How Much Does It Cost To Run A Restaurant
If you’re planning on or dreaming about opening a restaurant or coffee shop, understanding how much it costs to run a restaurant is a must.
The cost of running your restaurant will depend on what kind it is – coffee shop, full service, takeout-only, etc; whether you lease or rent the building; the cost of living in your location; and many other factors.
Start-up costs alone can be anywhere from $275,000-$425,000, and then you’ll be adding ongoing costs of keeping the business up and running. You also must factor in increases of cost of goods and rising employee wages due to inflation and taxes.
We know it’s a lot to think about, so in this article we’re going to break down all the costs associated with running a restaurant so you can make the profit required to be a successful restaurant owner today.
Breaking Down The Costs to Run a Restaurant
A lease can cost anywhere from $2,000 to $12,000. A loan is an extra 10% for down payment, and security deposit of $2,000-$12,000.
Buying a space will incur taxes, construction and/or renovation. Leasing a space will mean renegotiating regularly as the price may increase.
- Property insurance: $1,000-$2,500.
- Business registration fees: $100-$1,200 with renewals
- Liquor license: $50-$300,000 (One way to lower the liquor license cost is to get a satellite license, where a specific (in-state) bar or distillery uses your restaurant as a satellite location).
- Music license (ASCAP, BMI, SESAC): $200-$2,000/year
Permits: can include building, health, alcohol tax, food handler, and zoning.
Unless you’re a small shop with only the owners, you’ll have to hire help:
- Manager: $28,000-$55,000 yearly.
- Head chef: $1,300-$1,800 weekly.
- Line and prep cooks: $575-$650 weekly.
- Wait staff: minimum wage plus tips.
Labor costs include wages plus health insurance, benefits, overtime, payroll taxes, sick days, vacation days and bonuses.
The average percentage for labor cost from various types of restaurant businesses (quick service, casual, fast casual, upscale casual, and pizza) range from 28.9%-33.2%.
Cost Of Goods Sold
If you buy high-quality products, your cost of goods will be more; if you have a limited menu, it will be less. Different vendors may charge differently, so keep tabs on more than one to get the best price at any given time. Market prices of certain items will vary with season and supply/demand.
Cost of food should stay under 28-32% of the total costs of all food and beverages from your budget.
Utilities average around $2,500 per month or 5-10% of revenue for most restaurants. Utilities can include gas, electricity, water, phone, internet, cable, phone, trash pick up and more.
General Administrative Expenses
Administrative expenses can include payroll, insurance, and office supplies. Admin expenses can also include others already listed, such as license fees and paying accountants or lawyers.
Equipment can cost $100,000-$300,000. Here are some of these:
- Buying or renting kitchen and cooking equipment, such as cookware, refrigeration and freezer, dishwasher, stove, ice maker, other industrial appliances, coffee maker or espresso machine, steamer, fryer, etc: $50,000-$150,000.
- Furniture, dishes and decor: $80,000.
- POS system: around $20,000.
- Hardware: $600-$3,000
- Software subscriptions: $70-$400 per month
- Training: $360-$600
- Other fees include installation, support and maintenance, and payment processing. One way to maximize your money on POS is to go cloud-based, which also has the added benefit of helping you increase revenue through internet data integration, intelligence and strategy.
- Signs and advertising: $20,000-$30,000.
- Accessibility: $30,000
Ongoing Marketing And Promotional Costs
Ways to advertise include:
- Print ads in magazines, newspapers, billboards, etc.
- Broadcasting ads on radio or television
- Web ads that are paid, like banner ads or video ads that play on YouTube
- Social Media, email and SMS strategies, loyalty programs
The first two traditional methods, print and broadcast, are the most expensive. Online paid ads are less, and social media ranges from free (if you do it yourself) to a variety of prices for social media manager/strategists or other options.
While there are benefits to all marketing strategies, the most effective and measurable approach for new and growing restaurant concepts is using first-party data that customers are giving you at the point of purchase, when joining your guest WiFi or loyalty program.
Repair And Maintenance
For starting out, if you purchase or lease a space that needs structural improvements or kitchen remodeling, for instance, you could pay $250,000-$350,000.
For ongoing maintenance of equipment, it’s a good idea to keep 1-3% of your profit for repairs and preventative maintenance.
Miscellaneous costs include anything that does not fit into one of the above categories. These can include legal fees, payment processing fees, repairs on equipment that breaks down or replacing dishes, cookware or other in-store materials, merchant fees for things like delivery services (like UberEats), and cleaning supplies.
How To Cut Down On These Costs
There are many ways to cut costs for a restaurant, whether you’re getting rid of certain things or making things more efficient:
- Train employees instead of cutting staff
- Keep employees longer by rewards and growth opportunities
- Improve and digitize processes for efficiency, with things like clocking in and out, scheduling, and inventory
- Change seasonal ingredients
- Constantly be on the lookout for suppliers with the best prices
- Make sure quality and quantity of food is always correct
- Ensure food doesn’t spoil with specials on dishes
- Make portions smaller if people are leaving food on their plates
- Use all parts of food
- Train kitchen staff to not waste
- Grow your own vegetables
- Buy in bulk with another restaurant and divide goods
- Negotiate with suppliers
- Keep track of what dishes and combinations sell more (an online integration with POS can help do this for you, which will be covered later in this article).
- Negotiate deals for packaging internet, phone and cable
- Continue to negotiate for lower rates
- Get rid of any service you’re not using
- Use sensors for lights where there doesn’t need to be constant light – like in coolers and bathrooms
- Use energy saving light bulbs and appliances
- Buy used equipment, but make sure it’s in good condition so it won’t need many repairs
- Invest in preventative maintenance
- Train staff how to handle and store breakable dishes
- Find a reputable cloud POS company to work with and spend a bit more here in order to gain more back and make it worth your while. An outdated or poor POS system will be a headache and lose you money.
Implementing A Cloud POS System
There are many benefits when choosing to go with a cloud-based POS system. It could make the difference in how fast you grow your revenue and an efficient solution to managing labor costs. In addition, a restaurant focused cloud POS system comes with the benefit of applications you can choose from that is properly vetted by your cloud POS provider.
Growing restaurant concepts need easier access to their customer data, analytics and insights to dig deeper into their customer lifecycle and a more personalized approach to customer engagement and marketing that drive results.
Customer Data Warehousing
- With restaurants extending their service capabilities beyond the four walls of each location, it is critical to know which group of customers are best served by each channel, while driving offers and promotions that reduce gaps between recency of visits. Cloud POS systems with make it possible for restaurants of all sizes to extend the customer data accessibility into your own customer data warehouse.
Restaurant Customer Analytics
- A big differentiator for restaurants running on Cloud POS systems is the possibility to dig deeper into the dimensions of their business by understanding restaurant customer analytics and how it aligns with their menu. A clear understanding of what is selling, when and where unlocks so untapped revenue opportunities.
Customer Intelligence Powered by AI
- With cloud computing, technology makes it faster and easier for restaurants to stay on top of their business and customers. With millions of data flowing through your data stack (POS, eCommerce, WiFi, Third-Party Apps) everyday, analytics powered artificial intelligence provides restaurant teams with a comprehensive view of sales performance and the marketing campaigns, offers and promotions that are increasing your revenue and profitability.
Embrace The Power Of Customer Intelligence
If you’re trying to cut down on restaurant costs, only looking at where you can cut costs can leave you at a dead end, because there’s only so much you can cut. A better strategy is to look at how to increase sales from your existing customer base, and to invest in a system to help you increase customer acquisition and gain more loyal customers.
An example of a fast growing restaurant fast-casual brand is Edley’s Bar-B-Que, the home of Nashville style bar-b-que, using a cloud POS system and customer intelligence platform to acquire new customers faster, understand what they love and have a clear path to growing customer loyalty.
It’s always more difficult to gain new customers than to get existing customers to come back and buy more. Rather than focusing on finding new people through high-cost traditional advertising, why not invest in getting to know your existing customers to tailor offers to them? They’ll come back more often, plus you’ll get more word-of-mouth business.
Imagine spending $1 per subscriber to 20x your business. That’s the power of customer intelligence when you use a service like GoGoGuest to manage your system. This is because we at GoGoGuest have helped many restaurants do just that.
So far, GoGoGuest has over 2 million customers under management with all our clients. We have seen 78% customer acquisition across all channels, 84% revenue increase for our clients, a 92% increase in customer loyalty, and 79% in cost savings for the restaurants we serve.
Why not see what we can do for your business today? Request a call back today or book an appointment and we can talk about the possibilities for how you can utilize customer intelligence to drive up revenue and customer loyalty for your store!