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March 8, 2015 Staff

How to Price Concession Food Items for Profit

fp1Figuring out the menu prices for your food truck isn’t always as easy as picking ‘what looks right.’ As much as they don’t seem like they are, all prices in any food establishment is based on a variety of factors which that owner had to figure out before deciding on a final profit% that would plausibly work while also offering a fair cost to customers (well, this latter part maybe not so much with those insanely high-end restaurants, but you get the gist). Keeping these profits up through menu pricing is yet another important duty of any food truck owner. Make sure you take the right considerations when starting up.

Mathematical Stuff

At the end of the day, this is mostly determined by graphs and figures, finding that little sweet spot that, if you can keep your predicted customer count/sales turnover rate on par over time, should make you break even and turn a profit over the next couple years.

We start simply by bringing up that spreadsheet; you know the one, it’s big and scary and basically lists every single major and minor expense that is, or soon will be, gnawing at your mind every week. Food, Employee, Rent/Permit, Electricity + Gas, etc. After all of these prices are added up, including the extra hangover bit added to ensure things like repairs can be covered, we look straight at your Food Costs. These, compared to the whole pile of things, should be somewhere close to around 33% of the overall; this is the same whether you’re in a restaurant or mobile operation (mainly due to the scaled down, smaller inventory that coincidentally goes along with the lower startup costs). If your food costs end up notably LESS than this, then you either have a problem with other costs that need to be looked into, or you’ve done a REALLY good job of keeping food low (not likely though…). If it’s notably MORE, than very likely you’ll have to work on bringing these prices back down to a reasonable price, otherwise there’s a good chance it’ll stick out like a sore thumb later.

fp2Is that in order now? Good. I assume by now the ‘per serving cost’ of each menu item has been calculated, determined purely by food cost. There are a few different techniques and thoughts on how to calculate the next step from this, and you can always change your strategy based on your unique situation, but the best and simplest all-around tactic is this: 23%. What is 33% of your overall costs should be at or about 23% of your final Menu Price. So multiply by 4, add a bit more (or however you calculate the new 100%, I’m lazy), and that’s your asked-for price that will ideally cover all your costs while giving out some profit over the long haul.

We can now also talk about using this to figure out break-even point, but that gets into future planning, predicting daily covers, and a few other topics and issues that isn’t part of today’s conversation anyway.

Rounding Up

After figuring out these exact mathematical figures and percentages, you’ll likely wind up with a very random but exact number; say a strongly suggested price of $7.43 to fill your cost requirements. But its safe to say that you won’t want to sell it for that on the menu… everything gets too odd and random that way, plus it doesn’t look as nice as just having a big ‘ol 7 or 8 on there. In which case, we round; and unless the price is within 10c over the dollar, or some special scenario dictates it (see following section), best to round up. The added quarter or so of profit, so long as it doesn’t cause a notable turn in customer transactions, will likely be a necessary addition to cover costs that are either unexpected or simply haven’t been thought up yet. And if these don’t pop up, oh darn, some extra profit.

Popular Opinion

No matter what the situation, it’s always good to see what the menu pricing is like at other local food trucks. Is it highly varied, or has a certain range and pattern been adapted in your area? If there’s other trucks selling items similar to your own, it’s not a bad idea to see what they have them at. For as much work and importance there is in setting up the previously mentioned profit-cost percentages, these final prices need to be accepted in the local market; if you’re sort of around (if not lower than) the other trucks, then you can rest happy in knowing that customers should offer little complaint nor willingness to open their wallets.

On the other hand, if your menu finds itself with a notably higher average than most trucks (and I don’t just mean everything is $5+; having a $1-2 difference in main items on the menu can be quite notable to truck-goers), ESPECIALLY ones that sell a similar items, then there are going to be some bullets you may have to be forced to bite. As much as we don’t want to copy others, one might have to lower your prices, thus cutting down on profit, a couple bucks to better ensure more customers over time. Another viable option is menu changing;  include (or switch out) some items that offer lower price points, so that people can feel less intimidated knowing they can still buy items at comfortable rates, leaving the possibility for others who go straight for the pricier main options, as well as for those fans of the cheaper fare to come back and try something higher up. Or, one may want to try a complete overhaul of their menu, utilizing some better cost-friendly recipes, at least to start out (can always introduce higher priced items later on, perhaps at special events).

That said, keeping all menu items at these higher prices to competition is still viable, but it is heavily important that one works to create a high-quality product that is WORTH buying from a food truck at this price, and that this is clearly expressed through the truck and media.

Cost Reduction

Profit isn’t purely determined by what prices are chosen; curbing the costs to KEEP them low, or to maximize profit from an $8 sale item, are just as key. Most of this is heavily required and kept througha tightly run, organized operation; making sure all food prep is done as efficiently and well as possible, making sure employees don’t end up staying extra hours due to not-well-done service and/or other duties, keeping all equipment clean and well maintained, etc. These tasks are heavily important, not just to make sure one isn’t losing an added chunk of cash each month that could have left them breaking even, but to make sure the truck is running smoothly, cleanly, and properly in general. But there are other costs that can be considered.

Scaling down Food Trucks is a dangerous and tricky subject, considering how quickly our minds go to the thought of buying cheaper, lower quality products for this. But they aren’t the only way to lower food costs; sometimes it’s just buying right. Always remember to get your long-lasting dry storage and frozen foods en masse (which I’m sure you already know). If you products that require getting from individual suppliers, then shop around; maybe even look around more for individual sourcing from something you already get from an all-around distributor. In their pursuit of a restaurant on Restaurant Startup, food truck Lone Wolf Banh Mi did some extensive search and calling to find a new source for their rice flour baguettes (having originally used the non-vietnamese, classic French variety) and succeeded in finding a better, more cost-friendly product.

fp3Another lesson learned from that show: Handmade Helps. As cheap and easy as many mass-produced, pre-made food seems, making something by hand  is ALWAYS cheaper and can yield a better and more distinctive product, if done right, leading to more returned customers. The only thing is ensuring that it doesn’t also add significant employee costs that undermine it; which any good chef/owner should be able to avoid by working it into the prep schedule properly. That’s not saying I think you should make your own bread for sandwiches; weigh what you can do, but if the need arises to scale costs then this is a serious subject one should look into.

Are you using baskets to serve food? Maybe it’s time to do away with them, get rid of the annoying side of chips which just means more money, and serve food that can be eaten with one hand. Not only is it appealing to the mobile crowd (I mean that’s REAL Street Food right there), but if the cost of food is maintained it’s one less expense.

Finally, many state that buying Used isn’t worth it, and I agree, EXCEPT under one situation. If one is lucky and knows where to look, they can find equipment for sale that didn’t actually get very much, if any, use out of them. These can still come at some great deal prices while still operating at ideal performance; just keep them cleaned and maintained and its basically new. Not that I make the assumption that these finds are easy; it’s a difficult search, trying to find those just-right items often sold off by businesses that closed quickly, but if one thinks they’ve got one then go for it.

I won’t get into manipulating and taking advantage of regulations and permits, since it’s so different in each city.

Finishing Up

As with any subject, there’s always more to be said, it simply depends on how deep one wants to go. For now, the most important things for you to know about your pricing is 1: don’t underestimate the massive addition an extra 30c, let alone a whole dollar, can make on your yearly gross, so price accordingly; subsequently, always plan in the long term (think of what your financial situation will be like in a year, not just a few months from now). 2: the best offense is a good defense; if you have a strong, well-run team and operation, your costs should never become an issue, and profit can be properly maximized. 3: Never forget, at the end of the day, you can’t MAKE a profit unless you actually get customers. If you can create a following with great products and plausible starting prices, you’re on the right track.

Helpful Links

fpFood Truck Economics – Priceanomic’s look-over of the many startup costs for your business.

Calculating Profit Margins/Finding the Sweet Spot – a more in-depth review on the factors involved with finding that ideal price for your situation

How the Best Food Trucks Deal with Food Costs – just what it says

Menu Pricing Methods – the ‘For Dummies’ look into the two main calculation strategies for pricing based on costs

Gold Medal’s Profit Calculator – I don’t really know how accurate and professional this is, or if you should even use it as the base for ANYTHING, but it looks fun and awesome so why not?

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