Archives for June 2017

Starting a restaurant could be a daunting task, but knowing what you want your end product to look like provides purpose in the planning. The style of your restaurant should be your first decision, along with a concept. There are 4 styles of service in the restaurant industry:

1. Fast Food – see our template
2. Fast Casual – see our template
3. Casual Dining – see our template
4. Fine Dining – see our template 

Restaurants operate on thin margins, so it is vital to know the style of your restaurant when making projections. Each style of restaurant has a number of similarities and a number of differences when it comes to the financial model of the business.  In this blog post, I am going to outline how I would build a revenue projection model for each of the 4 restaurant styles.

Fast Food Restaurant Financial Projection Model

Let’s look at an example for a fast food restaurant. Because the style for this model is fast food, the average order amount is usually around $5-$7 for a meal. We will use $6 for our example. Next, think about the capacity of the restaurant. How many people will you serve? You would want to put the restaurant in a high traffic area that is easily accessible. Say the city you are putting it in has a population of 80,000 people, and half of those people would eat at a fast food restaurant once a week. Divide that between the 7 days in a week, and you have about 5,700 potential customers per day. Figuring out how many customers you could serve per day depends on your restaurant, brand, and kitchen/dining facilities. I assume that you will do 300 orders per day. So that means 300 orders per day X $6 per order X 7 days a week X 4 weeks per month is $50,400 per month in sales.

Here are the steps with the math I used in creating this revenue projection:

Total Addressable market

1. City = 80,000 people
2. People who eat at a fast food restaurant once a week = 40,000
3. Divided by 7 days per week = 40,000 / 7 = 5,700 potential customers

Revenue Projection

1. Restaurant capacity = 300 orders per day
2. Average order amount = $6
3. Average daily sales = $6 x 300 per day = $1,800
4. Monthly sales = ($1,800 x 7 days) x 4 weeks = $50,400

Splitting that between food and beverage sales respectively results in the revenue sheet below using the ProjectionHub application:

 

Fast Casual Restaurant Financial Model

A fast casual restaurant should provide food in a short wait span, but it’s quality of food, ingredients, and experience is considered an upgrade from a fast food restaurant.  Meals usually cost between $7-$15. Chipotle, Five Guys, and Panera come to mind when thinking of restaurants in this category. Capacity for this model is similar to a fast food restaurant because customers typically order themselves; there is no server to seat them and place their order. They are typically open for lunch and dinner. For example 5 Guys is open from 11:00 am to 10:00 pm. This means it is open 11 hours, and say it can serve 50 customers every hour when it is busy, but it also would have slow hours. Using an estimate of 30 customers per hour, this means that ideally there would be 330 customers per day. However, to use a conservative estimate, I used 200 customers per day in my model.  An average order of $11 is used in my projections too. These restaurants also have catering available too, which varies per restaurant. This revenue projection can be found with math similar to below:

1. Number of potential customers based on proximity= 10,000
2. % of people who eat at fast casual restaurants = 40%
3. Equals number of potential customers per day = 10,000 x 40% = 4,000
4. % of market that will choose your restaurant = 5% or 200
5. Average menu order = $11
6. Average daily sales = $11 x 200 = $2,200
7. Assuming $500 per week in catering
8. Total monthly sales = (($2,200 per day x 7 days) + $500 in events per week) x 4 weeks per month = $63,600

These projections may be modest. If you are to purchase a franchise, it may have more success depending on the name and reputation of the restaurant.

Casual Dining Restaurant Revenue Model

Going down the line, the casual dining restaurant is more upscale than a fast casual restaurant. Prices typically range from $10-$20 for meals, and customers are seated while a waiter takes their orders. Restaurants may include a wine or bar menu as well. Common chains of casual dining restaurants include Olive Garden, Texas Roadhouse, Maggiano’s, and Chili’s Grill and Bar. Because it relies on customers eating within the restaurant, you have to consider additional factors in developing a revenue projection. What type of people will are trying to attract? Will the restaurant be open for breakfast? What will the layout of the restaurant look like? How much seating is available? How long will the average customer be at the restaurant? Here are some assumptions I made for my projections:

• 130 seats in the restaurant
• Average order is $16
• Open for lunch and dinner (11:00 am to 10:00 pm)
• At full capacity, will serve 130 for lunch and 100 for dinner

From here, we can do some math to project your revenue:

• Average menu order = $16
• Average daily sales = $16 x 230 = $3,680
• Total monthly sales = ($3680 per day x 7 days)  x 4 weeks per month = $103,040

Keep in mind while this seems like more revenue compared to the previous two models, the costs of a casual restaurant may be higher than a fast food or fast casual restaurant as you need servers and have the task of keeping eating areas clean.

Fine Dining Restaurant Projection Model

A fine dining restaurant is usually at the top-of-line restaurant. Prices are the highest compared to other styles of restaurant, but the quality of food and level of service reflect the higher price. This article describes several items that factor into a more expensive dining option. The market of customers that will eat at a fine dining restaurant is also smaller than most other restaurant models, but price point of average orders can be much higher. For my revenue projections, I will assume the average order is $50. When will the restaurant be open from? I assume this fine dining restaurant will only be open for dinner. Another question to consider is how many customers will you have each night. This question-answer on Quora gives some good criteria to think about for the capacity of your restaurant. The following are some steps that I think are helpful:

1. 80 seats in the restaurant
2. 130 covers for dinner
3. $50 per average order
4. Total monthly sales = ((130 x $50) x 7 days per week) x 4 weeks = $182,000

In the revenue model I made on ProjectionHub, I added a third category for desserts because some customers may come just for dessert that the restaurant specializes in serving. The revenue split between food, beverage, and dessert is: 60% food, 20% drinks, and 20% desserts.

Hopefully these descriptions give you a good idea on what your revenue may be if you are starting a new restaurant! ProjectionHub has business models for all four styles that make starting your projections quick and easy as well as other food/dining templates including a coffee shop financial plan excel template and a donut shop financial projections template.

Photo by Valeria Boltneva from Pexels