You need to forecast sales accurately to be a successful restaurant entrepreneur. Projected sales is a critically important part of your business plan that must be included. If you’re not sure what projected sales are or how to start making realistic, accurate sales estimates for your restaurant startup, this guide will help you understand the factors that determine projected sales for new restaurants, what to research and where to get started.
Why Make Sales Projections?
Although an estimate of a restaurant’s net sales is probably the most complicated figure to accurately project, it’s important to at least get in the ballpark to move forward with your plans. Just keep in mind that net sales are dependent on many things, so even the best projections are hard to justify as anything but an informed guess.
That being said, unless you have a crystal ball this is the best we’ve got. Sales projections help you understand if a restaurant concept is profitable, how much to spend in startup costs and what the priorities for spending your startup capital are.
Projected sales are how you know where to locate, and what designs to use, what to put on the menu and the kind of service to provide guests. Every decision you make for the restaurant can be seen as based on sales so the more accurate your predictions, the better prepared you’ll be.
Continually Update Sales Projections
Just like when projecting costs, we start with what is at best a rough guess. As we move forward with our startup plan and perform research, we gain additional insight and must adjust our model for accuracy.
Likewise, when projecting future sales, we start with a vague idea that turns into an informed guess and hopefully evolves into an accurate projection of restaurant sales. It’s important not to make an overly rosy sales projection to look good or cover a gap between projected cost and projected sales. Sales projections need to be researched, based on sound data and regularly updated.
For example, if you didn’t expect sales to be affected by seasonality and you later find out sales in nearby restaurants drop 12-15% in the cold months, you certainly need to update your projections to reflect this. And perhaps more importantly, you’ll want to reconsider other choices you made based on an incorrect forecast that expected more income.
“The majority of your restaurant sales will come from the people living in the immediate area around your restaurant - 10 miles or less!”
How to Use Sales Projections
This isn't just about making accurate predictions for its own sake. What really matters is how we use what the numbers tell us. By making a calculation of expected sales before we spend a dime, we know if an opportunity that comes along our way is a good investment of our time and money. If we understand how our choices affect sales, and to what degree, then we can estimate the ROI (return on investment) for the money that’s spent doing things like marketing or getting a new sign.
How to Project Sales
Let’s look at a few ways to approach estimating what future sales might be. Three categories of factors in restaurant sales are:
Logistics - How many guests you can physically serve given the space, time and resources. Factors range from the amount of kitchen space, dining room space, type of cuisine, maximum capacity ordinances and more.
Population - How many people are potential guests given the time of day? This is the maximum number of individuals available to eat in your restaurant and is determined by demographic research. Most people you serve will come from within a few miles of your restaurant. Under- standing how the population of the area and the foot traffic in front of your restaurant relates to your expected sales is a must.
Market - Is there unfulfilled demand for a particular kind of guest experience? Will you serve the same guests as other restaurants in the area or will you compete by doing something special? What can you expect different advertising methods to bring in compared to the cost? What are other businesses in the area that serve in this market seeing for sales volume? It’s important to note that restaurants shouldn’t try to appeal to everyone’s taste. In the same way, you should never spend your life trying to make everyone happy. Find people in your local community who you will reward you for providing them with a service and make them happy.
Logistics - How Many Customers can a Restaurant Serve?
If you’re considering a location to choose for your new restaurant, there are a lot of things to take into account, obviously, but where do you start?
Estimated average table turn times by service type:
- Quick Service - 20 min
- Fast Casual - 30 min
- Full Service - 90 min
Estimated space required per seat by service type:
- Tight Seating - 11 Sq. Feet
- Casual Seating - 12 Sq. Feet
- Spacious Seating - 15 Sq. Feet
Kitchen size requirements much more variable and depends largely on the type “ of food you’re planning to serve. Remember, your projections get better when you have more details. But there are ways to measure how fast you can move food out of the kitchen to the dining room.
The square feet of space available in the location you’ve chosen for your restaurant will determine what types of service you can have and how many guests you can serve. The first step to a rough sales projection is knowing the maximum number of people that could even be served.
“The square feet of space available in the location you’ve chosen for your restaurant will determine what types of service you can have and how many guests you can serve.”
Formula to calculate the number of guests a restaurant can serve:
Let’s say dinner service is 4 hours, from 5 PM to 9 PM. If you were to figure an average turn time at a similar restaurant is about 40 minutes, and you have 100 seats, that means that the maximum number of guests you can serve during dinner is 600. That’s getting six turns per seat, in a 4 hour period.
The formula for calculating the maximum number of guests you can serve is number of hours in service, divided by table turn time, multiplied by number of guests who can fit in the dining room.
Keep in mind that this is the maximum number of guests you could possibly serve under ideal conditions. But this should get you thinking about the real questions that need to be answered to run a restaurant.
Depending on the type of service you’ll have different needs for kitchen size, how much you charge, how much storage and prep space you need, and how many staff members are on duty as well as other variables.
To estimate the maximum amount of sales using the maximum number of guests you could serve, multiply the number of guests by the estimated check size. This initial calculation should help you identify spaces that would never be profitable because there aren’t enough seats, turn times are too long, or the average check size would be too small.
Population - Sizing up the Territory
Another early statistic to look at when establishing your sales projection, is knowing the population of the immediate area. Just how many people are there? What percent of that population do you need to capture to turn a profit?
Population includes foot traffic - are there any large facilities nearby like an office building, a college, a factory or military base? How about a stadium, casino or shopping mall? What’s the income bracket for the people around your restaurant? Before you choose a location, you should have a clear idea of the maximum number of people your restaurant is within reach of. If they can’t afford your menu, don’t have the time or don’t live, work or play anywhere near your restaurant, these material restrictions mean someone is not a possible customer.
With this category, you’re again trying to estimate the absolute maximum number people you could serve. The limitation to discover here is if there are enough people around your restaurant who can sustain your business.
“Before you choose a location, you should have a clear idea of the maximum number of people your restaurant is within reach of.”
Discovering guest’s tastes and preferences
Another way to project your restaurant’s sales is to model the competition. Think of yourself as an investigator, gathering information to help you decide where to spend your money.
The easiest way to quickly get a handle on expected sales volume based on the number of guests coming into the restaurant is to look at another restaurant close by that has similar amenities, service and a target market like you are considering.
Keep your eyes peeled and your ears open. Take in as much as you can. What are people ordering? How long are they staying? Do you hear any negative or positive comments about service? Not only is this research for sales projections, but you can also find a niche. Think about what your restaurant can provide that others in the area are lacking.
If they are around, ask the owner what their sales are. Restaurant owners are very open, and you might be surprised how honest they are about the details of their business and operations.
You can also find out a lot by walking the streets near where you plan to open, talking to people and personally frequenting local restaurants at different times of day - and various times throughout the year!
When you are using existing restaurants as a model for your projections, they don’t need to match your startup exactly. You can deviate, but you must justify the deviation. For example, a restaurant that shares much in common with your concept but is in a different city could reasonably be used as a model for expected sales, provided that city has similar demographics.
Other Ways to Estimate Sales
Being tied to your local restaurant owner’s community trade organization is also important. If you haven’t experienced it already, you might be shocked how open and honest restaurant operators are about their business and giving advice. Getting in touch with other local restaurateurs will let you know about things like seasonality of sales in the area and what concepts they’ve seen fail in the past.
Reports are made available by groups like the National Restaurant Association that contain sales data for restaurants based on religion and service type. These reports can be invaluable when you’re trying to get a handle on your sales projections
“Getting in touch with other local restaurateurs will let you know about things like seasonality of sales in the area and what concepts they’ve seen fail in the past.”