Lemonade stands are a great way to teach kids about money

Here are a few tips on how to squeeze the most fun (and learning) out of your next lemonade stand.

1. First, teach your kids about Cost of Goods Sold by letting them decide what to sell, then let them do the shopping.

   Cost of Goods Sold, or COGS, refers to the direct costs that go into making items or goods, and can include materials, labor and overhead. Talk with your kids about what they want to sell. Do they plan to make lemonade from scratch or from a powder or frozen, and can they charge more for one than the other? Ask the same questions if they want to sell baked goods. Talk about how many customers they think they’ll have, and how much of any item they’ll need to meet potential demand.

   Take them shopping so they can see what their material costs will be, then sit down and help them calculate the total cost of the supplies as well as the cost per cup of lemonade. For instance, if you spend $10 on supplies and estimate you can make 40 cups of lemonade, each cup costs 25 cents to produce.
   
   

2. Next, talk about profit margins.
   Explain that profit is what’s left after subtracting the COGS from the revenue (the money earned from sales). If they sell each cup for $1, and each cup costs 25 cents in materials, the profit per cup would be 75 cents, and their profit margin is 75%. This helps kids understand the importance of setting prices that cover their costs and leave them with earnings.
   

   You can also get your kids thinking about the value of their time. If they were working in a restaurant, how long it takes to make an item and how much employees are paid per hour would be factored into COGS. Teach your kids to appreciate the value of their own labor by assigning a nominal dollar amount to their time. For example, if they spend 2 hours making and selling lemonade, you could hypothetically assign a labor cost of $5 per hour, adding another $10 to COGS.
   
   

3. Now, help them decide what to charge.

   Discuss how to set a price that attracts customers while ensuring they make a profit. For research, they can think back on lemonade stands they’ve visited, or consider what they’d be willing to pay for the items they’re selling.

   You can also encourage creativity in pricing strategies, like offering a “buy two, get one free” deal or selling cookies alongside the lemonade to increase sales and profits. These are great ways to get your kids thinking about how customers make decisions and what might push sales the most.
   
   

4. Time and location matter.

As you may remember from childhood, lemonade stands are not like the movie, “Field of Dreams” — just because you build it does not mean they will come.

Work with your kids on where to place their lemonade stand and what time might get the best traffic. Make sure that they’re planning to hold it somewhere safe, like a low speed-limit zone or a location close to a playground or park. If they’re planning on having drivers as customers, make sure there’s a very safe place for cars to pull over.

Also be sure to follow any local permitting laws and HOA guidelines if you’re in an HOA. Most importantly, pick a time of day when they think they’ll see the highest amount of traffic.

5. Decide whether they want to sell for a cause.

   Ask your kids if they’d like to donate a portion of their earnings to a cause they care about, then help them decide how to choose the right organization and how much they want to donate. This could be a fixed amount or a percentage of their profits. For example, they might choose to donate 10% of their earnings to a local animal shelter.

   Marketing the charitable aspect might encourage more sales, especially if it’s one that appeals to the local community. Make sure they include this information on their stand's signage or in their sales pitch.

In conclusion: create a fruitful learning experience with a lemonade stand.

Running a lemonade stand can be a powerful educational experience for children. By giving them the reins in shopping, calculating costs, valuing their labor, setting prices, and considering charity, you can impart valuable lessons about money, entrepreneurship and philanthropy.

Does your kids’ entrepreneurial spirit get you thinking about starting your own small business? Commerce is here to help. Visit our Neighborhood Banking page to learn some of the basics about small businesses and connect with a Commerce banker.