A restaurant owner or manager wants to know how much money it takes in sales to cover the costs of running a restaurant. That's why calculating return on investment, or ROI, for restaurants is important.
Calculating Restaurant Return on Investment (ROI)
Here's an example of how to calculate your ROI: You operate a moderately priced family restaurant open seven days a week with 60 seats. Your busy hours are as follows: Monday through Thursday - 5 p.m. to 10 p.m., Friday and Saturday - 11:30 a.m. until 10:30 p.m., Sunday - 1 p.m. to 9 p.m. Average check average is $12 per person. In addition, you provide free delivery within a 2-mile radius. Your posted prices include sales tax, and wait staff receives an average of $5.50 per hour plus tips.
For the first five months of operation, you paid $180,000 for rent, salaries, utilities, supplies and equipment, and other expenses to start up the business. Your monthly operating costs are as follows:
Lease - $3,500 Rent - $4,800 Insurance (general liability) - $1,200 Utilities (gas heat and water) - $730 Supplies (food & paper products) - $2,050 Additional Expenses (insurance carriers fee's wages uniforms advertising etc.) -$624 Payroll Expense - Employee Benefits ($15 per meal wastage) - $3,600 (4 meals per day x 60 seats) Total Monthly Expenses for the First 5 Months of Operation
This is just an example and will vary depending on your specific operations.
For the first five months, your average food cost was 33%, your average gross profit was 45%, and your labor cost (includes benefits) was 35%.
Write down a formula for what you consider a successful month. You expect to earn the same amount of money every month after the first five, regardless of season or days of the week. You also want to earn enough money to pay yourself $3,000 per month in salary. Here's how you figure it out:
Average Check Average ($12 per person). X Total Seats (60 seats). X Number of Busy Hours Each Day (7 days x 60 people/ hour ) .X 0.4 Food Cost Percentage = Gross Profit/ Sales Volume
$12 x 60 x 7 x 0.4 = $1,980.80 per day
$3,000 Salary - ($1,980.80) Gross Profit (47% X 60 seats x 7 days) = $1066.96 per day.
Calculate your restaurant ROI by determining how many successful months you will need to make the amount of money you want in a year:
$1066. 96 X 52 weeks/year = $55,280 gross profit needed annually to meet your salary goal and pay yourself for six months while still keeping the business open every day
You then divide this number by 12 months to find out how much money the restaurant needs to bring in each month to reach your goal: $55,280 /12 = $4,982.40 gross profit per month
You have to earn $4,982.40 each month for one year to make the amount of money you want in a year (total number of months you are open X average gross profit needed). You can also work backward from your goal, and instead of dividing by 12, multiply by 12 to find out how much money the restaurant needs to bring in each day on average: $55,280 X 365 days/year = $1 million total annual sales volume is needed with an estimated net income after operating costs at approximately 6% or $60,000 per year. With a busy hour average check of $7 ($12 x 60 / 7) and 1.5 meals per check (4 meals total x 60 seats), the restaurant would need to have 1,560 busy hours per year, which is equivalent to saying you must generate 534 orders per day.
A good accountant should be able to help with these figures or possibly an experienced start-up consultant who specializes in restaurants. Once you know how much money your business needs to make on a daily basis in order for you to live comfortably while still keeping it open every day, then you can determine if it's even worth going into business at all.
