According to it’s definition, a profit margin is an accounting measure designed to gauge the financial health of a business. In general, it is defined as the ratio of profits earned to total sales receipts (or costs) over a defined period of time.
The sales of a food truck are simply the total receipts or how much money you make from customers buying your food. The profit margin is what is left over after you pay all of your bills, such as food, supplies, wages, fuel, rent, etc. You can also express your margin as a percentage of your total sales.
Calculating Your Food Truck’s Profit Margin
- Add the total of all expenses for your food truck for the selected period of your analysis. Include truck or equipment maintenance bills, employee wages, food and supplies, taxes, rent, professional services and all other expenses.
- Add the total receipts for the given period. Include sales for meals as well as catering or other services your food truck business provides.
- Subtract the total expenses from the total sales to get your profit margin. For instance, if your total expenses for a quarter are $24,000, and your total sales are $30,000, your margin is $6,000. If your final figure is negative, you are running at a loss.
- Calculate your profit margin as a percentage of sales by dividing by the total receipts. In this case, the $6,000 margin divided by $30,000 total sales would be .20, meaning 20 percent of your sales are profit.
Please Note: If costs rise (fuel, labor and/or food) and your sale prices do not rise to keep up, then the your profit margin will fall.
It is important for food trucks owners to remember that generating a profit margin does not guarantee that your mobile food business is healthy. You must have a positive cash flow in order to pay your bills and employees.