The ice cream business is profitable because of the high demand and low startup costs. You can easily start generating good profit in a short time, and that too, without much planning.
The markup on ice cream varies depending on the kind of ice cream you sell, but you can expect a markup of about 200% to 300% for an artisan scooped ice cream. With standard ice cream, you can make a profit margin of about 25%.
To lay it out in simple terms, the cost of ingredients to make ice cream, plus the cost of the cup and spoon it’s served in tends to cost around 25% to 33% of the actual sale price.
Therefore, if a scoop of ice cream costs $5, then the $1.25 or $1.65 out of that $5 is for the ingredients, cup, and spoon.
As easy as starting an ice cream truck business sounds, deciding the right markup for your ice cream is crucial if you want to earn a good profit. In this article, I will walk you through its details, so keep reading.
What is the Profit Margin of Ice Cream?
Typically, the average gross profit margin on artisan ice cream is around 67% to 75%. The profit margin on ice cream is great especially if there’s a lot of demand in your city and the competition is low.
The difference between markup and profit margin is simple. A product’s markup is how much you charge for the product vs how much it has cost you to make or manufacture it.
In terms of ice cream, you should start with the cost of making the ice cream and then work upwards to calculate its markup.
In this sense, the profit margin is backward. It’s calculated by looking at the end sale price and how much money you’re generating based on this minus your costs of goods sold.
6 Cost Factors to Consider In the Ice Cream Truck Business
The biggest cost in your ice cream truck business would be the cost of the ice cream truck itself. You can get an ice cream truck for around $10,000 to $20,000.
The cost of trucks depends on the type of ice cream you want to sell. If you’re intending to sell prepackaged ice cream then you’ll only need an ice cream truck with commercial freezers.
However, if you’re planning to sell soft serve ice cream you will need specialized equipment which will be built into your truck hence the truck will significantly cost more.
Another important factor to consider is the cost of fuel or gas. Since you will be operating from a truck that will be moving from destination to destination, you will be spending a lot of your money on fuel.
Plus, ice cream trucks tend to use more fuel than usual when they are stable. The fuel is needed to power the refrigeration system to keep the ice cream from melting.
You can try to lower the cost of fuel by designing an effective route. Remember, the shorter the route the less fuel it will require. Plus, you can research and find areas with a high demand for ice cream which will keep you from changing routes again and again.
Insurance is a variable cost that you can’t run away from. Insurance cost depends on where you live, what truck you drive, and your driving history. Insurance is also important if you want to stay secure in times of sudden losses.
Therefore, you will have to spend around $500 to $1,000 annually on insurance.
Permits and licenses are a must for every business and most of them will require a small payment. The number of permits you need depends on the location and the local rules of the area. On average getting the necessary permits will cost you around $300.
Inventory is yet another factor that you will have to consider in your ice cream truck business. You will constantly need to restock your cones, popsicles, cups, spoon as well as ice cream sandwiches.
Unlike other food trucks, ice cream trucks are self-operated and don’t have any labor. This means you won’t have to bear labor costs.
However, if you are hiring someone to operate the ice cream truck in your place then you will have to pay them and bear the labor costs.
5 Ways To Determine How Much Money You Can Make With an Ice Cream Truck
You can simply determine how much money your ice cream truck can make by following these 4 steps:
#1 Estimate Your Potential Revenue
To figure out how much money your ice cream truck will make, the first thing you need to do is estimate your potential revenue.
According to the Chamber of Commerce.org, the revenue of ice cream truck enterprises averages around $200 to $300 per day, which can increase five-fold on national holidays and during the busy season to $1000 daily.
Even though $200-$300 is a great deal for someone who works alone, the actual daily revenue will still vary according to different factors. To see if your revenue is meeting or exceeding the above numbers, you need to keep the following factors in mind.
Events such as Memorial Day weekend and the Fourth of July can result in increased profits. Selling more than $1,000 in a single day is possible during these events.
Ask yourself, if there is a demand for ice cream in the area or location in which you’re intending to operate your ice cream truck. Surprisingly, ice cream doesn’t have equally increased hype in some areas, so you will have to choose the area where ice cream is in popular demand.
For example, areas such as Miami (with a good number of warm days) will have high ice cream sales rather than Anchorage and Alaska (they are both cold regions).
» Maybe this also could be of interest to you: What Do Ice Cream Truck Drivers Do During the Winter?
Identifying the level of market saturation in your city is essential since that can directly affect your sales and revenue.
If you intend to serve your ice cream in a warm area, it’s likely to be filled with many other ice cream trucks due to popular demand.
Therefore, do thorough research about the area you want to operate your ice cream truck in to determine the level of market saturation of that area.
The last thing you need to determine is the size of the customer base for your ice cream truck.
Even if the area you choose has a high demand for ice cream, you still need a large customer base to generate a good amount of revenue.
Therefore, I suggest you look for areas that have a high population of families with little children.
#2 Determine the Fixed Costs
Secondly, the most important part of determining how much your ice cream truck will make is identifying the fixed costs.
The major fixed costs you will bear are for the ice cream truck itself, insurance, and the licenses or permits that you will have to get for your business.
#3 Estimate the Variable Costs
After fixed costs, you should also estimate your variable costs. One variable is the cost of the product.
To get the best possible wholesale prices for your raw ingredients, you should have a vendor or reseller’s license. Wholesalers don’t usually offer normal people the same prices as they do to a person with a vendor license.
Another cost that you must keep in mind is the cost of fuel, whether it’s gas or diesel. Ice cream trucks constantly move around, so fuel cost is going to be your major expense.
This is because you won’t only need fuel to just get to the location you are operating in, but you’ll need fuel to power your freezers or refrigeration system.
#4 Calculate the Profit
After determining all the costs, you just have to calculate the profit. For instance, if you make a daily revenue of $300 with $150 cost of product and $30 cost of fuel, then you will make an average daily profit of $120.
However, this doesn’t include your fixed startup costs of the truck, insurance, and licenses. Plus, this also doesn’t include labor costs.
Now assuming you work 20 days per month while operating in an area with a warm climate, you can generate up to $28,800 in profit, which will become $12,000 per year if you include your fixed costs of insurance, truck, and permits.
This can potentially become a profit of $16,800 in the first year and increase to around $26,000 or more.
Note: these figures don’t consider national holidays or busy summer days.
#5 Increase Profits With Add-on Items
You can introduce some add-on items to sell alongside your ice cream to increase your profit further. You can easily attract more customers this way by offering hot drinks, frozen yogurt, shakes, or other similar products on your menu.
Hot drinks might sound controversial, but many parents can end up becoming a customer alongside their kids if they can get a cup of coffee or tea while their kids are buying ice cream from you.
Moreover, frozen yogurt also has a high demand for people who have a more refined taste.
Final Word on the Markup on Ice Cream Trucks
Running an ice cream truck is a much more reliable business as compared to typical food trucks. The startup expenses are low, and you can easily find financing options to kickstart your business.
But as much as it’s important to plan your business, it’s equally important to plan your costs and determine a good markup for your products.
Overall, it’s pretty easy to determine a markup on the ice cream you want to sell, just stay focused and consider all your fixed and variable costs to calculate your profit margin.
I hope this article helps you.