I may be bias but, honestly, the restaurant industry is one of the hardest industries out there!
The good news is, once you learn and succeed in this business you feel like you can do anything!
The 1st year as a restaurant owner is critical and the decisions you make as a new business owner can make or break you.
We have invested so much of our money, and our time working 80 hours a week, taxing and stretching our families to succeed as restaurant owners. Failure is not an option. Let’s NOT lose everything we worked for.
You are reading this article because you are thinking about starting a business, or this is indeed your 1st year in this awesome business.
There are a few things you MUST master in order to succeed and thrive this year:
Your FIXED Cost As the title says these are costs that fixed no matter if sales are high or low. The biggest chunk of your fixed cost will be your RENT! Depending on where you live, or the location of your restaurant this number can be outrageous especially when you start out and don’t have much to keep. Depends on the kind of restaurant you have, you can find what’s the healthy range of your sales in relation to your rent to have a good margin. For instance, we own a pizzeria and the recommended rent is around 7 to 9% of our gross sales. In other words, in order to have a 10% profit margin minimum and at a fixed rent cost of $9000. Then:
$9000 is 7% of $128,571
So, in order for our monthly $9,000 fixed rent to be 7% of gross sales, our gross sales needs to be around $128,571 per month.
When we bought our current restaurant years ago, rent was around 17% of gross sales and we made 0 profit since it all got eaten by the different costs and mainly rent because it’s fixed no matter what and we have no control over.
Writing that fat check was very very stressful in the beginning.
It’s recommended that first off, you do the math above for your restaurant so you know what you are working towards.
And as well, it’s important to have a cushion and by that I mean enough savings to get you through the first 6 months as you focus on establishing your restaurant.
Your VARIABLE Cost
The main two variable costs in your restaurant will be:
Food Cost
Labor Cost
When it comes to food, it’s critical that you negotiate and set up some good deals with your food supplier.
Consider having only 1 vendor and supplier and leverage the fact that you only use them as your prime vendor to give you BETTER DEALS!
Every month or every quarter you need to go back and re-negotiate different prices of foods you are paying for. It’s not your food supplier or reps job to fight for you! They are in business for themselves, and you and I need to fight for OUR business and families.
So, consider re-negotiating every quarter some of your TOP 10 most used items that you order. Your top 10 because when you win a little in your negotiations, it’ll have a greater impact on your food cost.
STRATEGIC AND SMART MARKETING
In our first year in the restaurant business, you won’t have as much money laying around! Many of us barely hit break even in our 1st year.
It’s critical that we spend money on marketing to GROW our sales. Now, this shouldn't be viewed as spending but rather as INVESTING! Because, for every dollar we spend, we must get one of two dollars back if not more!
That is an investment, not an expenditure.
Investing money in marketing our restaurant specially when sales is down is non-negotiable.
Now, the minute you open an LLC and a new restaurant, all sales reps wil stop by to give you a visit!
They are professionally trained sales people out there that know how to handle your objections. Give you hope to close the sale because they are committed to THEIR business not yours!!!
They will stop by, they will call you, email you! They make is irresistable!
Like a phone call I got from a Yelp sales rep the other day telling me, oh there are 16,000 people who found you this last week via Yelp. Oh you are losing customers.. Give us money so we can show your restaurant to 200,000 people!!
I said, dude if you are sending us 16,000 customers that’s already way more than we can handle in a week. No need for 200,000!!!
Local newspaper sales reps will stop by telling you that their paper goes to 40,000 homes and that you will be PACKED if they all knew about you.
Now, here is what I say: be smart, be strategic about your limited marketing budget.
You need to test things to know what works in your market. However, you need to be very mindful because many of these avenues I listed above will bind you in a contract!
My husband and I have severe allergy to contracts! :)
Here at Making Dough Show, we want you to be smart with your marketing dollar and not just throw it into the wind in hopes of… If hope marketing worked in business, we all would be millionaires!
We spent thousands of dollars, and got sold what the sales reps were selling us. Lots of mistakes and so much money lost in that first year. Very stressful!
So, if you do decide to sign up for one of these services, be very strategic.
Set an expectation and make sure the sales rep knows you are obsessed with your numbers and your tracking and if it doesn’t work out, you want them to make an exception for you. Get that in writing. Why wouldn’t they agree to this if they are sending you 16K customers, huh?
Labor %
We talked about our fixed costs such as rent, and variable to sales costs such as labor and food cost.
If sales is low, then obviously our food cost will propertially be lower since we are not using our supplies and also, we can control labor.
Sales is low, get people off the clock and send them home. In the 1st year of your restaurant business, you have got to be OBSESSED with your labor cost!
We check our labor % every 30 minutes! We have created a system in place where our people know to do it and if it’s not within range, our people need to take a break or may be sent home.
It’s critical that you have a great POS system where you can check your labor % at anytime from your phone remotely, and have a system in place for your team to self manage and give folks breaks to control labor.
Don’t get Fancy!
Your 1st year in the restaurant business you can’t afford to be fancy! We held off on many of the aesthetic upgrades 2 to 3 years before we made them happen. You need to build your saving up for if an unexpected critical issue such as important equipment failure or something happens.
The optional things such as the aesthetics or decor details, let them go in that 1st year no matter how much you hate them! It’s not the reason your restaurant is obscure and no one knows about it! Spend your time on MONEY GENERATING activities and patiently wait a couple years and then, you can tackle all the details you want.
I see too many restaurants that get fancy and spend so much money upfront in their restaurant that makes their 1st year very very stressful. #DoNotGetFancy
It’s way more important that you are PROFITABLE at the end of the year. Honestly, nothing else matters! If you are not profitable, then you may need to close shop. In that case, the decor and little details then definitely won’t matter!
Instead, be strategic and invest money on MARKETING your restaurant so you indeed have 2nd, 3rd and more anniversaries to celebrate!!