Business Analysis of a Proposed New Business: A High School-Area Food Truck

General Overview and Costs

A high school located on a busy intersection and with a business parking lot across the street provides the perfect opportunity for a food service venture operated from a food truck. With substantially lower overhead than a traditional restaurant and a typical focus on quick, volume-oriented service of a limited product selection, catering primarily to the high-school lunch crowd would be ideal for a food truck business (Lagorio, 2010; Mealey, 2012). Offering standard "American diner" fare such as hamburgers, French fries, other hot and cold sandwiches, and salads, both food preparation and customer service can be streamlined in order to reduce costs and increase profitability. Startup costs will also be minimal, making a food truck business much easier to get off the ground and bring into the black (Lagorio, 2010).

A decent used food truck can be obtained for approximately $30,000 (Mealey, 2012). Permitting and licensing costs will not be substantial, with an estimate of $1,000 likely far higher than needed, but leaving some wiggle room in the budget. These will be the only fixed costs of operation. Variable costs will be based entirely on the amount of food prepared and sold, and economies of scale will definitely apply (i.e. ordering more raw food materials from suppliers will yield cheaper per-unit prices). An initial purchase of $3,000 worth of food should be adequate for the first few days of operation; because most items will be perishable, ordering larger quantities and warehousing is not feasible. Other supplies and maintenance will add another $5,000 in the first few months of operation, making $40,000 an adequate amount of startup capital.

Revenue, Profit Maximization, and Marginal Cost/Revenue

The location and business type were selected in tandem, with a specific eye towards immediate and ongoing revenue increases due to the availability of a large and relatively untapped market. This strategy will not be enough in and of itself to guarantee profitability and success for the venture, but it will definitely contribute to revenue increases and help to ensure an effective use...

Other plans for increasing revenue, which necessitates the increase of sales, is the offering of certain discount schemes and engaging in promotional events to build initial market share, brand recognition, and general knowledge and popularity. Advertising in local newspapers and in other media will be used to attract non-core customers, as well.
Profit-maximization will be achieved in numerous ways, including by careful control of marginal costs and revenues as discussed below (Mankiw, 2011). Other methods for profit-maximization include the constant improvement of efficiency of operations, reducing the waste of food supplies through careful preparation procedures, reducing energy consumption by scheduled cooking plans based on previous demand, and the reduction of labor costs by fine-tuning operations to require a minimum of ownership assistance. All of these elements will necessarily take some time of real operations to become truly meaningful in terms of profit-maximization, however with careful attention and control it will be quite easy to improve efficiency and reduce costs, maximizing profits without out-pricing customers.

Marginal costs and revenues will also be an essential part of profit-maximization, as they are with any scalable business (Mankiw, 2011). Though there is both an operational and a market limit to the business potential of a food truck enterprise, it is doubtful that these limits will be reached within the first year of operation, and thus ongoing production to meet demand will remain a favorable decision for the business for the foreseeable future (Mankiw, 2011). That is, the business will not reach market saturation to the point that marginal revenue decreases through a needed price drop, and because almost all variable costs decrease on a marginal level, marginal revenue will continue to increase the more units are sold (Mankiw, 2011). It will still be important to maintain a recognition of marginal costs and revenues to incentivize certain menu items, possibly eliminate other items, and generally provide a product mix that provides maximum profitability.

Strategy

Pricing strategy will be relatively straightforward, as…