Is your Restaurant Profitable?
Curious to know if a new restaurant will be profitable? Take annual sales & divide by the total square feet of the restaurant (including the kitchen, dining room, storage areas & restrooms). Because sales per square foot is the most reliable indicator of the potential profitability of a restaurant, you should crunch these numbers sooner rather than later.
Here’s the formula (hello 8th-grade Algebra!): Sales per square foot = Annual Sales/Square feet.
For a full-service restaurant:
Under $150 per square foot = very little chance of generating a profit.
$150 t0 $250 per square foot = break even up to 5% of sales.
$250 to $325 per square foot = 5% to 10% of sales.
Let’s look at an example: Cory’s deli is a small coffee and sandwich shop offering a full-service dining experience. The space is small, only 1500 square feet but the restaurant brings in about $300,000 per year. Using our formula we know sales per square foot = $200 ($300,000/1500 square feet). Therefore, Cory’s deli should break even each year.
Besides sales per square foot, occupancy costs, which are not controllable by management can have a significant effect on profitability. Owners should limit occupancy costs (rent, CAM, insurance, etc) to 8% of sales in order to avoid any ability to generate an adequate profit.
Most importantly, if your accounting systems are not giving you immediate and timely information, you should think about automating your systems today. With our system set-up, we can give you near live accounting information that will help you better manage your restaurant.
Call us today, we’re happy to help!