A restaurant can be expensive to open. For example, opening a fast-food franchise costs more than $1 million, and funding a fine-dining founding might cost more. According to a poll by Restaurant Owners, the average price to operate a restaurant is $375,500. But costs will differ according to the size, location, and several other choices you’ll make along the route. The key to working for yourself in the restaurant industry without going broke is to start the process with the correct budget, regardless of the type of restaurant you intend to open.
Food Expenses
The price of food greatly influences your running expenses. It accounts for between 28% and 35% of a restaurant’s recurring costs. Depending on the type of menu items you intend to provide, the price may also change. For instance, food expenses in a steakhouse can reach 40%, whereas they might be closer to 28% at an Italian restaurant.
It’s critical to consider how much revenue your menu items will provide. Due to its popularity and sales volume, a menu item with a 35% food cost may make more profit than one with a 28% food cost. Therefore, it’s crucial to consider marketing things based on their “gross profit contribution” rather than just their low food prices.
Food prices are erratic. Natural disasters such as hurricanes or other severe weather events can change everything suddenly. Additionally, you are at the mercy of trends that raise expenses and demand. You are susceptible to supply-and-demand problems, which could increase food prices if, for instance, avocados become a popular product on the market.
Vendor partnerships are also essential to start and running a successful restaurant business. According to one survey, 4 out of 10 restaurant owners actively bargain with suppliers to keep their food costs down. So as you develop connections with vendors and make plans, consider this.
Finally, consider food waste. Between not having enough of something and having too much of something is a tricky line to walk. According to one survey, 58% of restaurants have trouble adequately managing their inventory and end up ordering too much food, losing both money and food.
Labor Costs
Your running expenditures are largely made up of labor, which includes hourly salary, vacation pay, sick pay, employee benefits, payroll tax, and other expenses.
Restaurants aim to maintain labor costs between 25% and 30%. Casual eating is at the top end of the spectrum, while quick-service restaurants are at the lower end. Wondering how to determine your labor cost percentage?
It only requires dividing your total labor expenditures for some time by your total revenues for the same period, then multiplying the result by 100.
Your labor cost depends on market conditions and newly implemented rules. In addition, there is a chance that labor shortages will raise these prices as well. According to one research, 7 out of 10 restaurants have trouble filling vacancies because of a labor shortage.
Rent
Any restaurant needs space, and the price depends on your objectives. The cost will be significantly more for a large restaurant with a large eating area than for a small restaurant that only aims to offer pickup and delivery services. 5% to 10% of a restaurant’s monthly expenses are often covered by rent. According to a poll, a restaurant’s median monthly rent is $5,000.
Tech expenses
Technology is now the foundation of the customer experience in the restaurant industry, compared to a few decades ago when it had a minor impact. Without the proper technology, you risk giving clients poor experiences, which can drastically lower profitability. Therefore, when making technological plans, take into account the following:
- A system for scheduling employees. A scheduling system can be crucial because over one-fourth of restaurants claim to spend three hours or more preparing personnel schedules.
- A point-of-sale system (POS). For a flawless client experience, a strong POS system is essential. Furthermore, according to 70% of restaurant operators, having access to insights from their POS system helps them increase earnings.
- A single delivery platform and table. It’s critical that your system integrates seamlessly with several vendors to establish a consistent process if you provide delivery services.
Depending on the tools you choose to employ, the cost of your technology will change. Whatever the case, pick solutions that let you obtain insights.
Other expenses
There are a few additional areas to think about when you list the prospective costs of operating your restaurant.
Costs of development of marketing. Marketing can help you turn your food business from an unknown to one people respect and admire.
Decor and remodeling expenses. You’ll probably incur some remodeling expenses even if you rent a commercial facility that was formerly a restaurant—budget somewhere between $5,000 to $100,000 or more.
Kitchen appliances. Whether you decide to buy the equipment outright or lease it, it will affect the cost of the kitchen appliances. You’ll also need to buy supplies like plates, glasses, linens, and other things for dining in restaurants. You can also need a laundry service to clean your restaurant supplies.
Licensing. Depending on your region and local regulations, a company license can cost anywhere between $75 and $7,000 or more. Depending on state laws, the first cost of a license for a food handling business is from $100 to $1,000, while the initial cost of a license for a bar or restaurant ranges from $300 to $14,000.