Many people have aspirations of opening a restaurant at some point in their lives. Whatever your reason for doing so might be, there are many different costs and factors you need to consider before opening your business. Only 41% of restaurants will make it past the first 3 years of opening so you need to have a detailed plan in place to increase your chances of profitability and success.
In 2018, 13,251 restaurants were opened, which is a 2% increase from 2017. With so much competition, how will you make your restaurant stand out?
The average cost of opening a restaurant is not low and ranges based on your wants and needs. You can expect to shell out at least $60,000 to open a restaurant between start-up costs, marketing, labor, and equipment but you can easily spend much more.
What Kind of Restaurant are You Opening?
When trying to determine how much your restaurant will cost to open, you need to have an idea for your restaurant. Will it be a fine dining restaurant or will it be fast-casual? This is something you need to know before estimating the costs as each type will have different costs.
Fast Food
By opening a fast-food restaurant, you can tap into a $100+ billion industry. You’ll be competing with some of the most popular restaurant brands around like McDonald's, Chick-fil-A, and Wendy’s. Quick service restaurants (QSR), can offer a relatively low barrier to entry with a small amount of real estate required to open your doors.
Dine-In
Dine-In restaurants can be the most expensive to open because of the amount of space required to seat your guests and the increased labor costs. However, they can also offer some of the highest margins. Restaurants can serve their meals at a premium to cover these costs.
Fast Casual
Restaurants like Panera Bread, Shake Shack, and Five Guys are prime examples of cast-casual restaurants. They are a hybrid of fast food and casual restaurants in which you commonly will serve yourself but the food is prepped to order.
Ghost Kitchen
Ghost kitchens (or virtual restaurants) are becoming increasingly popular in 2020. These restaurants ditch the front of house operations and only offer their food to-go or delivery. One of the largest advantages of opening a virtual restaurant is the lower costs, but they also pose their own challenges.
Franchise
Franchises can be some of the least and most expensive restaurants to open. A Subway franchise, for example, can cost you only a couple hundred thousand to open whereas a Wendy’s will cost you at least $2 million to open. You should read the franchisor agreement to get a baseline of costs to open your restaurant.
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Where is your restaurant located?
The location of your restaurant will be on the most expensive start-up costs but is a critical component of its’ success. The real estate you choose to purchase can have a huge impact on your restaurant’s foot traffic. You’ve probably heard of the three Ls of real estate, location, location, location, and it’s no different when it comes to commercial real estate. You should aim to find a location in a high traffic area with easy access.
The type of restaurant you plan to open should also be considered when choosing its’ location. For example, a high end, fine dining restaurant should be located in an area when the average income is high. It’s important to do your research about your area before making any commitments.
Geographical Costs
When deicing on what location is right for you, the geographical location will have an impact on the cost. For example, real estate in California is more expensive than real estate located in Indiana.
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Renting vs Buying Your Location
Do you plan on renting space for your restaurant or will you build a new restaurant on land that you own? How you answer this question will have a major impact on how much you’ll end up spending. If you plan to rent a location, the upfront cost will be much cheaper but you’ll end up paying a monthly cost that you will never recoup.
According to a survey by RestaurantOwner.com, the average cost of rent for a 3,500 square foot location is $5,000 per month or $60,000 annually.
If you plan to purchase land and build your restaurant, the costs will be much higher, but the land itself can also be considered an investment on its own. Because land will typically appreciate in value, if you have the cash, it might make sense to purchase your real estate.
To estimate the cost of building your property, you’ll need to understand where your potential location will be, the square footage, and the quality of the build. You should expect to spend $100,000 to $5 million+ on your property if you plan to build it yourself.
What equipment do you need to start?
Once you have determined the location of your restaurant and it’s cost, you’ll need to figure out how much your equipment will cost. Equipment costs can vary depending on the type of restaurant you plan to open but we’ll cover some of the most common expenses.
Grill
Restaurant grills can vary on price depending on the brand, size, and features of your grill. You can plan to spend anywhere from $5,000 to $50,000 on your grill with $12,000 as a baseline for a decent grill.
Oven
In addition to a grill, you’ll probably need an oven to heat food. Similar to grill costs, you can plan to spend anywhere from $10,000 to $75,000 for your oven depending on size and functionality.
Food Warmers & Heat Lamps
After your food has been prepped and is waiting in the expo area, you’ll need a way to keep is hot before it gets to your guest. Between food warmers and heat lamps, you can expect to shell out $250-$1,500 between them depending on your needs.
Walk-in Refrigerator/Freezer
To keep your perishable ingredients from spoiling, you’ll need a place to store them whether it’s a refrigerator or freezer. Depending on the size of your equipment, you can expect to spend between $10,000 to $70,000 for each.
Counters
For many restaurants, you’ll need a counter or host stand. The costs can range from $1,000 to $5,000 for your front counter space depending on the material and amount needed.
Tables, Furniture, Decor
Depending on the type of restaurant you plan to open, you’ll more than likely need some sort of seating and furniture as well as decor. These costs are completely arbitrary and based on your restaurant's layout and style. You should plan to spend at least a few thousand dollars on these costs but you can easily spend much more. It’s safe too budget $15,000 to $45,000 for these costs.
Dishwasher/Sinks
You’ll need a place to wash your dishes and keep them sparkling. You can plan to spend $2,500 to $25,000 on your restaurant's dishwasher.
Flatware, Cutlery, and Other Dining Necessities
If you need flatware, cutlery, cups, or other dishes, you can plan to spend $1,000 to $2,500 on these items. If you’re looking to cut costs, you could consider plasticware instead.
Small Appliances
Blenders, microwaves, and other small appliances can be one of the hidden costs when opening a restaurant. You can plan to spend $2,000 to $4,000 on these items depending on your needs.
Cleaning Supplies
In order to keep your restaurant clean, you’ll need various supplies. Plan on spending $250 to $1,000 in cleaning supplies upfront when opening your restaurant.
Menus
If you are opening a fine dining restaurant, you’ll need to purchase menus to display your offerings. Not only will you need to pay for the physical menu but also the design of the menu. Depending on the number of menus you need, you can expect to spend anywhere from $250 to $2,000 on menus with the design costing around $250 to $1,000.
Other Items
There are many other small items you’ll need to successfully open a restaurant. From kitchen tongs to paper and office supplies, you can expect to spend $250 to $2,000 on various items found throughout your restaurant.
Restaurant Technology Costs
Whenever you open a restaurant you’ll need to way to take and process orders. This uses various forms of restaurant technology outlined below.
POS System
How will you receive orders and take payments? A POS (Point of Sale) system will allow you to take orders to process payments electronically making it easy to understand how your restaurant is doing. While a POS system is technically not required, we highly advise purchasing one to keep your restaurant running smoothly and efficiently
POS Systems vary in cost depending on the functionality. One of the most common POS Systems, Toast, offers a monthly cost as low as $79 plus the cost of hardware and installation. You can plan to spend around $2,500 upfront for your POS system plus an ongoing software maintenance cost.
Some of the top POS Systems for small businesses are:
- Toast POS
- TouchBistro POS
- Clover POS
- Lightspeed Restaurant POS
- Square POS
Kitchen Display Systems
The days of paper tickets are over. A kitchen display system will seamlessly send orders from your POS system to a screen in your kitchen so your cook is always aware of what’s going on. KDS’ can offer many different features including meal coursing, order routing, and real-time data so that you can keep an eye on your restaurant wherever you are.
Kitchen display systems can cost up to $10,000 per station. Some companies also offer monthly pricing which can cost $99 per month or more. Some of the most common KDS systems are:
- Toast KDS
- ConnectSmart Kitchen KDS
- TouchBistro KDS
Cost to Develop Menu
When you decide you want to open a restaurant, you probably have a good idea of the type of restaurant and what kind of food you want to serve. But what about the actual recipes? You will need to hire a head chef to develop your menu based on your wants, or you can try to make it yourself. Both ways can work, but the first tends to be more successful as a chef will have a good idea of what ingredients are the most cost-effective for restaurants. If you plan to have a chef develop your menu, expect to spend $2,000 to $10,000.
How much will inventory and food cost?
Whenever opening your restaurant, you’ll need to purchase ingredients in advance. These costs depend on the type of food you serve.
You’ll need to first source your ingredients from suppliers either from a local vendor or a larger vendor. As a rule of thumb, its a good idea to have 5-7 days worth of food inventory on hand to ensure you do not run out when guests arrive.
When you first open your restaurant, you can expect to spend between $1,000 and $7,000 on food and inventory costs but it depends on the style of your restaurant.
How much will staff cost?
Depending on the style of your restaurant, you can assume you’ll need at least a few staff members operating the restaurant during normal hours. You’ll need someone to prepare food, someone to take and process orders, and possibly someone to manage your staff and allow for your employees to take breaks.
You should also set aside one to two weeks before your restaurant opens to train your staff appropriately. If we assume you employ 6 staff members working at your restaurant for 12 hours per day, and you pay them on average $10 per hour, this will cost you $720 per day in staffing costs. If you assume 30 days per month, you should budget around $22,000 per month in staffing costs.
It’s up to you to figure your needs. If you only need 4 or 5 employees or you are only open 10 hours per day, you can save on your staffing costs.
Taxes for Employees
One of the most overlooked costs of employees is the taxes that come with employing. To find the true cost of your employees, it’s common to multiple their salary or hourly cost by 1.25 to 1.4 to account for the costs of taxes and basic benefits.
Payroll Software
If you have employees, you’ll need a way to manage how they get paid from an operational standpoint. For many, that means purchasing payroll software or outsourcing the work. The costs of payroll software are typically based on the number of employees plus a basic fee. For example, some payroll software companies will charge $15 per month, plus $5 per employee.
Outsourcing your payroll work is another option if you do not want to deal with it yourself. The cost to outsource your payroll varies, but you can expect to pay around $20 to $250 per month.
How much will marketing your restaurant cost?
When you first open your restaurant, you’ll need some way for potential guests to know about your eatery. This is primarily done through marketing. Depending on the size of your restaurant you should plan to allocate $5,000 to $30,000 to market your restaurant when it first opens. You should also plan to allocate a few thousand dollars per month after your restaurant opens to keep guests flowing in.
Types of marketing
Marketing in 2020 brings you endless options. You could opt to market your restaurant on social media or use more traditional methods such as direct mail or radio advertising. Each offers its own advantages and disadvantages. Some methods like social media advertising offer an easy ability to track your marketing spend against the results you are optimizing towards (like website visits or check-ins). Other methods (like radio and television) are more of a “spray and pray” method in which you aim to get your message across to as many potential customers as possible in hopes of them coming to your restaurant. These methods are much more difficult to track as you will not know if they came to your restaurant because of an advertisement or for some other reason.
How to Build a Successful Restaurant
Building a successful restaurant is not a simple task. You must coordinate many aspects of your business to pave your path to profitability. You’ll need to keep customers happy, offer a unique experience, and provide value to your guests.
Give Customers a Reason to Return
The easiest way to become successful as a restaurant is to keep guests returning. Why? Think of it this way. In order for your customers to visit you, you must have marketed to them in some form or fashion. This comes with a cost (cost per acquisition). By keeping guests returning, your marketing spend for the second visit would amount to $0, making it much more profitable for you as a business.
There are many different ways to keep guests coming back and some are more simple than others. You could offer amazing food, you could offer superb service, or you could offer a loyalty system. All of which might work for your business.
Food Quality Matters
Keeping your food quality high is key to your restaurant's success. It should tasteful, hot, and well presented when it arrives to your guests. You’ll be surprised by how many restaurants fail because of this main aspect of their services. After all, people visit restaurants for there food!
Make it Easy to Access
The location of your restaurant is one of the most important factors for your restaurant to be successful. You need to make sure that it is in an area that is easy to get in to and aligns with the surrounding population.
Make Customers Aware
You cannot expect your restaurant to open and everyone know about it but many restauranteurs still believe they can pull it off. You need to have a marketing budget in order to drive visitors to your restaurant.
Give it Time to Grow
You cannot expect overnight success when it comes to any business and a restaurant is no different. Ensure that you are able to cover 6-12 months of expenses while you grow your business.
Conclusion
Like any business, opening a restaurant is both exciting and scary. The costs can be very high but they can be extremely profitable. You should have a plan in place to ensure your restaurant's success. The typical cost to open a restaurant ranges from $60,000 to well over $5 million depending on the type, location, and size of your restaurant.
You should analyze all of the potential costs of opening a restaurant like marketing, payroll software, initial inventory, and your rent or property costs when planning your expenses. Once you have written down all of your costs, it’s wise to add another 10 to 20% for any additional hidden costs you might have forgotten.
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