If you wish to start a restaurant, here are a few Golden Ratios you need to follow…
👉🏼 Your food and labour expenses should total to not more than 40% of your net revenue…
This could be 30% food cost and 10% labour if you’re a QSR…
Or a 20% food and 20% labour if you’re slightly fine dine / upmarket casual dining…
The ratio between these expenses varies based on how fast food cash and carry you are vs how experiential you want the restaurant to be…
The more experiential and upmarket, the labour cost percentage rises compared to the food cost.
👉🏼 Your rental should ideally not go beyond 15% of your net revenue…
It’s because most organized locations such as malls have a revenue share agreement varying between 12 to 18%
The more footfall a location attracts and the more difficult to get a vacant spot in such property, the higher this gets.
Mostly at 18%… you’ll find it harder to make a profit. So keep it within 15% that should be about 1.5x your minimum guarantee rent.
👉🏼 Keep aside 10% for overheads and utilities like electricity, water, gas
👉🏼 10% goes into marketing and distribution, including commissions on sales through deliveries
👉🏼 Another 10% for repairs, uniforms, consumables, cutlery and everything else.
👉🏼 That leaves you with a profit margin of about 15% which should ideally pay off the capital investment made to set up the place within 24 months
👉🏼 Once you’re able to achieve these targets, you must find a way to multiply your earnings by replicating the model at multiple locations.
Remember, location is the most important factor to select if you want profitability for a restaurant.
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A Chartered Accountant with about 10 years of experience in areas of Tax Advisory, Startup Consulting, Fundraising, Audits, Deal Advisory, Business Modelling and contract CFO services.
Winner of the ISB Young Leader Award 2017 and the Best All Rounder, PGP Class of '17, Sarthak has also been published about in the leading financial newspapers such as The Financial Express as possibly the youngest Indian to have completed the courses of CA, CS and CMA along with a graduate degree in Financial & Investment Analysis from University of Delhi, all by the age of 23 years.
