Case 034Operating cases and estimationWarm up

A cloud kitchen has a known order value, cost structure and monthly fixed cost. How many orders a day does it need to break even, and which lever moves break-even most?

The situation

Rasoiya Cloud Kitchens runs delivery-only kitchens. The average order is Rs 400. Food costs 32% of the order value, the delivery platform keeps 25% as commission, and packaging costs 5%.

Each kitchen has fixed costs of Rs 6 lakh a month for rent, salaries and utilities. Assume 30 trading days a month.

Your task

How many orders a day does one kitchen need to break even, and which single lever would lower that number most?

Quick check

Roughly how many orders a day does a kitchen need?

Worked solution

Try it on paper, then open one step at a time.

30-second answerThe answer to give first

About 132 orders a day. Food, commission and packaging take 62% of the Rs 400 order, leaving a contribution of Rs 152. Fixed cost of Rs 6 lakh a month is Rs 20,000 a day, and Rs 20,000 divided by Rs 152 is 131.6. Cutting platform commission from 25% to 20% moves break-even most among the levers tested, to about 116 orders, because it is the largest cost a kitchen can still negotiate.

Step 1What is the one formula, and why does contribution matter more than revenue?

A tea stall pays rent whether it sells one cup or a thousand, and makes a few rupees on each cup after milk and sugar. It breaks even when those few rupees add up to the rent. Break-even volume is fixed cost divided by contribution per unit, the money each sale leaves after its own variable costs. For Rasoiya, food is Rs 128, commission Rs 100 and packaging Rs 20, so each Rs 400 order contributes Rs 152, a contribution marginThe share of each sale left after costs that rise with every unit sold, available to pay fixed costs and then profit. of 38%.

The relationship

Q^{*} = \frac{600{,}000 / 30}{400 \times (1 - 0.32 - 0.25 - 0.05)} = \frac{20{,}000}{152} \approx 131.6 \text{ orders a day}

600,000 / 30	fixed cost per day
400	average order value
0.32, 0.25, 0.05	food, commission and packaging as shares of the order
152	contribution per order

What it says in wordsDaily fixed cost divided by what each order leaves behind gives the orders needed to cover it.

Each Rasoiya kitchen loses Rs 6 lakh a month at zero orders and breaks even at 131.6 orders a day with Rs 152 of contribution per order; cutting commission to 20% steepens the line and pulls break-even to 116.3 orders.

Step 2Which lever moves break-even most?

Test each lever by the same kind of realistic move and compare the new break-even. One point of any variable cost is Rs 4 an order, so the biggest variable lines, food and commission, are where small percentage changes become large volume changes. Commission is the largest cost a kitchen can still move, by pushing customers to order directly or negotiating a lower rate with the platform.

Lever	Contribution per order	Break-even orders a day	Change
Base case	Rs 152	131.6
Platform commission 25% to 20%	Rs 172	116.3	-15.3
Food cost 32% to 29%	Rs 164	122.0	-9.6
Average order Rs 400 to Rs 440	Rs 167	119.6	-12.0
Fixed cost cut by 10%	Rs 169	118.4	-13.2

A five point cut in platform commission lowers Rasoiya's break-even from 131.6 to 116.3 orders a day, more than a three point food saving, a 10% bigger order or a 10% cut in fixed cost.

Step 3What would you say about the limits of this answer?

Two things. A higher average order lowers break-even only if costs scale with it; a bigger basket also costs more food, which is why the 10% bigger order helps less than the commission cut. And break-even per kitchen hides the ramp: a new kitchen may take months to reach 132 orders a day, and losses during that period are part of the cost of opening it. A sharper answer gives the volume, then asks what a typical kitchen in the chain actually does a day, because a target of 132 is easy at one site and impossible at another.

Where candidates lose it

The common loss is dividing fixed cost by the order value, Rs 20,000 over Rs 400, and answering 50 orders a day. That ignores the 62% of every order that never reaches the kitchen's pocket.

The second is answering the lever question with more orders. Volume targets are what the kitchen is trying to hit; the question is which cost line lowers the target, and commission is the one most candidates forget is negotiable.

What the interviewer asks next

If 30% of orders shift to Rasoiya's own app with no commission but a Rs 30 delivery cost, what is the new break-even?
How many kitchens at 160 orders a day would the chain need to cover Rs 50 lakh a month of head office cost?
Why might a platform's discount campaign raise orders but lower profit?

Company names and figures are illustrative.