaurant won’t agree to regularly use a hot sauce, they might be willing to use it in a dish that’s prepared for a festival or cooking competition. For example, a restaurant might use a business’ hot sauce in a chili. Then, the chili may be entered into a cookoff. A winning recipe can bring the restaurant a lot of attention, and an award can immediately increase the reputation of a startup hot sauce business.
How and when to build a team
Most hot sauce businesses start out as one- or two-person operations. Business owners usually hire employees only after their business’ revenue will support an employee’s wages.