This guide aims to provide information on how to calculate and arrive at a close estimate of the startup and running costs for any restaurant type. It also covers how to start the best restaurant possible on your current budget.
So, how much does it cost to build a restaurant? No online resource can provide an exact figure for your particular type of restaurant. Several factors determine expenses, and the factors can differ even among entrepreneurs opening restaurants of the same type and size. However, there are processes you should follow to arrive at the best estimate, and we’ll be kickstarting with those.
What You Should Know Before Estimating How Much It Costs to Build a Restaurant
Want to start a food service business? We suggest you let market research determine your new business’s type, size, and location. Otherwise, even the most accurate forecasts will be valueless.
Generally, estimates for buying a restaurant real estate or leasing one are approximately $178 and $159 per square foot, respectively. The total cost of building a restaurant from the ground up ranges from $95,000 to $2 million. This range is pretty wide and depends on dozens of factors.
It’s wrong to start estimating how much a restaurant startup would cost without first figuring out the type, location, and size of restaurant you should and can establish.
What’s the use of getting the correct estimate for your startup if the neighbourhood doesn’t need your type of restaurant?
Our recent post on how to start a restaurant business looks into using market research to determine the best type, location, and size of a restaurant startup for your budget. To understand the process thoroughly, study the article and apply the lessons therein.
Although we assume you’ve already got the preliminary steps right, we’ll still summarise them here to offer a broader picture. So, let’s briefly discuss the initial steps when determining how much it costs to build a restaurant.
What Should You Do Before Determining How Much Building a Restaurant Costs?
To have a comprehensive idea of your restaurant building costs, it’s crucial you don’t overlook any of the following steps.
Step #1: Discover a market gap.
There should be a lack of or inadequate number of your type of restaurant in a neighbourhood before you consider building or establishing one. Otherwise, your cost estimates will be valueless even if you get them correct. You ought to conduct an in-depth market survey to understand whether locals will patronise your food service shop and how prosperous such a business might be.
Many signs potentially signal such a market gap, some of which we’ve listed in the article referenced above. Therefore, before starting your cost analysis, you need to be definite about the demand for a restaurant in a neighbourhood. Otherwise, you’re probably wasting time, effort, and resources on a business that may prove to be an economic disaster for you.
Step #2: Figure out what dishes will move in your chosen vicinity.
Don’t start estimating a restaurant’s startup and running costs before figuring out what food items locals want or are missing — a key part of the menu costing process. These items differ; hence, their ingredients and even cooking methods will likely differ too.
The foods you offer determine the type of cooking equipment, kitchen, and storage setup to implement.
For example, how much does it cost to build a small restaurant that only serves pizza or ice cream?
This figure will depend mainly on the size, location, and restaurant concept. Still, the costs will differ for restaurants even if these three factors are the same. That’s because they produce fundamentally different dishes which require different cooking equipment.
For example, you need ovens, mixers, prep tables, etc., for pizza and topping cabinets, chest freezers, blenders, etc., for ice cream. The cost of these machines vary, so the startup and running cost of the restaurants can’t be the same.
Step #3: Devise the best restaurant concept.
The best restaurant concept is that which “the market chooses for you.” Even after figuring out the right dishes and appropriate kitchen equipment, you still aren’t done with the preliminary steps needed for correct financing estimates.
Poor service concept kills a lot of restaurants. For example, you can’t offer takeaway services in a familial neighbourhood and expect a lot of customer traffic.
In this case, since families dominate your chosen environment, your restaurant setup should accommodate families.
How many people would buy takeaway or packaged foods from a restaurant to eat with their families at home?
Definitely fewer than those who’d rather eat at the venue. Therefore, the takeaway and dine-in concepts aren’t natural substitutes for each other. Moreover, the costs of building the restaurants vary.
Therefore, you need to figure out the best restaurant concept for your market before estimating how much it will cost to build even a small restaurant.
Step #4: Determine the market size.
How would you like to build a great restaurant only to discover that it outsizes the number of customers within your market?
As a restaurant owner, accurately sizing your market helps in determining the size of your restaurant startup. If you rush into estimating restaurant building costs without a reasonable market size projection, you’ll likely end up with more or less real estate than you need for the business. This loss can even force you to start all over again to accommodate higher demand or rent out extra space.
However, it’s not a given that building a bigger restaurant than the market would amount to waste. This is because visitors can increase over time as you get increasingly popular.
In fact, you’re better off if your restaurant’s real estate exceeds your target market than if it struggles to cater to the market size. Even if you don’t use all the space, you can still recover part of your investment by renting it out to other businesses.
Step #5: Develop a detailed business plan.
This is another critical step to complete before assessing how much money your startup would require. The steps detailed above produce data that feeds your business plan, but there are expenses you’ll determine when considering the fine details of your restaurant startup. These include the cost of cooking utensils, interior and exterior decor, etc.
While the steps described above help steer your calculations and assumptions in the right direction, a business plan ties them together with all other expenses. A business plan also provides a clear picture of your future restaurant and the cost of building it.
Estimating the Restaurant “Building” Costs: Two Viable Options
When calculating how much it costs to start a restaurant, a key consideration is the building cost. It’s either you build the restaurant from the ground up or lease it.
Obviously, building from scratch costs more but has advantages that leasing is unlikely to offer. The main advantage of building your restaurant from the ground up is that you can design the structure as you want and sometimes even position your restaurant exactly where you want it, such as beside a busy road or near a gym, market, etc.
Still, building a modern restaurant requires robust financial support; otherwise, you might end up with a substandard structure. If you intend to build one, you’d need to consider certain expenses, such as money spent on land purchase, purchasing construction materials, interior and exterior decor, and paying construction workers.
Option #1: Building/Buying a property.
Unless you have confidence in your market research findings, building or buying a restaurant property might not be a smart decision.
In fact, if you haven’t conducted in-depth market research confirming customer availability for your business, we don’t suggest you venture into building or buying a restaurant building, and for valid reasons. For one thing, if the business fails, your losses will be significant.
There are reports of several people who started a food service shop that failed within a year, forcing them to sell the structure. Statistics from the National Restaurant Association indicate that 30% of restaurants fold within their first year, while other reports place this figure at 60%. So, it doesn’t matter how much it costs to build a restaurant; you’ll likely make losses selling it off.
Notwithstanding, buying your restaurant building has its advantages, the most prominent of which is the money it saves you in the long run.
For example, if you opt for the lease option and the restaurant prospers, you’ll likely keep paying rent for a long time. A time might come when the cumulative money spent on rent could buy the property if you had paid the whole amount initially.
Another option could be renting space in a commercial kitchen if you are planning on only using delivery services.
So, you can consider buying a property if you have the budget and there are strong market indicators that the restaurant will thrive.
Option #2: Leasing a property.
In most cases, leasing is the best option when opening a new restaurant business. It allows you to test your idea without risking too much.
If it fails, at least the money you spent on rent will be just a fraction of what you’d have paid to own the property. You can buy the property later or within a few months of starting your business if it’s doing well.
Compared to building from the ground up and acquiring standing structures, leasing is more affordable because it’s within the capacity of most entrepreneurs.
How Much Does It Cost to Build a Small Restaurant or Food Startup? (Breaking Down the Financial Implications)
Now, let’s exemplify the cost estimation method for restaurant startups, as discussed in this article.
One of the most important costs to keep your eye on in the restaurant industry is your food costs. You want to calculate your food cost percentage by dividing your total food costs by total revenue. Ideally, your food cost percentage needs to be below 30%.
Furthermore, assuming our customer research shows that between 200 and 300 people could visit our restaurant daily to eat particular kinds of foods, our first step would be to find out how long it takes customers to consume a full meal. This stat allows us to calculate the table turnover for a day. From this metric, we can deduce the number of tables required and the appropriate size of your restaurant building.
Table turnover varies with the type of food and restaurant. In most cases, family-style fine dining restaurants have a table turnover of 2 hours, while casual venues clear tables after about an hour and a half. However, these figures are just a generalisation that’s less accurate than other ways of estimating table turnover to know how much it costs to build a restaurant.
What’s the best method to achieve the most accurate calculation for table turnover?
Factually, it’s by calculating table turnover based on the time customers spend on their meals. This method is the best because you get real-life timeframes. But since your restaurant isn’t yet operational, the easiest way to obtain this information would be to inquire from restaurants serving some dishes you intend to offer.
Your prospective competitors are unlikely to provide this information; hence, you may have to travel out of your market segment to obtain it. Just find out the average time customers spend eating certain dishes. This metric will provide a good idea of your future restaurant’s table turnover for specific items.
If, for some reason, you can’t visit restaurants to obtain this information, you can search online for how long it takes to eat certain meals.
Typically, recipes containing a lot of meat or fish have longer eating times. These include chicken salad, salmon dishes, butter shrimp, spaghetti, etc. On the other hand, meals that can be eaten quickly include scrambled eggs, sausages, tacos, etc.
Overall, deducing table turnover is one of the most critical steps when estimating how much it costs to build a restaurant kitchen. We’ll provide a detailed illustration of how to compute this metric below.
Calculating Table Turnover
If we expect about 300 customers to visit daily, and the restaurant will open from 8:00 AM to 6:00 PM, it means we have 10 hours to feed 300 people. If customers take, on average, one hour to eat their meals, how many tables are needed to serve 300 customers in 10 hours?
If you divide the number of expected customers by the number of hours open, it’s clear that we must feed around 30 people per hour. Therefore, the restaurant should be big enough to accommodate at least 30 covers.
If you’re considering leasing a particular property, all you have to do is check whether it can house 30 covers. Dining layouts differ, and some accommodate more guests than others.
If it’s a casual dining restaurant, the layout can have fewer spaces between tables but enough for customers and servers to move freely. However, in the case of fine dining—think Italian, Mexican, Chinese fine dining, etc.—you’ll need to factor in more space to accommodate the same number of tables when determining how much it costs to start a restaurant.
It is also important to note that your average table turnover rate varies depending on peak and off peak times. It is likely that between the hours of 3-5:30pm you will experience less customers. On the other hand during peak lunch and dinner hours there may even be wait times for hungry customers.
Note: Table turnover can be maximised.
Without correctly projecting your table turnover, you may overspend when building a restaurant that satisfies your market. A restaurant with 20 seats can serve more customers daily than one with 30 seats if the former operates more efficiently in turning tables over. You can increase your table turnover by adopting a free digital menu, rearranging your layout, seating complete parties, etc.
Deducing Kitchen Size
How big should a kitchen be to prepare 30 meals per hour?
First, determine the fastest method to prepare the dish or the cheapest method to do so. You can go with either or something in between, depending on your budget.
Whichever cooking method you choose, there should be enough equipment and staff to produce the required number of dishes daily with the best quality you can offer.
So, based on your cooking method, you’ll determine the type and number of kitchen facilities, plus the required kitchen space. These calculations should give you a reasonable estimate of the required sizes of your dining hall, kitchen, and store to meet the demand of 300 customers daily — all critical metrics involved in figuring out how much it costs to start a restaurant.
Unless you’ll be the sole worker during the early days of a restaurant, you’ll need employees to prepare the dishes, serve customers, manage inventories, and take care of the finances.
Initially, employing the full amount of staff your restaurant would need to operate at capacity is unnecessary. Some customers in your target market still don’t know your restaurant or, at least, haven’t visited yet. This means the initial demand will be relatively low — hence, a fifth of your ideal workforce can handle it.
Deciding on the number of staff to start with and their wages would help plan several months of payroll budget and ensure your restaurant faces little or no employee challenges in its infancy.
For reference, chefs in Australia earn between $57,500 and $85,000 a year or $20–$30 an hour. So, for a medium size restaurant, you can expect to spend anywhere from $400 to $600 daily, paying two to three cooks who work 10 hours a day.
These pay rates vary according to country, city, and other factors. Just try to find out the average wages for different restaurant workers in your city or town and use those figures to estimate how much it costs to build a restaurant.
Restaurant Facilities and Technology
You’ll need lighting, air conditioning, ventilation, maybe entertainment facilities, and more. List all the facilities you want in the restaurant and estimate the cost of each. Your total cost depends on the equipment type, number, and quality.
Don’t forget the software that will make your restaurant more efficient and profitable. The free menu maker, Menuzen, will suffice for designing menus via its elegant menu template catalogue. The menu platform would also cater to online ordering and checkout, and some other restaurant processes.
The utility services your restaurant will need might include all or some of the following:
- Natural gas
- Cable/Broadband TV costs
- Mobile phone costs
Although it isn’t mandatory to use all of them, a modern restaurant ought to use each of these services. The costs vary with usage and service provider, so do some preliminary market survey before subscribing to any. You also need to set aside a six-month budget for these services.
Insurance and Permits
The cost of permits is mandatory and primarily non-negotiable. It’s crucial to obtain these documents to operate freely for at least six months. You can’t cut corners here since authorities are the one factor that can shut down your business in a day. Your employees need to have licences too.
The insurance cost, on the other hand, varies by plan and company. We suggest you study your options and go for the most cost-effective solution.
How much does it cost to run a restaurant per month in terms of insurance costs? It can be less than $100 per month depending on your location.
Brand Marketing and Opening Ceremony
Marketing is one of the most aggressive actions you’ll take to create public awareness about your restaurant. Initially, you’ll do both online and local marketing.
You should plan to create a powerful online presence for your restaurant via websites, social media, directories, etc. Then, you need to design an effective SEO and content marketing strategy to rank your restaurant in Google searches.
Thankfully, this step can use a lot of free tools. For example, Menuzen can help build your restaurant’s website and launch simple online menus for free.
You can also distribute flyers and use other communication channels to reach prospective customers in your locality.
While these marketing activities require some money, you’ll likely spend more on a grand opening event due to the need to offer freebies to guests. The cost of your restaurant’s opening ceremony will depend on the number of guests and the type of free meals you intend to provide as an incentive for attendance.
Wrapping It Up!
Ensure you’re investing in the right food service business before you start drawing up the costs. Otherwise, your accurate estimates will bear no fruit. Follow the steps outlined in this post and read supporting articles published in our resources catalogue to fully understand the critical preliminary steps (we’ve linked to some of them so far).
Now, to the ultimate question: how much does it cost to build a restaurant today? While we’ve provided general figures early on in this post, the truth is estimates vary by wide margins. Only an in-depth analysis of the restaurant market in your neighbourhood would provide the most accurate estimate of your restaurant startup cost. Any online suggestion claiming to be specific is a wild guess that’s highly likely to be far from the correct figure.
Frequently Asked Questions
What is the biggest cost when running a restaurant?
The biggest cost when running a restaurant is food & beverages if you operate at full capacity. Not all the food items in your store will sell out, and the higher your workforce or customer demand, the greater your food inventory.
Still, there are times when labour may take the largest share of your expenses. So, your biggest operating cost may fluctuate between labour and food items.
What are the top 3 expenses of the restaurant business?
The top three expenses of the restaurant business are:
- Food & beverages cost
- Labour cost
- Utilities cost
The labour cost is relatively static, while food and utility costs can change depending on consumer demand and other market forces.
What are the fixed costs for a restaurant?
The fixed costs for restaurant operations include the following:
- Licences & permits
- Software subscriptions
What are the monthly expenses of a restaurant?
The monthly restaurant expenses include the following:
- Food & beverages
- Equipment maintenance
- Marketing costs
- Insurance and subscriptions
How do you calculate a restaurant budget?
Follow the processes discussed in this article to estimate the cost of building your restaurant business, which will then determine your restaurant budget. Your market research primarily determines how much you’ll spend to start a new restaurant business. We’ve highlighted these processes above, but you need to learn more from our comprehensive guide on how to start a restaurant business.