Your fixed block costs the same whether you sell 80 units or 400. So why does the busy day feel so much richer? And would a second truck make you twice as rich? (Spoiler: no.)
Learning objectives. After this week you can (1) compute average fixed cost and explain economies of scale; (2) compute a payback period and a simple ROI; and (3) explain why a second truck does not earn what the first one does.
Remember this: fixed costs don't shrink when you get busy. They just get split more ways.
1) Average fixed cost
Average Fixed Cost = Fixed Costs ÷ Units Served
$600 across 100 units is $6.00 each; across 300 units it is just $2.00. Same fixed cost, more sales to share it. That is economies of scale.
Use the fixed block from Week 4. A Downtown truck-day with three staff carries a fixed block of $465, whatever you sell. Sell 100 units and each one carries $4.65 of it; sell 400 and each carries only $1.16.
Try it
A $638.62 fixed block spread over a busy day's 296 units.
Average fixed cost = Fixed block ÷ Units
Fill in the boxes.
Worked example 1: the scale curve on your own truck
Each burger brings in $5.30 of contribution. Watch what happens as the same $465 gets split more ways:
| Units served | Fixed per unit | Contribution | Profit per unit |
|---|---|---|---|
| 80 | $5.81 | $5.30 | −$0.51 |
| 120 | $3.88 | $5.30 | $1.42 |
| 400 | $1.16 | $5.30 | $4.14 |
The contribution never moves. The profit per unit climbs anyway, and all of it came from division.
Try it
The same $638.62 block on a slow day's 75 units.
Average fixed cost = Fixed block ÷ Units
Fill in the boxes.
2) Payback and ROI: is an investment worth it?
Payback (days) = Investment ÷ Extra Profit per day
ROI = Annual Extra Profit ÷ Investment × 100
- A $10,000 truck that adds $250 a day pays back in 10,000 ÷ 250 = 40 days.
- A $10,000 truck that adds $3,650 a year has an ROI of 3,650 ÷ 10,000 = 36.5%.
Payback asks "how long until I get my money back?" ROI asks "what rate is this money earning?" A shorter payback and a higher ROI are both better.
3) The catch: a second truck is not a copy of the first
The word that matters in both formulas is extra: what the new truck adds to the whole business. In this sim a second truck adds less than the first one earns:
- Its crew serves a bit less: three staff give about 535 units of capacity instead of 570.
- Its admin cost is higher: $39 a day instead of $25.
- It pays its own district fee, and more trucks means more that can go wrong.
- More trucks thin the crowd each one draws, Truck 1 included.
Say Truck 1 nets $300 a day. Assume Truck 2 is a copy and the payback is 10,000 ÷ 300 ≈ 33 days. Now be honest: Truck 2 nets $160 and Truck 1 slips to $280. Extra profit = (160 + 280) − 300 = $140 a day, and payback is 10,000 ÷ 140 ≈ 71 days.
Quick self-check
(a) Fixed costs of $520 over 130 units: average fixed cost? (b) A $10,000 truck adds $160 a day: payback? (c) Its annual extra profit at that rate, and the ROI? (Answers: $4.00; 62.5 days; 160 × 365 = $58,400, so 584%.)
Common mistakes
- Using total profit. An investment is judged on the extra profit it adds.
- Assuming truck two earns what truck one earns. It serves less and costs more.
- Mixing up payback and ROI. Payback is in days; ROI is a percent.
This week in the arena
Find your busiest and slowest day this week. Divide each day's fixed block by its units served and put the two numbers side by side: that gap is economies of scale in your own data. If your crew is talking about a second truck, write down the extra profit per day you honestly expect and the payback it gives.