A food truck can be your first step into the restaurant business. It’s a fairly easy segment to get into, and startup costs are relatively low.
There’s another reason why you should consider starting a food truck. Sales in this industry are growing rapidly.
According to Food Truck Nation, a report published by the U.S. Chamber of Commerce Foundation, revenue from food truck sales stood at $650 million in 2014. By 2017, the figure had increased to $2.7 billion.
In this post, we’ll examine food truck startup costs. Our analysis will include:
- How much it costs to launch a food truck and
- The running costs that are involved.
We’ll also give you a few tips on the methods you can use to minimize your costs.
How Much Does It Cost to Start a Food Truck? – Initial Costs
The first step that you should take is to write a food truck business plan. This will help you to arrive at an estimate of your total startup costs.
Here is what you can expect to spend your money on:
1. Cost of a Food Truck
The biggest expense in starting a food truck is — you guessed it — the food truck!
Costs can vary. But you should be prepared to pay at least $50,000 to $75,000.
What if you can’t afford that much? There’s a cheaper option. You could lease a truck instead of buying it. This could result in a significant reduction in your startup costs. But it could be more expensive in the long run. That’s because the monthly payments for a leased truck can go on indefinitely.
Another alternative is to purchase a used food truck. This can significantly lower your startup costs.
Used food trucks for sale on the Roaming Hunger website
Before buying a food truck, there’s one thing that you should ensure. (The precaution that we’re going to tell you about applies to both used and new vehicles.)
Does the truck you are buying meet the legal requirements in the area in which you are planning to launch your startup? Your food truck will have to undergo regular health and safety inspections. If it doesn’t meet these regulatory requirements, it could mean additional costs as well as lost sales while you make the necessary changes to the vehicle.
2. Regulatory Compliance – Permits and Licenses
This can be a big issue for the business owner. Obtaining the required permits and licenses can be both expensive and time-consuming.
According to a survey of 288 food truck owners conducted by the U.S. Chamber of Commerce Foundation, the average entrepreneur needs to “complete 45 separate government-mandated procedures over the course of 37 business days, and spend $28,276 on permits, licenses, and ongoing legal compliance.”
Permits and licenses for operating a food truck
Here’s a representative list of the permissions you need to obtain. Of course, regulations will vary from one state to another and even between different cities.
- Vehicle license
- Fire certificate
- Food safety permit
- Health department permit
- Seller’s permit
- Business license
- Employer Identification Number
3. Other startup costs
There are other startup costs, as well. You’ll have to budget for the first batch of ingredients and paper plates and napkins. You may also want to spend some money on your website and uniforms for your workers.
Here’s an estimated total of your startup costs:
|Food truck — this includes the food truck wrap and equipment||$75,000|
|Regulatory compliance — permits and licenses (could vary widely)||$28,000|
|First batch of ingredients and paper plates, etc.||$2,000|
|Cash for additional startup expenses||$2,500|
How Much Does It Cost to Run a Food Truck? – Operating Costs
Once your food truck is up and running, your operating expenses will be likely to fall in the following categories:
- Food costs: These will vary with your sales. But you can expect to spend about 28% of your total revenue on food costs.
- Labor: Set aside about 25% of your revenue to pay your workers.
- Fuel: The amount you spend on fuel will depend on how far away you’re going to park your food truck for the night. If you’re lucky and you don’t have to drive too far, you can keep this cost down.
- Parking: Some cities require food trucks to park in metered spaces while others don’t. Check the rules that will apply to you. You must also ensure that you don’t park in a “no-parking” zone. This could lead to fines and lost time.
- Repairs and maintenance: If you’ve bought a new vehicle with kitchen equipment that will be used for the first time, your maintenance costs will be minimal. But it’s a good idea to set some money aside each month for this expense. That’s because when you do have to incur these costs, they can put a serious dent in your monthly budget.
- Insurance: There are several policies that you must buy for your food truck business. A business owner’s policy can protect you from business interruption and lost income. Also, consider purchasing workers’ compensation insurance as well as a policy to cover you for vehicle theft and damage. Expect to pay a total of about $3,000 per year for all these policies.
- Commissary: What’s a food truck commissary? It’s essentially a place where you can park your vehicle when it isn’t serving customers. A commissary can offer facilities for preparing and storing food, water refills, and for cleaning the truck. Costs vary with the location and the extent to which you use the services.
- Regulatory costs: These vary from one city to the next. According to the U.S. Chamber of Commerce Foundation, Denver (CO) is the most entrepreneur-friendly place as far as obtaining permits and licenses for a food truck is concerned. Boston (MA) is at the bottom of the list of 20 cities surveyed.
How Can You Cut Expenses in Your Food Truck?
Reducing costs will have a direct impact on your bottom line. Each dollar that you save may not seem like much. But over a period, cutting even the smallest expense can increase your profit margin.
Andrew Rigie of the NYC Hospitality Alliance, a restaurant trade body, points out, “The restaurant industry is a penny business. You must constantly find ways to save money and stay competitive…”
Here are five ways to reduce your food truck’s cost structure:
1. Negotiate with suppliers: Food purchases will account for almost 30% of your revenue. Even a small reduction in this cost can add to your profit margin. You must learn how to negotiate with suppliers. A good way to start is to obtain quotations from different vendors regularly.
2. Loss leader pricing: Okay, this won’t reduce your costs. As the name implies, it will lead to an increase in your losses. But there’s a “method behind the madness.”
Loss leader pricing is all about selling your best dish below cost to attract more customers to your food truck. The idea is that once the customer is at your food truck, she will also buy the higher-priced items. If it works, it can lead to a jump in total sales and profits.
3. Apply lean management principles: This is a manufacturing system that originated in Japan. It teaches you how to minimize waste while improving productivity. Read about how to make a hamburger using lean management to understand how it works.
4. Tinker with your menu: This may not help you reduce costs, but it can lead to more sales and increased profits. Carry out a menu audit to check if you’re selling any loss-making dishes. Another way to boost revenue is to try upselling.
Menu engineering can also help. This system uses techniques based on psychology to get customers to spend more. How does it work?
According to menu engineering principles, removing dollar signs from the menu takes a client’s attention away from prices and gets her to focus on the description of the food item. Removing price trails — the series of dots connecting the menu items to prices — also helps.
5. Use the food cost formula: Do you know the exact amount that you’re spending on buying ingredients? The food cost formula can tell you. Use it to identify areas of wastage and to cut down on costs.
A Business Loan from Camino Financial Can Help your Food Truck Run Smoothly
If you need to raise money for your food truck business, we can help. Camino Financial has many clients in the food industry. So, we know this sector well.
We can provide a small business loan to food truck owners who have been operating for a minimum of 9 months. Our motto is “No business left behind” — we’ll do our best to get you the lowest-price loan at the most attractive terms.
Get a quote today and know instantly if you pre-qualify.