No matter what the idea and industry, there are certain things that every business owner has to consider among the waves and tides of decisions, strategies, and research that goes into their business. Of these, probably the most important, and easily the first thing noticed, for all customers besides the product itself is Price. What exactly are you going to charge for your object, your service, your council, or in our case today, mobile food and drink.
This particular question, I find, finds quite the interesting pang in the Food Truck industry; for anyone with even the slightest knowledge and experience with them, it’s well known that they’re a source of low-priced edible options. In fact, it’s been the base of many a restaurant’s complaints, along with all the other lower costs they have to deal with. Despite the almost identical spirit in the roles both these businesses try to offer, the distinctive difference offered purely by their base of operations still show itself in these notably disparate fashions; now, whether they choose to use this to garner hate and grudges or as a means to work together and grow in fun and unique ways is up to them, and left for another article.
So what actually needs to be considered when figuring out your own prices? Of course one should always be aware of the other local truck menus, see if there’s a general range, don’t want to risk seeming notably more expensive for similar products. But at the end of the day this is your own food, and the retail still needs to correlate particular profit percentages compared to the costs that went into them.
This can vary depending on owner preference, but actual food costs, the only actual direct and tangible cost in a menu item, can range 22-45%; restaurants can and do often go even lower with this. With such a big profit range, it almost seems why its even an issue to knock prices low, but of course as anyone even slightly familiar with business knows, the ‘profit’ left after food is anything but. Not counting the daily costs of employee wages, permit + parking fees, gas, electricity, and every other thing needed to run restaurants and food trucks, one of course is still in possession of large loans and leases that need to be paid back every single month. Then there’s the occasional maintenance, emergency costs, etc. So what we have is an overall huge cost that needs to be divided among years and months, then applied to individual days in estimation and goals of how much profit after food costs you need to make of profit overall to break even. And the know that you will likely not making even close to this when starting out, which will likely drive up the cost goals later on when (well, if) you actually get enough business to start making a livable wage.
kg6So what was originally a somewhat-exciting range of pricing becomes a scary number that starts making us sweat and doubt our choices; do we take the risk at an attractive price and hope we’re skimming right at the point of having a few cents of gross profit over to get us through the year, or do we add an extra dollar or two to make sure, only then to worry about the price image? Menu helps determine these, but overall the final decision may come simply to confidence on whether or not you think the quality speaks for itself, or confidence that you can get enough business to have those quarters add up over time.
Though truthfully, your own final decision can be based off of anything from in-depth, complex area analysis to simply what you feel seems right, but a bit of study and understanding your costs doesn’t hurt (have to do a business plan at some point anyways right?). We looked into one truck’s experience and view on this topic, and sat down in an interview with the owner, Tom Mcnulty, to discuss the idea.
Question: Firstly, why don’t you tell us all about yourself and the truck? How did it all get started?
Tkgom: I’m a culinary graduate, graduated from GCA in San Francisco, I’ve been in the restaurant business for 25 years, essentially a country club restaurant, I opened my own restaurant up in Santa Rosa, the only reason I closed it down was the overhead costs, the overhead costs were tremendous. And that’s when I decided to get into the food truck business with low overhead and stuff like that.
The concept of my truck, Keep on Grubbin’, based off of changing the menu frequently, depending on the season, shopping at the local produce market. So that’s how I keep up with the concept of the truck. And that’s kind of where I got to today, it’s been a tough movement, you’ve got to really get your name out there, be consistant with good food to build up your truck, branding your truck.
Q: So, what was it like seeing all the costs that had to go into Keep on Grubbin’?
Tom: Well, after opening up a restaurant it was very minimal in comparison. I looked at it and, the leases were kind of high, I was leasing a truck when I first started. But basically you had to put up the first lineup and if you wanted to get your truck wrapped then you get your truck wrapped. So for under $10,000 you could get a particular food truck business up and running. And the insurance is a lot different in a food truck than in a restaurant.
kg5Q: How did you go about figuring out the profit needed every week/month in order to pay these costs, and what was the actual range?
Tom: I don’t use programs, I have my own program and spreadsheet that we used at the restaurant. So my food cost is 23%, and my overall cost is 33%.
The first couple months, when you get into the food truck, it’s very hard, you’re not making the kind of money you think you’re going to be making. So you do have to have cash, you have to have reserves to help cover that, it’s the business part. But how I determined that, I just used my original business plan with my percentages, and that was how I came up with the costs to run the business.
Q: What decisions went into deciding how much the menu items should sell for? What profit percentage compared to FOOD cost did you generally end up at?
Tom: I did comparisons with other trucks to see if I was in line with pricing, and looks like percentages, with my percentages, I was right in line with others. So my thing was based all on percentages, and that was 23% cost was where I set it.
Q: Have you ever found had to change the prices for particular reasons? If so, why was it; and if not, were you ever really tempted to raise them for more profit?
Tom: I’ve never raised our prices, not even for certain events. I’ve lowered them for school events, with the kids who don’t have a lot of cash, so I have to lower my prices for High School and Elementary events. But I’ve never raised my prices for an event just to make more profit.
Q: Many a restaurant has lauded against trucks for their lower and ‘easier’ costs to deal with, along with their ability to sell food for cheaper and thus steal away customers. What’s your take on this idea vs why prices are comparatively so low?
Tom: It’s basically your overhead costs, the overhead costs are much more minimal than your free-standing restaurant; labor, rent, insurance, just that alone is why these food trucks can run the prices that they can.
Q: From what you’ve seen, what Opportunities and Challenges do the generally lower-priced Food Truck menus offer?
Tom: The opportunities are to have more people to enjoy the food off your truck, gives them the opportunity to come for lunch or dinner. A lot of events we do, there’s a lot of food trucks there, and a lot of people that come like to eat off of not just one truck, but a handful of trucks that are there. So the lower prices than a restaurant gives people the opportunity to sample the different foods than a food truck.
As for challenges, sometimes you’re not making your profit margin that you need to make. That’s some of the challenges when you do have to lower your price for some of those events. But I could take stuff off the menu, my higher percentage items I took off the menu and I basically ran my car, but I still needed to run at a lower price. You’re still making your profit margins even if you’re at the lower price.
Q: What’s your take on trucks, perhaps coming from a restaurant or some other viewpoint, that start selling their items for notably higher, restaurant-level pricing on the streets in order to make a higher return on their goods?
Tom: I haven’t really run into that, I think prices are really comparable. I really haven’t seen any truck which were… except for some of the lobster trucks that can charge a little more than regular/cheaper food trucks. But they’re trying to run they’re cost and percentages, cuz it’s higher buying seafood than buying these other things. That’s the only time I’ve seen prices not comparable.
Q: Is there any last points of interest you’d like to make on the topic?
Tom: Basically just take the business plan that you have, a good business plan, try to keep costs as low as you can to be successful.
We do thank Tom for taking the time to sit with us and go over these questions with us and appreciate all the assistance he could muster. Though of course we realize that this combination of self-important opening ramblings and brief interviews can never truly cover all that you may want or need to know when deciding menu prices for yourself, so we’ve gone and found some Articles and Resources that we hope prove helpful. Good luck in your decision-making and problem solving, save something for my thin wallet!
Food Truck Income Survey – This is a survey of 300 full-time food truck owners that share their annual revenue estimates. This is a great resources for understanding the typical revenue numbers of a mobile food unit.
Pricing Methods – the ‘For Dummies’ approach to the two basic cost-to-retail pricing calculations
Mobile Cuisine Menu Pricing Article – a look at changing factors to consider, along with questions you should ask yourself.
Dealing with Food Costs and Quantities – tips to help curb those nasty figures to make sure you can scale down those scary retail prices.
Menu Display Options – Find out some of the different creative ways you can display your menu after the prices have been determined.