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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.
Who is this business right for?
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.
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 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.
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. Clancy’s Fancy Hot Sauce in Ann Arbor, Michigan is an example of a regional hot sauce business. Pepper Palace is a larger hot sauce company with outlets throughout the country.
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 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 steps to start a hot sauce business?
Once you're ready to start your hot sauce business, follow these steps to ensure that your business is legally compliant and avoid wasting time and money as your business grows:
- Plan your business. A clear plan is essential for success as an entrepreneur. A few important topics to consider are your initial costs, your target market, and how long it will take you to break even.
- Form a legal entity. Establishing a legal business entity prevents you from being personally liable if your hot sauce business is sued.
- Register for taxes. You will need to register for a variety of state and federal taxes before you can open for business.
- Open a business bank account. A dedicated checking account for your hot sauce business keeps your finances organized and makes your business appear more professional to your customers.
- 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.
- 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.
- Get business insurance. Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
- 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.
- Establish a web presence. A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Select your state below for an in-depth guide on completing each of these steps in your home state.
Where can I 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.
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 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.
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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
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.
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.
For information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
Maintain Personal Asset Protection
Don’t think that just forming an LLC, or any other type of business, will save your personal assets in case of a lawsuit or other matter by itself.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your LLC is sued. In business law, this is referred to as piercing your corporate veil.
Two of the simplest steps that will protect your business, and yourself, are to:
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
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.
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.
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.
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.