Your restaurant may be profitable, but are you maximizing your revenue potential? You might not know it, but there is a formula that can help you figure out the average amount of revenue per square foot. The data can be used to calculate how many tables and chairs you need for your restaurant or even how much food to order. This guide will give you all the information necessary to calculate this number and maximize your profit margins.
The sale per square foot of your restaurant is a good indicator of how much money you will make. Full-service restaurants should average at least $150 per square foot, while limited-service restaurants should average no less than $200 or more depending on the type of food they serve and if it has alcohol as well. Of course, high-profit places can easily double these figures with ease!
In the restaurant industry, sales per square foot are the most reliable indicator of a restaurant’s potential for profit. It is a brilliant restaurant strategy and one of the essential restaurant metrics. To calculate sales per square foot, divide annual sales by the total interior square footage including kitchen, dining, storage, restrooms, etc. This is usually equal to the net rentable square feet in a leased space. The size of a brick-and-mortar location often referred to simply as “square footage,” is a key factor in the success of a business. This line item makes up a considerable percentage of your fixed costs, impacting your bottom line.
The dollar value of sales per square foot is often used as a measure of success in the restaurant industry. It simply implies the average revenue earned for every square foot of sales space. It is used to measure the efficiency of a store’s management in creating revenues given the amount of sales space available to them. To calculate sales per square foot, divide annual sales by the total interior square footage of the restaurant, including kitchen, dining area, restrooms, etc. This is usually equal to the net rentable square feet in a leased space.
Sales Per Square Foot = Annual Sales/Square Foot
In most cases, full-service restaurants that do not generate at least $150 of sales per square foot have extraordinarily little chance of generating a profit. For example, a 4,000-square-foot restaurant with annual sales of anything less than $600,000 would find it exceedingly difficult to avoid losing money. This works out to $50,000 in monthly and $12,000 in weekly sales.
Limited-service restaurants that generate any less than $200 of sales per square foot have little chance of averting an operating loss. Industry averages reveal that limited-service restaurants tend to have slightly different unit economics than their full-service counterparts. Higher occupancy costs (on a per-square-foot basis) and lower check averages are two of the primary reasons for this difference.
At sales levels of $150 to $250 per square foot (full-service) and $200 to $300 (limited-service), restaurants with effective cost controls may begin to approach break-even, with some well-managed operations able to achieve a net income of up to 5 percent of sales.
At sales levels of $250 to $325 per square foot (full-service) and $300 to $400 (limited-service), restaurants may see moderate profits, which are defined as 5 percent to 10 percent net income (before income taxes) as a percentage of total sales.
Top fast-casual franchising restaurants outperform restaurants in other sectors with an average of $505 per square foot. We will here use Wayback Burgers as an example. This is great news for an inexpensive burger franchise like Wayback Burgers, where the buy-in costs are low, and the restaurant sizes are reasonable.
With fast-casual restaurants franchise, you can expect the initial investment to hover somewhere between $209,000 and $524,500, making it more accessible to entrepreneurs looking for the opportunity to start their fast-casual burger franchise for well under $1 million. For investors with access to more capital, a lower investment level means the opportunity to build multiple locations over a shorter period.
The restaurants themselves have a small footprint — average traditional fast-casual restaurants are between 1,600 and 1,800 square feet (about half the area of a tennis court) — in contrast to the average McDonald’s or Burger King franchise (traditional locations for both are 4,000 square feet), which means costs associated with real estate, buildout, and equipment are less.
By keeping the costs low on the front end, fast-casual restaurants can provide their franchise partners with a foundation upon which they can build a thriving and prosperous business.
Wayback Burgers, for instance, was listed as one of the Top 10 fast-casual restaurant franchises for 2019. If you are looking to invest in a new restaurant, but are not sure where to start, Wayback Burgers and other fast-casual restaurants hit all the benchmarks for an inexpensive burger franchise. As a fast-casual dining concept, fast-casual restaurants offer a most accessible point of entry and opportunity for growth.
The average profit margin for restaurants is between 2% and 6%
The dollar value of sales per square foot is a measure of success in the brick-and-mortar retailing industry. It is simply the average revenue earned for every square foot of sales space.
To gain true business insight and value from these metrics, restaurant owners should get in the habit of calculating and recording them regularly, on a weekly or monthly basis. Over time, this allows restaurant owners to compare their establishment’s current performance to historical data to identify problem areas and trends, especially considering the COVID-19 crisis. This is important while also considering menu type, distribution, labor costs, and other additional costs.
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