I haven’t cared much for the food writing in the Statesman recently, but today’s paper has an interesting article by restaurant critic Mike Sutter.
Sutter decided to follow Raymond Tatum, a well-known local chef (Jeffrey’s, the Backstage Steakhouse) from start to opening of his pork-themed trailer eatery, Three Little Pigs.
Tatum’s apparently a big pork guy, and Three Little Pigs intrigues me. But there’s also a couple of things in Sutter’s article that jump out at me and make me say “What. The. Frack!”
For starters, there’s the $700 cell phone bill, because Tatum didn’t get an unlimited talk/text plan. Then there’s the $12,500 “built to order” trailer (when my folks ran a shaved ice trailer, I believe they paid about $10,000 for the trailer used, plus about another $2,000 for equipment): that by itself isn’t unreasonable, but then
There’s no mention that Tatum pursued or obtained compensation from the trailer vendor.
Also no mention that Tatum pursued or obtained compensation from the people who installed the kitchen equipment. (To be fair, the problem with the water system freezing probably didn’t have anything to do with the people who installed the equipment.)
I wanted to call out that section because of this statement later in the article:
Tatum isn’t sure what he needs to bring in each night to break even.
What? What? He’s running a business and he isn’t sure what he needs to bring in each night to break even?! He’s been a professional chef, he knows what his food costs and his fixed costs are, and he isn’t sure what he needs to bring in each night to break even? He’s open five hours a night Tuesday-Saturday, and he doesn’t know what he needs to bring in to break even?
I’m sorry, but I believe if you’re running a business – any business – and you don’t know what your break-even point is, you shouldn’t be running a business.
On one Tuesday, night, the trailer brings in $212 from a dozen tickets.
and
His best night so far has been $700; his target is $1,000 a day.
I may try to run the numbers later on: if one of my readers wants to try and figure out break-even for Tatum’s trailer, as a public service, feel free. I think most of the information you need is in the article, except possibly the electrical bill and Tatum’s food cost percentage. (It looks like his plates run about $6 per.)
Edited to add: Lawrence and I hashed this over some, and he came up with a set of numbers.
Lawrence figures $25,650 in “sunk costs”, basically the trailer and equipment. (The trailer and kitchen equipment work out to $24,000 alone: the grey water tank and pressure testing the propane system add $650, and $1,000 for the electric meter.) The article notes that Tatum didn’t take out SBA or bank loans, but borrowed money from friends and family. We’ll be generous and figure he doesn’t pay interest, and is amortizing his sunk costs over three years, so that’s $8,333 a year for that time period.
Lawrence came up with $2,720 a year in recurring costs. ($600 a year for the commercial commissary, which you need if you’re actually preparing food in a trailer. City of Austin/Travis County regulation. $1,200 for insurance. $460 for city/county fees and permits.) When I add the numbers, I actually come up with $2,260; I wonder if he added the permits twice.
Monthly recurring costs work out to $925 not counting whatever the electric bill is. ($575/month rent for twelve months = $6900. At $100/week for propane, that’s about $400/month.) Just to make the math easy, let’s use $1,000 a month as recurring monthly costs, with the understanding that this is a conservative estimate.
He’s paying four people $10/hour (plus they get to keep the tips). They’re working six five days a week, five hours a day. That’s 30 25 hours/week. Lawrence comes up with an estimate of $13,000 a month year in wages. I can’t tell from the article if there’s one or two people in the trailer, but let’s figure one (possibly plus Tatum, but we’ll assume Tatum doesn’t pay himself a wage). 30 hours/week * $10/hour * 50 weeks/year (we’ll figure two weeks of vacation, that makes the number simpler) comes out to $15,000 by my calculations, but let’s use Lawrence’s number as a conservative estimate. Note also that it isn’t clear if Tatum is paying Social Security and other taxes, but we’ll assume that he’s above board and legal. That would add a substantial additional sum over the $10/hour that we haven’t considered.
So the recurring yearly costs (at least for the first three years) work out to $36,053 by Lawrence’s estimate, which we both think is conservative. Six Five days a week, 50 weeks a year, that works out to 300 250 days a year, or a fixed cost per day of about $120 $144.
I think target food cost for the average restaurant is typically 30% of the total item cost. Lawrence’s estimate of food cost yearly is $51,054. (Edited to add 3: Lawrence corrects me and says the $51,054 figure is the total of both the fixed costs and the food costs.) Looking at it another way, for every plate he sells at $6, we can figure probably 1/3rd, or $2, goes to food and related costs (plates, plasticware). So that leaves him $4 a plate to pay the other costs. At $120 $144 $204/day in fixed costs, he needs to sell 30 36 34 plates a day on average at $6/each in order to meet those fixed costs, minus his food cost.
If Tatum pays himself just minimum wage, that’s another $15,080 a year.
All of this, by Lawrence’s estimate, works out to a conservative (we think) $66,584 a year cost to run the trailer. Figuring again 300 250 days a year, that’s about $222 $266 a day to break even, or about 37 67 44 plates a day at $6/per.
If you consider things like that cell phone bill, Social Security and other taxes, routine trailer maintenance, and other unanticipated expenses, $300/day or 50 75 plates/day at $6 per seems like a pretty reasonable break-even estimate.
Here’s the worksheet Lawrence provided for me. Sorry it’s a PNG, but I can’t get the formatting to work any other way. Click to embiggen.
Edited to add 2: For some reason, I was basing my calculations on six days a week, not five. Blame it on a synaptic misfire. Or Rio. Corrections are incorporated above.