Is catering business more profitable than restaurant and food truck? Here’s everything you need to know about the various business models. A food related business is one of the many businesses that have proven to be recession proof, a business that will always be in demand and of course a business that is profitable even if the business owner gets started on the wrong foot.
When we talk about food related businesses, some of the top business ideas that readily come to mind is catering business, restaurant business and of course food truck business. So, if you are contemplating starting a food related business, it won’t be out of place to first know the food-related business that is the most profitable.
With the information gotten, you will be able to make an informed choice of the best business to settle for. In this article, we will give you a comprehensive comparison of the catering business, restaurant business and food truck business with the sole aim of showing which of the businesses is the most profitable.
To start with, in order to figure out the profit margin of running a food related business, you have to add up the cost of goods, supplies, labor, employee benefits, insurance and taxes amongst other factors. To come to a figure, you would have to subtract that sum from your gross revenue. This could include profits from food and drink sales, catering, merchandise, franchising and rentals.
Please note that in order to scale up your profitability, you would have to sell more than you spend, and you’re obviously in a good place, but if your food profit margin is poor, you may not be making as much as you could. This is among one of the many reasons why over 60 percent of full – service and quick – service food establishments fail in the first three years.
When it comes to running a food related business, it is important to note that food and labor costs are generally the biggest expense, and as some states adopt a $15 per – hour minimum wage, the cost could skyrocket. No doubt, you should be informed that the average profit margin you should aim for depends on where your business falls within the food industry.
Catering Vs Restaurant Business Vs Food Truck – Which is the Most Profitable?
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Profitability of Catering Business
Catering provides food service at a remote site or a site such as a hotel, hospital, pub, aircraft, cruise ship, park, filming site or studio, entertainment site, or event venue (wedding parties, birthday parties and celebration parties et al).
So, in order to determine the profitability of a catering business, you should be able to list the types of catering services offered by the company and of course the frequency at which they handle catering jobs. From reliable statistics gathered, a catering company can make as high as 20 percent from a single catering contract all things being equal and that will be rare for a food truck or restaurant business to make from a full day’s business.
Basically, catering profit margins soar well above the average full – service restaurant. It’s far closer to the margin of fast food establishments and food trucks. Please note that some types of catering businesses incur higher costs than others do in particular categories.
For example, a caterer specializing in fancy meals with themes and elaborate decorations will spend more on accessories, while a caterer who uses premium ingredients may incur especially high food costs. If a particular type of expense exceeds the industry average, a caterer should find ways to lower costs in a different area such as labor if her business is to succeed.
Profitability of Restaurant Business
Calculating the profit margin of a restaurant business means that you would have to clearly state the costs involved in opening the business. Opening a high – end dining establishment can start at $500,000 and can run into the millions.
Opening a food truck using the same style (only smaller) of menu can cost as little as ,000. By starting small, you will learn many of the same lessons in a truck as you would in a restaurant. Operating any food service business is risky, but if your idea fails, would you rather have a smaller investment to lose than a much larger one?
Fast food restaurants usually boast of having a higher profit margin than full – service restaurants. The tendency to use frozen, bulk foods along with higher customer turnovers leads to an average margin of 6.1 – to – 9 percent. That means for every dollar made on a juicy hamburger or side of fries, a business will pull in $.06 – to – $.09 in profit. For example, in 2018, quick – service restaurants profit margin grew by 2.1 percent.
Over and above, most full – service restaurants have a tiny profit margin that falls between 3 – and – 5 percent. It’s not abnormal for margins to fall as low as 0 percent or jump as high as 15 percent. This is really dependent on a ton of different factors including if you use costly fresh food or less – expensive packaged food.
Do you use canned beverages or have a fountain soda, which is a larger upfront cost for a bigger payout down the road? Each restaurant has a dish that’s a money maker – something inexpensive to produce that customers will still pay top – dollar for. Some of the highest margin foods include pizza, pasta and non – alcoholic beverages.
Profitability of Food Truck Business
Although, the startup cost for a food truck business is lower when compared to a restaurant business but that does not mean that it is more profitable. In as much as a low barrier to entry has allowed hundreds of entrepreneurs who are interested in food related businesses to launch their own food truck business.
But with long hours, steep competition, a long legislative process and unproven success rates, some are beginning to wonder if the payoff is worth the struggle. The fact can’t be ruled out that when a food truck business is well – managed, the turnover generated can be quite reasonable.
A report released by Off the Grid’s Matthew Cohen said that most trucks are making annual revenue of around $250,000 to $500,000, while the top 25 percent bring in upwards of $1 million. On average, food costs for a food truck are 25 – to – 35 percent.
This is similar to a restaurant, but food truck businesses don’t have to worry about paying rent for a building. Overall, a food truck’s low overhead makes it slightly less financially risky than a full – service restaurant. Not only can food trucks rely on sales, but they can also expect hefty revenue from event rentals.
Still, food trucks often pay commissions to set up at events as well as parking fees. They can also see their daily business cut in half by poor weather. Despite this, as a quick – service, mobile restaurant, food trucks generally have a margin of 6.1 to 9 percent.
Over and above the profit margin of a food truck business that is well – managed depends upon many factors including labor costs food waste the weather commission or parking fees at specific events and accounting issues. On average, a typical fast-food truck can expect a margin anywhere between 6 percent and 9 percent.
Which is the Most Profitable?
From all the facts stated above, it will be safe to say that you stand the chance to make more profits when you run a catering services business as against running a restaurant or food truck business when all the factors are favorable to all parties.
This is because unlike restaurants which require you to staff a dining room and own a commercial kitchen whether you need one or not, or a food truck business that requires that you own a standard and approved food truck with approved kitchen facility, catering businesses allow you to tailor your staffing and food purchases relative to the number of events you have scheduled.
As a result, catering businesses tend to have lower food and labor costs – and therefore higher profit margins – than restaurants and food trucks. A typical catering company earns a profit of ten to fifteen percent or more as against the four to seven percent profit margin that a restaurant business is expected to make.