The Economics of Food Trucks

Posted by on September 8, 2011

Curious on how to start a food truck?  First, explore the economics of food trucks to make sure the business model will be financially feasible for you.

Food Truck Economics: Income and Expenses

To analyze any the economics of any business, we must break down the potential streams of income as well as expenses.

nom-nom-food-truck

Food Truck Economics: Income

Your future business’ income is based on a variety of factors including:

  1. Population size
  2. Weather
  3. Competition

Population size

The population of your surrounding area will be the most important factor in defining the income for your food truck business.  Major cities with heavy foot traffic such as New York or San Francisco are great candidates.  That said, food trucks have been shown to thrive in a variety of areas like Brunswick, Maine (tiny population) and the Twin Cities (little outdoor foot traffic much of the year).

Weather

A traditional restaurant’s business might be somewhat affected by weather, but weather and environmental factors can make or break a food truck business. Food trucks thrive in areas like Southern California that have a moderate climate with an incredibly high percentage of sunny days.  Customers can be few and far between on days where it is freezing outside or raining.  If you’re considering starting a food truck in one of the following U.S. cities with the most rainy days, make sure your business plan accounts for some significant down-time:

rainy-day-cities

Just because your prospective city might have a lot of rainy days doesn’t mean you should abandon your plan, however.  Portland for example has a thriving community of food trucks.

Competition

What is the existing competition like in your area?  Competition can be a double edged sword.  On the positive side, it means the business model works in your prospective location and the demand for food trucks is present.  On the other hand, you will be splitting the pie up with other trucks!  Scout out operations in your area, learn from their strengths and weaknesses, and avoid entering a saturated market.

Food Truck Economics: Expenses

Food trucks are particularly popular start-up restaurant businesses because of the low expenses incurred by the owner.  That, said they are not free!  One successful food truck operator in Los Angeles did some research in his area and determined most food truck owners spent between $15,000 and $80,000 to start their business.  That’s quite a range!  Let’s break down the expenses involved in opening a food truck:

  1. The truck!
  2. Licenses and permits
  3. Parking

Buying a food truck

The biggest expense you will face is the truck itself.  Ask yourself if your operation is scalable.  Frequently it will make more sense to start off with a smaller hotdog-stand type operation that can be purchased for as little as $2,000.

scale-your-food-truck

If your business plan requires a fully built out truck from the start, expect to shell out $20,000 or more.

Licenses and permits

To operate a food truck, you will need licenses and permits specific to your locality; check with your chamber of commerce to see how much you will need to factor into your expenses in order to acquire a permit.  Don’t overlook this step!  Food trucks in New York City have become so popular that the required Mobile Vending Unit Permit is increasingly difficult and expensive to get.  There have even been reports of a black market for food truck permits in New York developing.

Parking

Finding an area to park your food truck that is both acceptable and frequently trafficked by customers can require significant planning.  Experiment with a variety of spots and record your sales figures in each one to optimize your food truck’s location.  One great strategy food truck owners use to get the best routes and parking spots is to partner with local businesses that benefit from the increased food traffic a food truck brings.

Plan ahead

One of the most important parts of running a successful business is to plan ahead.  Rich Mintzer’s “How to Start a Food Truck Business” is an excellent resource on how to break into the billion dollar industry:


Another book I really like is Jennifer Lewis’ “Starting a Part-time Food Business.”  Sure, it would be great if we could drop everything to pursue our passions, but sometimes that’s not always feasible.  Lewis gives some valuable advice on how to start your food business without quitting your day job.  This approach naturally lends itself to mobile food businesses due to their easily scalable size.


Finally, it never hurts to check out the competition and learn from the best.  Heather Shouse’s “Dispatches and Recipes from the Best Kitchens on Wheels” contains some of the most successful food truck recipes and will inspire your menu creation process:

Best of luck in embarking on your new food truck business!

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